Illusions of Reality

I have been thinking a lot over a long time about the currently existing business models. The most common one that everyone talks about (probably because its so evident now and proven) is Google’s advertisement based model. But I have been thinking over and over again in this direction and today I hit a couple of very interesting articles that blew me away. A very very highly recommended reads from Kevin Kelly’s Technium Blog:

1. Better than Free (http://www.kk.org/thetechnium/archives/2008/01/better_than_fre.php)
2. Technology wants to be Free (http://www.kk.org/thetechnium/archives/2007/11/technology_want.php)

I reached the first post through Seth’s blog and I have a very strong feeling of what Kevin has put in these two posts to be of utter high importance in terms of the market dynamics in coming future. Infact, as the world keeps on growing faster, the importance keeps increasing. Folks trying to get their business plans in place - you would love reading this!

I’m fond of Google - no doubts - I hit that search page more often than I hit the applications on which I am working.

Here are some things I find good and bad about Google:

1. Google’s current integrator strategy rocks. Bringing out OpenSocial rather than another SN. Bringing out Adroid rather than another iPhone clone. With all of this, Google proves that it is working to genuinely solve problems. This also gives Google a long-term advantage of being the controller of things. Might not be lucerative in short term but is a genuine long term game winner for me.

2. Google’s advertising model and the way it has revolutionanized online advertising is great. It has taken advertising to a new level in common man’s hand and nothing else but Google’s revenues speak of this the most!

3. Google’s reliance on a single revenue source always makes me nervous. Google empire has a variety of applications and is always trying to solve newer problems but as far as revenue generation is concerned, entire empire stands on a single stem. Dont like it at all!

4. Existence of a large number of Google’s applications such as Google earth, Google Mars, Web Accelerator and so on is wierd. While these applications may be useful to some and Google’s deep pockets can afford this luxury I wonder what was the business plan for these apps looking like when these apps were proposed. Or if, there was any business plan here? Remember, its Google.COM and not Google.ORG that we are talking about.

Okay - now I know that entire blogosphere has been talking about the Google’s OpenSocial but I still wont mind adding my two cents to this one.

First up, as I have said in previous posts - social networking does require a lot more to reach to its full potential. Though it is reaching new heights every day - there is no doubt that the extent to which SN can be useful is way more than where it stands today.

Google’s OpenSocial is very certainly a step forward. Like most times - Google have certainly got it right by not trying to create another SN but rather create an integrator - something thats very much required. Social networking has a peculiar usage pattern and an important factor that a user typically prefers to enroll into an SN where his or her buddies hang out. So - porting of users is not very simple - thus just another new SN would have hardly done this world any good. But, OpenSocial - as a common API across multiple existing SN’s is a charm for sure.

But wait - here’s an important factor to consider. Tim O’Reilly’s post (at http://radar.oreilly.com/archives/2007/11/opensocial_social_mashups.html) very correctly talks about something of extreme importance. If the data between different SN providers wont be shareable, than all we have from OpenSocial is a comfort for developers to use same language and syntax for developing those SN applications. Though this is certainly an advantage, a bigger leap and a genuine step forward would be when these developers can build SN applications that aggregate data from multiple SNs or use capabilities of multiple SNs. I would say, as of now it is not very clear if OpenSocial supports this.

I also feel that it wont be supporting this for now since if this would have been the case, Google would have gone ga ga about this by now. Also, this capability involves user privacy issues and many other factors to consider. On the other side OpenSocial Developer’s Guide has an API called People Data API that would allow developer to extract user information - this API, though, is not yet released.

Well, I would say, lets keep our fingers crossed till the initial excitement settles down and it becomes clearer if we would see - cross SN applications coming our way - that, for me, would be the real meat!

In recent times, I have been watching the kind of companies being floating in the Web 2.0 space. While this cannot be a complete representation of current Web 2.0 scene, a lot of them  do not seem very impressive:

1. WooMe.com - This website is all about online speed dating. Like the normal in-person speed dating, users can group and speed-date. Later, they can exchange contact information online and take it further - the website charges you only when you are exchanging contact information. Now, I cannot see a reason for this being an absolute success. Users on social networks and chat messengers are already weary of meeting wierd and unpredictable people online - cant imagine people taking this up. Interestingly, this company was selected to feature on the 2007 TechCrunch40.

