I’m almost done with the next chapter of the ebook. Need to do one more revision and then I’ll post it up here. Been a little bogged down with work, so my apologies if the blog is looking a little stale of late.
The following is going to be part of a mini downloadable booklet that I’m planning on releasing on this site – as soon as I can finish it. I have a few chapters written already, and a rough outline of the rest. Stay tuned here over the next few months for more sample chapters. Comments will be very useful for me as I revise this.
Addressability – and why it matters to you
Imagine you are living in the early 1700s. You’re living at Fort York, in Upper Canada (later to become Toronto, Ontario). You need (I know its a contrived example, but bear with me) to get somebody living in China to move a precious porcelain vase 6 inches to the right on the pedestal on which it is standing. In turn, they need to you take off that ridiculous beaver-skin hat, and hang it up by the door.
So how would you go about doing this?
I assume that – even in the pre-mass communication age, something akin to the concept of six degrees of separation must apply. The number is likely higher though.
So you pass the message along to your friend, who knows a ship’s captain who is travelling to China, who in turn knows a merchant in the port area of Hong Kong – you get the picture. Eventually, probably several years later, the message is handed to the person you had in mind, who moves the vase. Two or three years after that, you receive the message back about your hat.
The idea that I’m trying to convey, is that most of the objects in the world have a defined way in which you – no matter where you are – can reach out and touch them. This concept is called addressability, and it isn’t new.
A large part of the history of technology over the past few hundred years essentially boils down to finding better ways to send a “message” to somebody or something – to have ways in which there is a defined address for the information that you are sending.
Some examples:
1. When the Royal Mail started operating in the UK in the 1800s, people typically didn’t have well defined mailing addresses. Yes, you could probably get a letter to them based on their name, the city in which they lived, and possibly their neighbourhood. Beyond that, a courier potentially had some guesswork to do in order to hand a letter to its intended recipient. The assignment of street names and numbers, along with the invention of postal (or ZIP) codes, are all ways of attempting to formalize how to reach somebody.
2. The telegraph, and later the telephone, are both methods by which information (either a written note or a verbal conversation) can be delivered directly to a person. Hence telephone numbers, area codes, international dialing codes and the like.
3. The internet relies heavily on a concept called an IP Address, which assigns a unique number either to a computer, or to a part of the network in the close neighbourhood of the computer. This allows traffic – such as email – to get to its intended destination.
Why Does All This Matter?
You’re probably already thinking something along the lines of “this is all very interesting, but how does it matter to me?”.
My best guess is that the process of making everything and everyone in the world addressable is going to accelerate in the near future, with some interesting effects. There will be a number of business opportunities that open up as a result, along with privacy and security issues (which can also be business opportunities for some people!).
There are two areas in which this is going to happen:
a) Firstly, addresses are going to become more “fine grained”. This means that instead of (for example) a computer having an IP Address, each part in the computer may have an IP Address. Your clothing may have IP Addresses (if you purchase something with a RFID tag, it may already have one!), your car will have an IP Address – not just that, but every part in your car may have its own IP Address.
b) Secondly, there will be an increasing effort to solidify and catalogue all of the massive amounts of information that result from everything having an address. This means finding ways to reach somebody or something without having to know too much information about.
The result of all of the above, is that there are dozens of categories of businesses that are going to become feasible in the next ten years. I’ll list a number of them below. Some of these businesses already exist to a certain extent, but they’re going to become actual specializations and business plans, rather than occasional services that are offered.
Opportunity Knocks!
The following categories of businesses are likely to become viable in the near future:
1. Help, I’m out of addresses!
Currently, most of the world operates on an internet addressing system called IPv4. You’ve probably seen IP Addresses in this format; they look something like 192.168.0.1. Four digits, ranging in size from zero up to 255, separated by a period. The big problem is that even with the relatively small number of objects (usually computers or computing equipment these days), we’re already running out of addresses in this format. This is why there is an effort underway to switch the entire world over to a new addressing system called IPv6, which has a truly gigantic number of potential addresses. This process is proving to be extremely difficult to complete, leading some industry specialists to conclude that the world is going to run out of existing addresses first; only after the inevitable emergency will everybody switch.
