The best uses of the internet connect two halves to make a whole. This maybe the best example yet of this matchmaker design pattern.
Thanks to Mimi who is currently showing how to skin a cat. Backward!
Matchmaker Business Models
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Category Archives: business modeling
Professional Programmer – huh?
Patrick Logan writes:
Agreed…
We’re not so much building on the programming state of the art as continually have each generation of programmers rediscover it.
–Bill de hOra
This old fart agrees too. A far more interesting question: why. Why hasn’t a core of professional knowledge emerged in this industry? Isn’t it normal, even natural, for a craft to transition into a profession? Why am I not a member of the Association of Computing Machinery? My friends aren’t either. Why when hiring we have a strong preference for people who have built things rather people who are well certified? Why do project managers see little, if any, value in having a few doctors of Computer Science on their teams?
I see three reasons for the absence of a professional class: fast growth, a culture of anti-professionalism, and competing institutions. I’m sure there are others reasons. I’m sure that at this point I wouldn’t pick one of these as dominate.
This outcome is not necessarily a bad ting. The craft much more egalitarian than most highly technical crafts. It’s easier to get into this field. Training barrier is lower. The tools tend to be simple. They have to be. I see forces in play which keep it that way.
Fast growth has meant the demand for skilled craftsmen, tools, and knowledge has continually outstripped the supply. The rapidly expanding frontier of the industry continually creates a new frontier where amateurs can achieve huge success. In this situations it’s much more important to get there and build something than it is to build it well. In new markets the quantity of your customer relationships always dominates the quality of your technical execution. The fresh frontiers plus scarce labor creates a demand for simpler tools.
Anti-professionalism – man you could write a whole book about this! The mythology of the hacker, open source, the American cowboy. Libertarianism, the 60’s youth culture. etc. etc. But possibly I can say something a bit new. The scarcity of skill results in loose social networks. On the frontier everybody is new in town. So the fabric, the social networks, that interconnect the craftsmen are thin. But, new technology – network based social interaction tools – have enabled much to compensate for that. One of the theories about the function of a profession is that it act to create knowledge pools. The network’s social tools have allowed knowledge pooling inspite of thin social networks. This is new and might well cause other professional networks to erode as they are less necessary.
Another story people tell about professions is that they are a form of union, which naturally leads to realizing that any profession competes against it’s complementary institutions. Other institutions in high-tech would like to be the source of legitimization in the computing industry. This is a pattern I first noticed in the Medical profession. Medical doctors managed over the course of the 20th century to gain hegemony over their industry. Today that control is falling apart as other players – insurance companies, drug companies, etc. etc. are competing to take control of the huge amounts of money in flux. Today my HMO sees to it that a person who’s not even a nurse does any minor surgery. In high-tech large vendors play a similar game; and they don’t have to bother to compete with a existing strong profession. Microsoft, Oracle, Sun, etc. etc. all provide certification programs that substitute for the legitimacy of the professional society working in tandem with universities.
Some of this I think is bad; but other aspects of it are great. It’s very bad for the respect and income that highly skilled practitioners can command. While it certainly holds back the median level of skill – it appears to entrain a larger pool of practitioners. We get a longer tail. And, as open source projects demonstrate, we are getting better at aggregating knowledge from an extended tail.
Mostly I think it is great that we remain a craft that sports a reasonably low barrier to entry. It makes my coworkers a more interesting diverse lot. I think it’s healthy to keep the problem solving closer to the problems. Down in the mud not up in the ivory tower.
It is healthy that the righteous prideful status riddled behaviors of most professions are somewhat more rare in this line of work.
Scarecrow: I haven’t got a brain… only straw.
Dorothy: How can you talk if you haven’t got a brain?
Scarecrow: I don’t know… But some people without brains do an awful lot of talking… don’t they?
… much later …
Wizard of Oz: Why, anybody can have a brain. That’s a very mediocre commodity. Every pusillanimous creature that crawls on the Earth or slinks through slimy seas has a brain. Back where I come from, we have universities, seats of great learning, where men go to become great thinkers. And when they come out, they think deep thoughts and with no more brains than you have. But they have one thing you haven’t got: a diploma.
