No wonder people aren’t interested in building companies that generate revenues/profits. Why would you do anything as hard as that when you can do this instead. When will this madness stop? And once it does stop, how long before it starts again?
The BBC may have written this in 2006 but I only just got it recently. Here are some quotes
If Web 2.0 is the new rock ‘n’ roll, who are the one-hit wonders and who will still be playing to packed stadiums in 40 years’ time?
The comparison isn’t quite as ridiculous as it may appear. Forty years ago, music was leading a social revolution, disrupting the establishment and empowering a new generation.
Today’s web technology and social media, known as Web 2.0, or the second wave of the internet, are leading a similar challenge and the long-term effects are likely to be greater.
Once again we are divided into those who get it and those who don’t. There is hyperventilating on the blog barricades about the end of the old order and the birth of the new counter-culture, information anarchy.
It was a recent posting on Confused Of Calcutta about Facebook that did it for me. JP is a long-time believer in the power of Facebook in the enterprise – but that’s not what I want to talk about here. Here are a couple of comments, one after the other, that really attracted my attention:
Part of what makes Facebook work across enterprises is it is new. That wont last. Part of it is fragmenting modalities, that will continue. Part of it is the trend towards the personal, but socially connected, and you know where that is going. Make things trend towards the transparent and you gain serendipitous discovery, and memory.
But i guess..networking sites like facebook..if taken seriously can bring about a dramatic change in the appearance of the society.
I just came across one such group on facebook and i got to the positive effects of these applications..these are the highlights of the group:
Be the first generation to end poverty by 2015 with the United Nations’ Eight Goal Millennium Campaign.
1. End Hunger
2. Universal Education
3. Gender Equity
4. Child Health
5. Maternal Health
6. Combat HIV/AIDS
7. Environmental Sustainability
8. Global Partnership
Ross’s comment isn’t completely anti-Facebook. (The really anti-facebook people don’t spend time on the web reading and writing blogs). Yet there is a very clear difference in emphasis between Ross and Ayesha. On the one hand: Facebook is useful largely because of its novelty, which will wear off. On the other hand Ayesha’s wide-eyed enthusiasm does seem a touch, well, hippy-ish. Just as the BBC described.
And then here’s a comment on Sourcing Innovation about the power of social networkiness:
I am a recent Grad, who landed into the procurement industry extremely green (pun intend). I have found great uses for facebook, linkedin and recently www.iprocurement.org to help me network in this small but exciting industry. Due to the amount of Baby Boomers running around this profession, I believe this your reason for lack of new content and daily bloggers.
Now contrast this comment with the stated view of Sourcing Innovation’s owner in that post who is resolutely staying off Facebook (for example).
OK, I’m sold. But here’s the interesting point for me. If the Web in 2008 is equivalent to Rock’n’Roll in 1968 then .. well we’ve had our Monterey Pop Festival (1967) – but we’ve still got our equivalent of Woodstock to look forwards to.
Tim Harford’s book “The Undercover Economist” is a great read for those interested in everyday economics: from how the price of a cappuccino is set to why some aid projects in developing countries work and others fail and even dedicates a very readable chapter to one of my favourite topics: The 3G license auctions carried out in 2000-2001. But it’s his insights into the economics of transformational industries (like the internet) that I want to talk about here.
He talks about a particular transformational technology: the train, and about a bet he had with a fellow economist about the merits of investing in one of the major UK railway companies, Great Western Railways, when they went public in 1835. Tim thought you’d make more than a 10% annual return over the long term. The other economist believed the return would be lower than 10%. Tim lost the bet.
Not long after the Great Western Railway shares were put on sale for £100 a share in 1835, there was a tremendous burst of speculation in rail shares. Great Western shares peaked at £224 in 1845, ten years after the company was formed. Then they crashed and never reached that level again in the century-long life of the company.
Turns out you’d have got a 5% annual return over the long term. And this was in one of the successful companies.
So even the best rail companies weren’t great investments and the worst were financial disasters. But nobody disputes the fact that the railways completely transformed developed economies. Conservative estimates are that they added 5 – 15 per cent to the total value of the US economy by 1890 – a staggering amount when you think about it. But competition to build and operate railway lines kept profits modest. As long as competition is strong, the railways had little scarcity power.
Fast forward nearly 200 years and Tim goes on to ask
whether, as [internet 1.0] bubble valuations suggested, company profits will really be so dramatically much higher in the next few years. It’s tempting to think that this is an argument about the power of the internet, mobile phones, computers and other recent technological advances. Many internet fans did indeed argue that it was reasonable to pay an enormous amount of money for a company like Amazon because the internet was ‘transforming everything.’
Unfortunately, that is not the point. Maybe the internet really is a transformational technology like electricity, mass chemical production or the railways. The answer will emerge over time but that answer does not actually matter much for the stock market. The hidden premise is that if we are in an economic revolution, shares should be valuable. This premise is wrong. Shares should rise in price only if there’s good reason to think that future profits will be high. As we know, profits derive from scarcity; for instance, ownership of scarce land (protected by legal title), a scarce brand (protected by trademark) or an organisation with unique capabilities (protected by nothing more than the fact that most effective organisations are hard to copy). So share prices should rise only if economic transformation increases the degree to which organisations control scarce resources.”