2. Faroo.com - A German company providing peer to peer search. Hereby, users would be the search engine crawlers as web pages they visit will be indexed on their systems. Other users performing search would retrieve resutls based on these indexes. Ranking of the pages will be performed by something they call "PeerRank". Hereby, user’s behavior when visiting that page will be observed and rank value for that indexing will be determined based on this. While this distributed search offers a great advantage of no hardware cost - no crawlers, it appears to be leaving just too much to users, especially when the only reason users are going to subscribe to Faroo is for this P2P search.  It intends to share revenue with users to get them in - but we’ve seen shared advertisement short-cut to success fail too many times in past. Again - this one was featured on TechCrunch40 2007.

No qualms with TechCrunch40 2007. And I completely realize that it a fertile environment - 1 out of 1000 innovative ideas succeed - and for that one successful innovation, it is important to have the rest 1000 innovations - but the fact that these  are the kind of products exhibited on TechCrunch40 gives a representation of where we are heading. From what I know, a lot of products do not even get chance to be featured on TechCrunch blog - so many more would have been rejected from being featured on this demo - just to get an idea what those rejected ones would be upto!

I’ve been a big beleiver that a lot of Web 2.0 stuff has been important and valuable advancement - rich interfaces (AJAX), tagging, collaborative environments, social networks, better advertisement models, exposed interfaces for cross-application integration and so on. But, often a bad use of these Wonders of Web disappoints in a big way.

I have been thinking over my previous post and now think of adding something to what I wrote yesterday.

Repeating the earlier thought - what current social networking websites provide is a base network to do a lot of stuff together online. Now, there are specifically themed social networking websites that enable people with common interests to join in - these websites certainly provide a common starting ground for discussion, linking and activity but these can be considered social networking sites targetted towards smaller group. A user would certainly not want to join 3 or 4 social networking sites to cater to different likings he has. So, future of these sites would be rather bleak since a larger number of user’s contacts (assuming that user is not fanatic for one thing) may not be on that website - giving him a good reason to not join in.

So, we would very much want a social networking website that can offer multiple themes and common starting points of discussion. What social networking sites have built upto now is large amount of very valuable information such as what are people’s likes and dislikes, professions, locations and so on. Focus needs to be turned towards use of this valuable information - not just for interactive customized advertising but also to provide or enable more interactive content, features and capabilities to make stick to the website.

Like many of the internet users, I have been avid and frequent user of one of the many social networking sites that are ruling the page hits, number of unique visitors and other such charts these days. However, a lot of times I end up just being in there trying to think out what more to do here? And I really feel that a lot of other people probably feel the same way.

Looking at this from a basic concept perspective, most of us like hanging out with friends or people whom we know where we kind of do activities for which we share common liking. We then use these friends or contacts to also help us with information and assistance for many needs that may come up - things like admission to universities, jobs, moving to new places and so on. Social networking sites enable us to take the "hanging out together" concept online, which is great since it removes physical distance issues. But once this task of putting people in touch with each other is achieved, a lot of stuff is left to be done by the users - things like building groups/ communities, contests, etc.

In my perspective, to take social networking to another level, probably a bit too much is left just to users and thus, this phase of being on a social networking site and then wondering what more to do. Now, this is a rare situation and opportunity where you have got visitor’s time - but not more to offer to the visitor. From my viewpoint, social networking sites need to take this to another level by giving a way to the users that are networked on its sites to have collaborative fun via doing something on common interests as well as find approaches to enable leveraging of the built network for person’s use.

Here’s an example for how social networking sites may help leveraging networks a person builds on their sites. Lets say a person is moving to California where he does not know anyone and wants to use his current web of network on a social networking site to find if he can reach a contact who lives in California to help him out. Typically, user would be able to do this by searching friend’s lists and checking locations and so on to determine this - now thats exactly an example of "a bit too much is left just to users". One approach to help here can be to enable the user to search up to "X" levels of network contacts whether there’s someone from California in these lists whom he can contact and say - Hey I am Y’s friend and so on. I must say here that implementation that I’ve put on is just an example and may differ - I say so since the way features work on social networking sites is a very sensitive area so implementation feature for anything needs to be deeply and well thought out.