Open Business Models II
This posting (critiquing the business models of the firms in the RSS search space) is another way to think about the provocative idea of open business models. The lesson here is that if your highly visible other people will go to work cracking open your business model for you.
Or consider this quote from a venture capitalist: “Good ideas often arise in more than one place. If we sign overlapping nondisclosure agreements, it can become impossible to work with a company without violating covenants with someone else.” Most VC communities are running an odd highly competitive open business planning consortium. it’s weird because most of the knowledge exchange is bracketed insulting the idea being transfered.
To me the two fundamental barriers preclude open business planning. The first is that small emerging businesses are not consistent, they are light on their feet. The business plan is only there, as I like to say, “so everybody knows the plan from whence we are deviating.” If you make it public it get’s harder to revise it fast and often.
The second reason are the typical reasons why full disclosure is rare in markets, why middlemen thrive. Each exchange demands that the seller and buyer’s model of value are different; that the buyer sees more value than the seller does for the good exchanged. In that context it is insane for the seller to reveal his model of the value. Since selling the company is always an option for a firm it would be very weird for the firm to be extremely open about it’s model of the business.
If these are the more common reasons for holding your business model close to your vest then it helps to explain why the leaks are so common. Framing the leak as gossip allows the actual plan to change without having to go back and rebind the leaked detail. Framing the leak as a secret plays frames it nicely as part of the on going valuation process.
That said I think there are some very interesting possibilities where industries are more aggressively open about their business models.
Tail wagging
Something has been bugging me about Chris Anderson writing on the long tail. Part of what helped to clarify my concern was the recent postings seeking a fun short definition for the long tail. Most of these are economic – so that’s part of my problem the long tail isn’t just about economics. It arises in all the social sciences. Mapping all the social sciences into economics is lame. It arises outside the social sciences as well, in physics, geology, in network systems, to take a few examples. Of course it’s fine if he want’s to focus on the long tail as they arise in markets and pseudo-markets; it just makes me a bit uncomfortable.
If you focus down in on power-law distributed systems that appear in economic frames there are at minimum four flavors to be taken seriously. Consider the supply chain: producers, consumers, distributors, and standards. All four are power-law distributed. All four have long tails. You need to think thru all four. In this case my discomfort is lame. You have to start someplace, so starting out by noticing the long tail in the suppliers is as good as anyplace to start.
Failing to think thru the four players leads to a blind spot about the architecture of the emerging market.
The internet is disrupting existing distribution channels. I believe that when the dust settles the distribution channels will be much much more concentrated than they are today. That the power-law’s slope will be much much less egalitarian. If true the distributors will capture most of the revenue enabled by the supply/demand found in the long tails. That will create some really cruel power imbalances. For example; if the only way to get your back listed catalog into the hands of consumers is Amazon why wouldn’t Amazon demand a large share of the sale price. To put this another way, I suspect that Amazon’s margin is much higher on long tail sales. Such sales are a double win for Amazon.
Open Business Planning
Matthew Langham over at The Silent Penguin stirs the pot with a seemingly radical idea: Opening the business plan?
Absolutely!
Consider this list from Michael Porter. It enumerates reasons why firms in an industry remain fragmented. For example if most of the value your firm creates comes from personal service there is little benefit to be gained from merging a number of such firms into one big firm. It’s a good list.
In a stable fragmented industry the firms are safe in their niche. Porter goes on to mention that fragmented industries are more collegial – which I read to be a sign of open collaboration. Of course competition is only one reason why actors like to keep their privacy. Just to give one example – fear of embarrassment is a good reason to retain a lot of privacy.
That leads me to assume that members of a fragmented industry can be substantially more open about their business with each other. If the firm has three functions, A, B, C and A is such that it keeps the industry fragmented the firms can collaborate on how to execute on all three functions because improvements in any of these functions don’t lead to increased competition.