The attempt to control scarce resources is why so many internet companies’ business plans revolve around getting as much market share as possible. Build the user base first and then figure out how to monetise it. (PayPal apparently used to pay $10 for each new member who signed up; their main competitor $5). This policy has worked for some companies but not for all. Business history is littered with usurpers taking over the crowns of previous incumbents. In 1996, Yahoo looked unassailable as the leading search provider. No-one could have foreseen Google eating their lunch. In more recent times MySpace was also a poster child for some time only to be eclipsed by Facebook.
Tim does make one concession to the tech space: eBay. A marketplace like eBay can only be successful if it collects many buyers and suppliers together in one place at the same time. That fact might make it very sticky as a business model. But even that should not be taken as read. Look at the eBay backlash going on at the moment with former PowerSellers looking for alternatives like http://www.onlineauction.com/ and http://www.ecrater.com/ and http://www.amazon.com or even just relying on their own web presence and hoping for shopping search engines like Froogle and price comparison sites to send traffic their way.
Which brings me back to Tim’s analysis. The internet is transformational. Broadband is transformational. Web 2.0 is transformative. Web 3.0, 4.0, 5.0 and 94.0 will all doubtless be transformational. But that does not mean that the companies providing the transformational technology are themselves valuable. It might even mean that all investment in these transformational companies is speculative and symptomatic of a bubble. That each new iteration of Web Something Point Zero will be accompanied with its own rapid boom and bust. That the real value is not going to be realised by the companies providing the transformational technologies. That the real value is going to be realised by the economy as a whole: By the freight company able to route trucks more efficiently; by the retailer able to source products faster and cheaper; by the bank that is able to target services better to its customers. Not by the company building the website technologies. Oh lookee here at Jeff from Venture Chronicles on VCs losing interest in Web 2.0 companies. (An aside. Ariba: The 800lb gorilla of “my” space – the B2B procurement space – have they ever actually been profitable?).
This doesn’t make comfortable reading (or writing) for someone who works in the technology space. But I do think that Tim Harford’s analysis is worth taking the time to understand, rather than brushing it under the carpet because it is uncomfortable. Certainly it helps focus the mind that any company in the technology space that wants to be around for the long haul needs to figure out where the scarcity is in what it is doing, and how it is going to profit from that scarcity. Look at the list of exciting startups here and here and figure whether there really is some control of scarce resources behind the crazy names.
Enough doom-mongering for one day. Till next time.
Blogging started for me about in the middle of 2006. I’d finally “got” all this Web 2.0 stuff about user-generated content, blogs and wikis. I was trying to convince my CEO at the time that he should start a blog. His riposte: “Why don’t you try one?”
So here I am something over a year later, and, I can tell you, it’s been great:
- It’s got me in touch with a number of interesting people I wouldn’t otherwise have met.
- It’s given me the opportunity to clarify my ideas, purely through the process of writing them down and debating them.
- It’s flattered my ego to see my Technorati rank increasing gradually
But I don’t consider myself “a blogger”. I have a day job to do that involves introducing new software products. I deal in things. I contrast this with people whose principle trade is in ideas and for whom the hallowed title of “blogger” is more appropriate.
For me: I write my posts during my commute. (Today I missed a train by 3 minutes: hence the extra time for a super-navel-gazing post). But this time competes with reading time. So I need to balance pontificating (writing, blogging) against learning (reading, listening).
Still, it’s too much fun to stop this blogging once you’ve started. And there is an appropriate balance for me, which on the blogging side means 2 or maybe 3 posts in a week. I hope you enjoy reading them. And please do leave comments, positive or negative.
Anyway, we’re pulling into London Euston now. Gotta go.
I started experimenting with wikis at TradingPartners a little over a year ago. A wiki could help us, we figured, with sharing up to date category information across a team that is spread all over the globe. (How to best make sure when Joe in the USA ran a sourcing project for castings that he would know that Jane had recently been working on something similar in China, and would be able to benefit from her experience?)
A wiki seemed like a good fit as:
it would be editable by anyone in the business
it would be accessible to everyone in the business over the web
it would be fun for people to use
the necessary investment would be negligible
So we tried out various wikis and settled on mediawiki. Launched it to the business early 2007 in workshops at which staff excitedly brainstormed ideas of what kinds of information they’d like to see on there…
Then we left it to see how it evolved. Fast forward 9 months and this is what we had:
Lots of marketing material – case studies, brochures etc.
Some customised user pages with pictures of people, their backgrounds and interests.
Standard templates, training materials etc.
Some category information. But, interestingly, this had not been put on by auction managers themselves, but by self-appointed editors who were collecting the information and uploading it.