The business opportunity? Start a company that specializes in finding places where equipment isn’t IPv6 compatible, and consulting with companies on the appropriate way to make the switch. There are already networking specialists who do consulting in this area. Look for this to become an actual business by itself – at least until the whole world switches. Its an opportunity similar to the Y2K bug, where a little bit of FUD and some technical know-how lead to many people making big money.
2. Help, I need an address!
The process of assigning addresses to physical objects that aren’t computers or networking equipment, is already well under way. The biggest push has been by companies like Walmart to have all of the items that they sell tagged with an RFID tag, which allows them to track what they sell with great precision. RFID tags allow each item to have a unique ID number associated with it, which – combined with a database of the items – allows somebody with a scanner to discover information such as price or inventory levels about the item.
What RFID does not do – yet – is allow each of those items to be directly connected into the internet. The concept that your fridge or toaster will be network accessible has been promised by futurists for years, but hasn’t really progressed much outside of the lab. Yes, you can purchase a coffee machine with a network jack off the web right now, but most people don’t. Yet.
When you factor in the growing adoption of technologies like wireless internet, along with a gradual reduction in the amount of power required to actually run all the “fancy stuff” needed to connect, eventually not just appliances but also things like clothing, or auto parts are each going to be able to connect to the internet.
This raises a number of privacy and security issues, along with business opportunties such as creating the addressed items in the first place.
Some possible business models that result:
a) Manufacturing new kinds of RFID tags that can be incorporated into objects, which provide not just an ID number, but also an internet connection. A further business model: create the platform and standards by which all manufacturers of these tags operate. That means the underlying software, how the hardware interfaces with the part that it is embedded in, etc.
b) Inventing underlying technologies to reduce the size and power requirements of the above tags.
c) Creating ways for parts to let the manufacturer know when they are broken; this model already is underway with printers – many new printers will email the manufacturer and the servicing agent to let them know when the toner is getting low, or when there is something the matter.
d) Brokerages and middleman services for part c) – imagine a website that printer servicing people can be members of, which will automatically list all of the printers in their area that are low on toner, and then allow them to bid on the job.
e) Security and privacy services: locating and removing tags from sensitive equipment; “firewalls” for objects – for example a way to allow you to access anything in your house, but prevent anyone else from doing so. Its an interesting world we live in when we need Object Firewalls, not just network ones.
f) Quality control – during the manufacturing process, each and every part can be separately quality controlled, and a record attached; then, during assembly, an automatic record for the entire complex object (i.e. a car) can be created on the fly. There’s room for software and equipment manufacturers to build systems that assembly lines can use to do this.
3. Help, I can’t find something! (Or I can and I don’t want to!)
If all of the quadrillions of objects in the world have a unique address, and a way to reach them via the internet, we’re going to have to find new ways to sort through that data. There are a great many business opportunities that arise from this, including:
a) A new kind of catalogue – grouping items (your car, your shirt, your cell phone) based on who owns them, who is allowed to use them, who can see that they exist. This would be a golden opportunity for an existing search engine company to get a leg up on their competition. I suspect that there’s only room for one viable business in this sector. If you were to login and authenticate yourself, you would be able to see all of the items that you have permission to access from a single control panel – you can turn on your oven and send an SMS to your wife that dinner is cooking at the same time.
b) Some items should be publically accessible – for instance things like traffic cameras etc. Cataloguing such items – along with more detailed security functions such as who can view, who can modify settings – will also be a big part of item a).
c) I can forsee a business opportunity where a consultant helps people find things – either a specific item, or a category of item – based on such catalogues. This is like an Object Librarian job, combined with that of a Private Detective. Instead of sorting and cataloging books, they would do the same thing with objects.
d) Single point of access. Currently, I can be reached via about half a dozen email addresses, three or four phone numbers, two Instant Messaging addresses, and about fifty to one hundred social networking website profiles. If somebody can figure out a single way that I can be reached – anywhere in the world – through a single device, it would greatly simplify my life. We’re already seeing some convergence in this area. My cell phone also can access email, in addition to being an SMS device. What I’m getting at though would be a device (probably combined with a proliferation of standards and platforms) where all messages – voice, text, video – are transparently routed to me, no matter where in the world I am. We’re getting there, but there are still opportunities for software developers and hardware manufacturers.