It appears that this would lead to a situation where fragmented industries are much more creative than concentrated one. The N firms in a fragmented industry each search for innovations independently. Their search is informed by close contact with the customer/problem. When ever they discover some improvement, or even an idea for an improvement, they take it back to one or more of the industry forums and “trade it” or throw it into the collective pot. This process tends to the practical.
Highly concentrated industries who fear the other members of the industry have a harder time doing that and they have to adopt the R&D lab approach for seeking innovation. That tends to ivory tower irrelevance.
What bemuses me is that standard rules of engagement in a concentrated industry encourage keeping secrets. There, knowledge exchange with peer firms is a sin. Meanwhile, members of fragmented industries are convivially exchanging knowledge because it’s vital to their rapid evolution.
This all blows up in your face when somebody discovers a way to consolidate an industry that is currently fragmented. When Home Depot or Staples, to take two examples, rolls up the hardware and stationary store businesses for example.
Blogging Mergers – Part II
A few more thoughts about Live Journal’s merger with Six Apart.
Dave Winer thinks that the Six Apart merger is about thier IPO. Interesting, if so that would be a sign that the VC behind Six Apart want to exit fast – that the market isn’t predictable enough to hold onto their options and that they would rather liquidate them. An IPO is an exit strategy, not a means to raise capital; lots of alternative ways exist of raising capital that aren’t as painful.
It occurs to me that Blogger and Six Apart now have the power to set standards, adgenda, etc. in this market, if they work together. That could be a very constructive collaboration if they understood the power it would give them. I note that Blogger, Six Apart, and Live Journal all support atom; right?
Of course it’s also thru that either of them as the power of FUD a this point too. It would be a curious thing to watch – FUD in the blogging industry, but it don’t doubt it could be done. Why do it is another matter; but an IPO could be a strong temptation.
Market Share – Blog Authoring
The hot rumor is of mergers in the Blog hosting marketplace – Six Apart (Typepad and MovableType) and LiveJournal.
Market power, the ability to make your own weather in an industry, comes primarily from market share. Market share is power-law distributed. The severity of the distribution varies depending on the ecology of the market. Two processes that drive toward increasing severity. are worth remembering. The first is the positive feed back that depends on rapid growth – i.e. lots of new customers who base their purchase decision on lousy information; i.e. they just pick the market leader. The second driver is consolidation.
The most powerful force that undermines the consolidation is how low the barrier to entry is for new offerings.
So. What would a merger like this mean for blogger industry market share?
For market share you’d like to know how much traffic each blog hosting company gets. Alexa has that data, but I can only get traffic rankings – Amazon, Blogger, Live Journal and Typepad their ranks are 17, 314, 565, 765 respectively. Rank isn’t traffic. Traffic rank is distributed as a power-law. I have no idea what the slope of that is so if I guess that it’s one then the relative traffic of those four sites would be 50, 3.2, 1.7, 1.3. Very rough but the merged company would still be smaller that blogger.
Here’s an attempt to answer the same question from based on “google hits”; I’m amazed that she get’s a similar result to mine – given how hoky my approach is.
None of this means anything at all if Blogs aren’t an industry; but rather are just a feature. That’s certainly the attitude of most of the portals – AOL, MSN, Yahoo, and all the asian portals etc. I have no idea how much traffic they account for.
Somebody who pays for access to the Alexa data could provide a more accurate model. As could one of the blog indexing companies.
It certainly doesn’t appear that a merger like this one would give the resulting company the power to set standards.
I find more interesting what it implies about the maturation of the blogging industry. If your a fast growing company mergers are can cripple you; but if the era of fast growth is coming to an end then the next means to gaining market share and the power that comes with it is becomes mergers.
“Uncertainty is Kryptonite to Corporate Decision Making”
Something for the frameworks category. Lifted, and some of the context shaken off, from John Robb’s Global Guerrillas.
In the original context this was about how to attack the supply chain of the modern military. In the second world war opposing sides spent resources on destroying the other side’s supply chains; blowing up railroads and supply depots for example. Given that the modern military has become deeply dependent on corporate outsourcing the locus of attack shifts from the physical to the organizational.