In reality, despite the initial enthusiasm for a site that “anyone could edit” was replaced with the more realistic understanding that in order for it to be of any value, “someone” would have to do the actual editing!
It brings home the fact that in wiki- or forum- style communities, the number of people who contribute information is a fraction of those who consume information. The templates and marketing information all went on because they only relied on a small number of interested editors to make the wiki site definitive. Some people – either those who find this sort of thing interesting, or those whose managers find this stuff interesting, were prepared to update their own user pages. But changing the process of running a sourcing event so that all the relevant information is entered into the wiki repository after the event for the benefit of others in the business? Now that’s a whole different proposition. And it begs a number of questions like: how do you make sure all the relevant information is loaded onto the wiki (and you don’t miss out a crucial piece of information which is blindingly obvious to you but which might not be obvious for other people)? How do you ensure that people who are consuming the information are looking at the right page (paper bought for resale might not be the same as paper bought as an indirect, for example)? Etc, etc.
Extrapolating from this experience has taught me something important about any attempts to build a procurement community online: The procurement world is sufficiently small that you can’t expect a critical mass of people simply to contribute useful information to any one central repository. Iasta’s e-sourcing wiki is an example: 7,500 odd hits so far but check the recent changes page and only a small number of names appear as contributors. Perhaps there’s a generational element, with newer buyers more open and older buyers more reticent. That would be the thrust of articles like this one at Tech Crunch, but I suspect the generational piece will turn out to be just a small element in the overall equation, especially when applied to business information. Seems to me that the best way to share useful information in the procurement space is by inferring it from what people are actually doing, rather than treating it as an activity in its own right. Of course, exactly how to infer auction best practice (for example) from successful auctions people have run rather than via a self-contained documentation exercise is another question in its own right which, I guess, nods towards the Semantic Web – if that ever gets off the ground. More questions than answers, in other words.
A coda: what did we do with our wiki in the end?
Well, we kept it for two things:
Community building by people building their own pages and telling a bit about where they come from and what their experiences are. This is becoming part of the process for all new starters and is quite a neat way to quickly get a feel for who you should be talking to about what.
An intranet-style piece holding standard templates and marketing materials.
Regarding category information: We could have gone down the traditional Enterprise Software Change Management route. This would have gone something like “come on, the eAuction managers aren’t updating their category information. We need to mandate it as part of the process and keep beating them over the head until they accept it”. Or we could have gone down the Enterprise Software Budget Busting route. This would have been something like “the central repository won’t work without an editor. So let’s hire someone to maintain the wiki and have that person interview, or otherwise, extract information from the eAuction managers as they go about their daily jobs”.
We took a different approach, which I call the Going Back To The Objective approach. We asked “what are we trying to achieve here?”. The answer was: “help eAuction managers keep up to speed with what their colleagues are doing”. Next question: “Is there an easier way to do this that doesn’t make them do extra typing?”. Answer: “How about just letting everyone have query access over our history of sourcing events with some pre-defined reports so people can easily look up who has the most experience in category X and which eAuction managers have auctioned category Y most recently. That way they can just pick up the phone and easily get hold of all the relevant information, plus all that intangible, invaluable stuff you only get through talking to people”. The tool then becomes something to encourage, and facilitate, people to talk to each other. Not an end in itself. Boom. Sometimes the simplest solutions are the best.
Talk about Web 2.0 and people instantly think of Facebook, MySpace, YouTube, Wikipedia: communities rising out of user-generated content. But if you are talking about user-generated content and communities then for me the defining site is still eBay.
I started using eBay in anger a while ago. I am blown away with the trading. Obviously I have a some views about shortcomings in their auction design (e.g. a seller with a feedback score of 0 can only send a message to one bidder a day in an auction she is running) but that’s another story.
What interested me most on eBay is the community. People are trading, exchanging, doing real tangible stuff on a day to day basis. And communicating with each other, if only through their feedbacks. On top of this, you can often see a history of what people have bought and sold which tells you an incredible amount about a person. Now, that is more meaningful (and probably monetisable) information about someone than you will find in any number of writings on a Facebook wall.
Business 2.0 magazine has a feature on new occupations being created in the US.
My favourite one (apart from the Second Life lawyer) is the Information Engineer. As Web 2.0 companies like Paypal, Meebo and Slide find themselves increasingly awash with data they need people with the skills to be able to draw insights and conclusions from it (as opposed to people who just run reports).
What makes this particularly interesting is that data crunching has now been elevated, by the use of the word “engineer”, to the same level as the software engineers who write the actual code.
These companies are starting to see that the value is in the information, not just in the technology. Over time, the value of software itself trends toward zero, whereas the potential value of the information transmitted and stored by the software increases exponentially.
End users have always known this. People use MySpace or Facebook, not because they have the best technology, but because of who is already on it. eBay auctions are so successful because that is where buyers go to look for bargains, not because their auction software is the best.
In other words, here is another example that Web 2.0 is all about technologists catching up with what the users wanted Web 1.0 to be in the first place.