e) Reputation management – to some extent, this already exists as a service that some Search Engine Optimization specialists offer to customers. The specific case in mind is one where negative information about a person or company has found its way onto search engine results, or internet archives. It doesn’t necessarily have to be negative: for instance some States in the US have been digitizing property records without removing sensitive information such as Social Insurance Numbers. The process of removing information from the internet once it exists is extremely tricky; not only are there many places that can cross-reference information, but there are also many places that tend to cache information long after it is gone from the original sources. The process of removing information actually usually involves creating vast amounts of counter-information or meaningless nonsense that makes it difficult to actually obtain useful results from a search. Expect this to become a viable business model in coming years.
Conclusions
In the article above, I listed about a dozen possible business models that somebody could make money from based on the notion that more and more objects in the world are going to be directly linked to the internet. Yes, there are all kinds of security and privacy issues, in addition to which there are probably entire industries that are going to vanish as a result of this happening. There are also a great many opportunities for new industries to arise though.
The Wall Street Journal issued an interesting article today on a topic that I’ve been pontificating about (here and on Yahoo Answers) for a while now: how are businesses going to switch from mindlessly burning up investors money to actually making money?
Last week I wrote about the 4 categories of business model that exist online. I’d like to take a quick look at a few of the successful (and not yet successful) examples (some from the WSJ’s article and its comments), and see if I can come up with a few specific ways in which websites can compete with “free”.
The issue at hand is fairly simple to describe: in each niche market online, there are many, many competitors. Most of them are giving away their services entirely for free. Some of them charge for specific premium services, but users are often willing to shop around to find some set of useful (to them) services that don’t cost them anything at all. This tends to result in a race to the bottom, where the only way (and it is indeed a dubious way) to make money for a website is through advertising.
Let’s look at a few of the most successful online businesses and see if we can learn anything from them:
Google’s success is based on being able to deliver the largest number of ads, to the largest number of placements, at (in general) the lowest price. This business model depends entirely on having extremely high traffic, a highly viral method for spreading their system around, and excellent system for placing the right ad on the right website (it ain’t perfect, but it is good enough), and constantly doing interesting (but usually non-profitable) things to attract even more attention. At this point in time, it would be virtually impossible for anybody to launch a competing bid for that ad space – in order to do so, they would need to be able to charge advertisers less, while paying website owners more, which would likely make their margins uncompetitive. Google’s model – essentially a middleman model – has a large “moat” to use Warren Buffett’s terminology. Yes, they’re going to take a hit with cost per click going down a bit, but they have enough critical mass to ride out the storm and fend off competitors at the same time.
Craigslist
Craigslist is also a high traffic-dependant model. Basically it is a twist on the “freemium” business model – almost everything is free, except for a few types of ads in specific markets. As far as I can tell, they were the first ones to cotton onto the idea of giving away virtually everything, making yourself completely indispensible, and then charging for a few specific features that are very worthwhile for a small set of people to pay for. There are a great many competing websites – some who actually have quite a bit of traffic – that are giving away for free the specific set of things that Craigslist charges people for. However, they have sufficient traffic to make it worthwhile for advertisers to pay for things that need to attract attention. Basically their model boils down to being sufficiently indispensible that people will pay.
Meetup.com
A former employee of mine first alerted me to this website. When they started out, they offered a completely free service for people to organize groups to “meetup”. Their traffic grew exponentially until several years after launching, they switched to a fee-based model. Users of the site get in free. Owners of groups pay a monthly fee. When they switched, they lost about 80% of their groups. The ones that remained provided enough revenue to keep things profitable. Their methodology: lock-in. One people have a successful group with a large member-base, moving it somewhere else – even though feasible – is a pain in the neck. The amount that they charge isn’t high enough to drive away their customer base, although I have my doubts as to whether they’ll be able to grow much further. Basically they’re now a cash cow.