So John summarizes this list of three things that can lead to the failure of a large firm.
- Moral. A company is morally isolated when it cannot meet its obligations to its stakeholders. These include profits to shareholders and safety/morale to employees. Management teams that don’t meet their obligations to these stakeholders are either summarily replaced or held legally/financially liable.
- Mental. Uncertainty is Kryptonite to corporate decision making. Too much uncertainty and corporate valuations fall. If an operation introduces new uncertainties that taints daily decision making, it will likely terminate it.
- Physical. In order to do business, corporations enmesh themselves in a deep web of connections. If a corporation’s activities put their relationships with suppliers, financiers, and partners at risk, they are obligated to cease them.
That’s a great list. Those only get more important as you rise up Maslow’s hierarchy of needs.
Cutting the Resistor
Way way back in the 1960s the university where I used to punch cards and hand them thru the little window to run my batch jobs bought a new computer. The disk drive was so massive that when they brought it into the building the drive grazed the edge of the door way knocking off the frame and a few rows of concrete block. The drive was undamaged.
Shortly after that machine arrived a guy showed up. An hour later the machine ran much faster. Apparently the salesman had recommended him. The machine was the low end model and if you wanted it to behave like the high end model all you needed to do was cut a resistor or something.
Apple segments their market for the MacOS into three bundles: Darwin, MacOS (client), and MacOS (server). The function of segmented marketing for a vendor is to capture more of the revenue/benefit available below the willingness to pay curve. Given that most markets have a few customers who will pay a lot (desperate customers, rich customers, etc.) you want to have a product variant that you can sell them.
At the other end of the spectrum you get customers who have little willingness to pay; a cheap product offering may capture some value even from those guys. Network effects make things more complex. The customers willing to pay nothing may still add value for the vendor; by increasing his network and thus attracting other customers with deeper pockets. This creates the curious effect that some markets the right price point for the low end product is free – it’s not actually free the customer is bringing himself to the party as payment.
The practical advice given to vendors about segmenting a product line is to be very careful to watch costs. If your lucky the expensive product should cost little more to make and distribute than the mid-priced product. That advise leads to the common stories folks tell about computers who’s speed could be doubled by cutting a resistor. Back at the vendor the discussions about what to bundle with each version of a segmented product are painful for people with ethics. Once you work thru the ethical puzzles there is actually a very interesting design puzzle in designing segmented products – i.e. how to assure that you capture the maximum network effects across the whole product line. If you get it wrong the segmented products start evolve into distinct specie and you get three separate markets. That’s already happened to Apple between Darwin and MacOS(client).
Another problem, though generally a small one, is that some clever user discovers how to cut the resistor. Suddenly their expensive product is just as good as the mid-priced offering. This tends to be more an embarrassment than a revenue problem. I own a big fat phone, a Treo, and the geek community around it keeps working around all the functionally limits that it’s vendor was forced to stick into because his real customer are the phone companies, not the end users.
The story from my youth has another chapter. At the time I was told that the reason for resistor cutting guy was that early customers of that line of machines had written into their purchase contracts a clause along these lines. Sure we will pay a huge amount for the first few of this machine, but latter if you succeed in selling a large number and your prices fall we require you to give us a refund of the price difference. The vendor was dodging the clause in the contract by creating a lower price segment in his market and then leaking the recipe to enhance the model back toward the original model.
Recent events in the around the Treo (a hack to enable bluetooth data, and a hack to enable wifi support) reminded me of that story; and then this morning I say this neat trick to let me get some of the features of MacOS(server) to work on my MacOS(client).
When these hacks for breaking down the barriers between a vendor’s segmented market emerge it’s always interesting to think thru what might be the motivation. Is it just some hacker having a good time? Maybe it’s the vendor trying trying to assure he gets the maximum network to emerge around his product. Maybe it arose out of the vendor’s cost saving. Maybe the vendor is trying to work around customers who’s goals are not in synch with your best interests (as in the two examples above). All these and other reasons are likely in play which makes the stories more interesting, but harder to tell.