An example of how social networking sites may want to enable friends to collaboratively have fun is via better content sharing and at times the sites themselves starting themes or putting up content to trigger talks and discussions. A place on the site where the site may put some content of the ongoing cricket world cup and asking people to upload pictures and videos and then triggering a forum/group/ community like discussion on that would certainly generate more traffic and keep people more and more addicted to the site. Usage levels of websites such as Youtube should give the social networking sites a hint in this direction - this can be more like merging of a content sharing website and social networking website. I understand a lot of social networking sites allow you to share your photos and videos, but that’s about it. This needs to be taken to a further level and again currently it’s a bit too much is left just to users.

The above basic concepts would certainly require detailed implementation thought process and organization of user data in a systematic way to enable greater search and browse capability and probably a lot many more steps that I have not yet thought of - but this certainly is the area where social networking sites can march ahead.

PS: If you are aware of any social networking sites doing one thing or the other in these directions - leave me a comment.

A first look at the very famous SecondLife (www.secondlife.com) without knowing much about it through blogs, news and articles would certainly give one an impression of a nice entertainment site to hang out. But wait, a few links on the homepage itself would give an idea that this is something much more serious than just "nice entertainment". Lets take for example the figure for USD spent in last 24 hours on the site and the amount right now as I write this article is 1,584,698! Now that’s serious business, ain’t it!

Emergence of web apps earlier saw online games that allowed extremely large number of users to play games online with each other. And then came the 3D virtual environment arena - something like SecondLife - a place where you can hang out, meet people and do a variety of things such as buy-sell land, build your houses, palaces and things, talk to other people and do activities - right from erotica to educational stuff! Such a seemless environment is certainty to attract large number of web junkies - total registered users as of now stand close to reaching 6,000,000

Now lets look at the business part of this entire entertainment machine. SecondLife world runs on the currency Linden dollars. There’s an entire world of stuff that can be purchased inside the virtual world - then used for various activities (such as beds inside houses to live!). These items can even be traded to other users at rates agreed upon between the two. However, to purchase initial currency, one needs to spend USD. Not only that, you can convert back your L$’s to US$’s. Infact, there’s an exchange rate maintained between L$ and US$ with opening, closing, highs and lows figures just as normal currency exchange market!

The website’s economy section lists an entire page on Business Opportunities for players inside SecondLife. You can be a dancer where your avatar can dance to earn money from visitors. You can arrange parties in your halls where you can invite others to join at certain fees. You can even be an XML coder to help code various components inside SecondLife! What’s more - SecondLife even assigns Intellectual Property rights for user created clothing, design, etc to ensure user earns from his creation. Many companies are getting into SecondLife for advertising. For example, Coldwell Banker, a real-estate brokerage firm has entered SecondLife purchasing lands there and getting involved in real-estate deals! And yes, those land prices also keep on varying so there’s a "real" real-estate business going in there. There have even been instances of people being recruited because of their scripting and designing skills inside SecondLife - and they were contacted from within SecondLife!

Every agency right from Business Week, CNN Money, InformationWeek to Mercury News have covered SecondLife in past.

Linden Labs, the creators of SecondLife would certainly have made big money since every USD that is currently used in the form of L$ is currently sitting in their bank accounts but aspects such as land rates in SecondLife, exchange rates of L$ to US$, managing the user base would certainly be the impacting factors in the companies revenues so it would be interesting to analyze how Linden Labs maintains all these factors to favour itself yet keep them natural enough for the excitement to stay on.

PS: This article is not complete and (hopefully!) I will come back with more information on SecondLife competitors, revenue models feasible in virtual world environments, historical earnings and business of Linden Labs.

Music and web are something that complement very well when you think of availability, search capability, reachability and things. You can search music, watch music videos, listen to internet radios that provide location flexibilities. Further to this, interesting innovations such as Pandora project (www.pandora.com) are having exciting impacts on what music we listen to. But, when you think legal along with music and web, it all goes wrong. This applies not only to music but also to TV shows, Movies and other content - but certainly the most to music.

Music bands, recording companies and music distributors had been making rich sums of money until the internet havoc spoiled the party. Now - places like youtube, MP3 download sites and peer to peer networks have broken the back of music industry. Efforts such as DRM have failed to a very great extend and somehow, it has sunk into the internet users that music means free. Necessity is the mother of invention. So, we have started to see coming up of a few very interesting business models that try to complement revenue generation while providing free music content.