Salesforce.com
Salesforce.com gets away with charging a fee for an essentially simple system (there are lots of CRM packages around, some of them free) by providing a high-end feature set, in addition to a lower startup cost. Its easy to get going with Salesforce – you pay per seat, so the initial cost isn’t all that high, it is more convenient than installing and maintaining a system on your own, and then you are locked into a system as you grow to have more seats (which is where they really make their money). With a paid userbase that is apparently around 50,000 customers, they’ve probably grown to as large as their market will bear. Their key strategy: provide lots of features that aren’t available in the free/cheaper competitors; make the initial costs so low that they are painless; tie users in so that it is hard to leave; gradually ramp up the fees. This is essentially a “utility” model. Anyone hoping to compete with them is going to have to provide more features at a lower cost (and hence lower margins).
Wikipedia
Wikipedia has a much lower operating cost than a traditional encyclopedia: their content is basically free, they have things set up to run on a surprisingly small number of servers, the crowd-sourcing model of producing quality (mostly) lends itself to a large amount of useful and accurate content, and people are willing to donate to keep something so useful alive. Like many of the other examples above, this is a business model that relies on being the highest trafficked website in its niche – and it is viral in the sense that the more content it has, the more useful it becomes. By keeping costs down, and basically guilt-tripping a subset of users into donating money, they can make a profit and keep things free. I’m not quite certain how Brittanica hopes to compete with them – yes, Wiki often has high-publicity editing faux-paux, but for the most part they are good enough. I’m not sure that providing a higher quality service (but charging for it) will be sufficient reason for people to switch to a different service.
I think that by now we can see a few specific trends:
This isn’t all that different from any “brick and mortar” business model, is it?
Let’s take a look at a current favourite (of mine and many other people!): Twitter. What possible ways can they achieve their revenue goals, given that a) it isn’t necessary to login to their site in order to use it, and b) they provide a very small number of features, all of which are simple and easy to duplicate.
Their options (as I see it) are as follows:
In all of the above cases, they would certainly lose a percentage of their users. I think that is why they’ve been holding off for as long as possible – once they are “big enough” they can set things in stone. They’ll lose some people, and the rest will stay, but it will be hard for them to grow afterwards. I’m also not sure whether or not they would be successful or not with this approach – users could potentially just gravitate to other similar sites. The point is that they do have options, even if they are going to be hard ones.
There are plenty of lessons to be learned from a recession like we’re currently in. I tend to view these times as performing a tough but useful purpose – like controlled fires in a managed forest. Nobody really likes having to deal with reduced source of income (never mind venture capital), but this is an excellent opportunity for businesses to fine-tune their business models so that they can be more profitable once the recession is over. If website owners can move away from “everything is free and I make money from ads” to “I have some set of products and services that I sell, and I also make some money on the side from ads”, the online economy is going to be stronger going forward.
The key to cutting business operating costs during a recession is to avoid cutting in places that will be counter-productive in the long run.
I’ve seen a number of articles lately that show ways that people can cut some costs in their personal expenses in order to save money. Things like making coffee at home and skipping the latte (not so good if you are a Starbucks shareholder).
Most of the lists I saw had little or no bearing on businesses, particularly small businesses. I’d like to make up for it with the following list of ways that businesses can trim some “fat” during recessionary times.
Marketing and Advertising
Traditionally, when times are rough, businesses cut their advertising costs first. This can be somewhat counter-productive, because advertising is one of the ways that you can get new business. The trick here is to work on ways to get more for your money, or to only use the advertising that you really need.
Rent
Staffing / Salaries
Having been laid off a few times in my life, I’m not a fan of suddenly downsizing. Layoffs should be an absolute last-ditch attempt to save a company from bankrupcy, not a way to maximize profits. There are a number of ways you can save on staffing costs during a recession though, not all of them immediately obvious.
Equipment
There are a number of areas I didn’t touch on here, including the manufacturing process. I don’t think I have sufficient experience in those topics to comment usefully. As usual though, I’d be interested to hear if anyone has other ways to cut costs.
Services
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