First, there is Sell-A-Band. Sell-a-band allows bands to put up their music on the website www.sellaband.com for free. The listeners on the site can come and listen and donate $10 or more to a band. Well, wait - they are not donating the money as such. Once the band reaches the figure of $50000 - the site takes them to a studio and provides a professional producer to get the band’s own CD out. The songs are also put on the site where advertisers put up their banners on band’s profile pages. Based on number of song downloads, the advertising revenues are shared between the band, the website and the people who initially donated the small amounts - thus making the donators into kind of investors! Infact, if a donator feels that his donation was wrong - he can withdraw his 10 bucks before the band reaches the 50,000 figure. Read the model in detail at http://www.sellaband.com/site/how-it-works.html but it is certainly win-win-win-win-win model for band-website-investors-listeners-advertisers.

Four artists have crossed the 50K mark by now and 15 artists are above 10K mark - impressive considering that the site started in Aug 2006.

Next interesting model comes from Amie Street (www.amie.st) where bands can put up their music for free. Listeners would then listen to the stuff starting at 0 cents - as they listen to the music and recommend the music. As any music is recommended around the site, its price starts climbing with the ceiling set at 98 cents - an absolutely affordable figure. So people who are ready to experiment and evaluate get quality music free and they also get Amie credit that they can spend to buy other songs that already cost a few cents. People who want to listen to great music spend as much as 98 cents to the maximum which hardly hurts any wallets. Between all this stuff bands receive a lot of attention if they are real good and get 70% from every song sale after first $5 that song generates. The website earns the rest 30% of the revenue. Read in detail at http://amiestreet.com/page/what-is-amie-street. Again, a win-win-win-win situation for site-evaluators-buyers-bands.

Key interesting things about both the above models are:

1. Both of these models give new artists and quality music a real chance to reach to the top.
2. Music - at no point in time - on both the above models becomes unaffordable.
3. Both the models believe in the fact - music is free!
4. Both the models build up a kind of social-music-retail (infact the term comes from Amie Street and describes the models most accurately).

Amazon.com has been one website that has always been of great interest to me due to the amazing repository of books (something that I enjoy so much) that it holds and the kind of features it provides to get hold of the new ones and things.

It has always had and still goes excellent with the kind of eCommerce webstore it holds. You visit Amazon anytime and it will display the items on the top page based on your recent browsing, search and purchase activities. You search a single book in there and apart from the normal search results, lists such as Listmania, What customers ultimately buy after viewing this item?, Customers who bought this also bought, Better Together and Book reviews - each of these features make sure that you reach the best that you want - at the same time pushing Amazon’s sales up!

Its precision marketing has been accurate enough taht I have ended up using a few of these lists to find new books apart from the ones that I already know about and just want to get hold and start reading. Through these features, Amazon caters to a large base of users who have time and interest to read on specific topics but are not sure what to pick.

But apart from getting its core right, Amazon has been into a lot more interesting innovation:

1. Apart from selling its own stuff, Amazon allows other vendors to sell their stuff through its website. Infact one can find the same item that amazon.com sells being available by a lot of other vendors too - through Amazon’s site on the same page. This is an advantage for the end-user to be able to buy a lot more from Amazon.com that Amazon doesnt even sell - making it a single stop shopping location - something that Amazon also wishes its user to perceive. The sellers get an advantage of a huge platform to sell away their items anywhere in the world at a cost of certain commission that Amazon charges per sale.

2. Amazon also provides its warehouses (at certain cents per square foot per month) and fulfillment logistics at service of small vendors who do not wish to take the heck of orders fulfillment. That way, Amazon leverages its well established orders fulfillment process with shipping options, cost optimizations, tracking abilities to enable small vendors avoid the heck at payment of a certain fee per transaction. Again a win-win for both.

3. Recently, Amazon also started selling disk space at the rate of certain cents per gig per year. Many companies have opted for this to take large backups to costs of backup devices and safety measure. Amazon has also started selling computing power at the rate of certain cents per hour - a lucerative option for enthusiastic Sillicon Valley startups who are always running short of cash and time amidst numerous issues.

4. On the technical front, Amazon has gone ahead and exposed its API in the form of Amazon Web Services to enable the world to use them and build upon that. Results have been stories such as Scanbuy - a service that enables you to check price of items on Amazon through mobile phones (imagine you being at a bookstore and wondering if the deal that bookstore is offering better than that at Amazon.com!)

A look at Amazon’s recent income statements certainly shows that net profits have been dipping down since 2005 despite a rise in sales - major costs being attributed to orders fulfillment (substantially attributed to its free delivery programs) and technology costs.

But, when one looks at Amazon’s moves over past some time - it appears that Amazon’s management has gone and looked at Amazon’s core competencies that they have built up over a long period of time, broken it down into a value chain and then exposed it to the outside world as separate service components in a model that even small vendors can leverage. This certainly creates a win-win situation since these small vendors are not direct competitors who can seriously kill Amazon’s revenue streams - so can complement well with Amazon.

In my beleif, if Amazon can ensure continuos improvement through an undisturbed focus over its core competencies while keeping on leveraging them - Amazon will certainly see a turn in growth of net margin figures in coming future. All it needs to remember is that its core compentencies are its sole assets and the value-add leverages though important, interesting, innovative and minimizing the over all risks, are truely those - value adds.

For the curious ones - the title came to my mind from a Jeff Bezos comment that I read on BusinessWeek here.

Its interesting to note how this article actually came by. I originally started to write an article to evaluate the currently existing revenue generation models for software selling. I had my opinions about one of these models - the online advertising revenue generation model that allows the content or software to be free. However, as I was reading more and more stuff on this model, I started to realize the number of companies that have actually got into this business and how and where they are kind of fitting into this exact scene. I still do not change my opinion completely and I guess I will talk a lot more on that in that other article - but all these readings certainly made me to give it a thought to write on just how much action is going on with this online advertisements and give my opinion on - if its all worth it?

Online advertisement as such is not a new thing - its just that Google - the first one to hit the jackpot with this model - tried to bring out something that I would call interactive helpful advertising. And Google’s revenue figures today make every other company - big or small - try to get into the online advertisement arena in one way or the other. Microsoft has come up with AdCenter and Yahoo is trying to market its Panama project in response to Google’s AdSense.

Google’s advertising now is not just restricted to the plain vanilla HTML pages but has exploded its way to personalized pages (such as your email inbox), social networking sites, user generated content pages. While both Google and Yahoo’s programs provide relavent advertisements based on numerous factors - Microsoft is marketing its AdCenter by letting the publishing agencies know that they consider the viewer’s demographic information as well - another step in trying to make the advertisement as relavent as possible.

And apart from the big players, there’s a large chunk of small players bringing in interesting innovation in different dimensions to pull some market share from the biggies. There’s TACODA (www.tacoda.com) using behavioral targetting rather than plain content specific advertising. TACODA tracks user’s behavior across sites and then uses it to advertise on different sites rather than just going content-driven for determining the advertisements to be displayed. There’s Ingenio (www.ingenio.com) providing Pay-Per-Call model over the traditional Pay-Per-Click one. So, the advertiser pays not for a click to the site but actually for conversion of the click further to a call to the advertiser’s office.

Further, as the online advertising matures and sees an expansion of the value chain, there’s a large number of companies coming up who are trying to fit into the existing pie. This includes SEO companies helping make sure their sites appear at the top of the list on searches. There are marketing agencies mixed up with some SEO techo knowledge helping advertisers determine what keywords they need to bid for.

On the other end, advertising is moving ahead from simple text content based web pages to Podcasts, videos and even games. Microsoft’s acquisition of Massive Inc. (www.massiveincorporated.com) last year for advertising in XBox games and Google’s recent acquisition of AdScape (www.adscapemedia.com) just goes to show how much potential these big players see with online advertising on a variety of media.

Looking at all these developments from the top, and coming back to my topic of the original article that I actually started to write, are we really moving towards the business model that provides the actual content or software free of cost and keeps the cash register ringing from advertisements? Or to put it more precisely, will the content provider companies be able to generate enough revenues to support the content/ software services they provide? And if yes, it will be extremely interesting to see how market share for different types of content and software services shifts between the current big players? (Imagine Microsoft Office for free with advertisements!). I will continue my next post with the original point of discussion and I beleive I would be able to complete the circle of opinion with that post.