Efficency of Exclusion
I had breakfast the other day with a friend who was involved in a group ware company for many years. He introduced the very amusing idea that a good platform strives to be like Seinfeld; about nothing. That’s got delightful synergy with both the idea that a platform vendor strives to create a huge space of options for his developers as well as the the idea that the long tail is impossible to describe.
Then the discussion turned to group ware. We got to talking about the corporate culture shaping power of software.
The first time I observed that was with bug databases. The arrival of a bug database into a project always has a startling effect. It creates a way of organizing the work, call it BD, and it often rapidly displaces other means of organizing the work, call them OM. BD wasn’t just the bug database; it was a entire culture of how to work. Little things happen, for example, dialogs about the issues emerge in the bug comments and if the tool supports it these dialogs become central to the work. Big things happen like the emergence of entire roles such as bug finder v.s. bug fixer. Anxiety managers quickly learned how to leverage the BD culture. It’s a machine who’s crank they can turn. On the one hand, this was all just great.
But BD had a strong tendency to displace other methods, or OM. OM always lacked a name. It wasn’t a single thing you could name; it’s not even a small integer of things. BD doesn’t cotton to redesign or analysis. BD fails at solving any issue above a certain size. BD had a strong tendency to glue problems to individuals. All these preferences and tendencies of BD are a good thing, except when they weren’t effective.
I can recall a occasions when I would get a large problem solved only by changing the person a bug or collection of bugs was assigned to into a team. Conversely there are situations where the right answer was to assign a bug to a nonexistent person – i.e. the person not yet hired or the person who understands this mystery but who didn’t know it yet.
What was unarguable about the BD culture was it’s efficiency and efficacy. Sadly, in the end it excluded the the other methods required to solve key problems. Looks like a nail cause i got a hammer thinking would begin to dominate. Product hard to use, open a bug. Product starts up too slow, open a bug. Customer learning curve too steep, open a bug.
The BD v.s. OM syndrome has a second kind of displacing syndrome. Individual contributors quickly realize that if they want to part of the work culture they need to get hooked up and pay attention to the evolving BD status. This creates a network effect that strengthens ties between the BD culture and the labor. Which is good for the BD culture; but it’s train wreck if hired a given person for his exceptional skill that happens to be a member of the set of other methods. For example you’ll observe the graphic designer wasting a few hours a day reviewing the bug database status and individual bug updates so he can be a clueful participant in the work flow – but since you didn’t hire him for that it becomes cost not efficient.
In chatting with my friend the example we got to talking about was group calendaring. We had both experienced a syndrome where the firms we were working in had installed a group calendaring tool and almost immediately the firm’s entire problem solving culture had been transformed. In this case a GC culture would displace OM.
In the GC culture it’s easier to schedule meetings so you get more meetings. The software has strong opinions about meeting granularity; so you get mostly one hour meetings. Meetings tend to be family sized. The software makes it easy to invite more people, so more people get invited. Meetings by their synchronous nature are exclusionary. Not wanting to appear exclusive with members of the extended family of coworkers people tend to invite additional people. People, concerned about what might happen behind the closed doors of those meetings tend to accept the invitations.
That feedback loop that tends to push meetings toward family sized is the GC culture equivalent of the graphic designer wasting his time reading all the dialogs on bugs. You get brilliant team members attending 3 hours of meetings a day because they happen to know that once or twice during those three hours they will say “Ah, I’m not sure that works.” I’ve seen corporate cultures where that’s considered a day’s work for a brilliant guy. “I’m so happy you came to the planning meeting! You really saved our butt.”
This is, of course, part of the problem of the long tail. The organizational culture that adopts one of these highly efficient methods, call that EM so that BD or GC above are examples of EM, develops a power-law among it’s members. Those members who adopt EM enthusiastically gain a place higher up the curve then those who stick to the core competency. They become the elite and all the usual polarizing forces come into play.
None of this requires the introduction of Machiavellian agendas by the players. People are just “atoms in a jar” as the forces play out: synchronization, efficiency, displacement, cultural network effects, and emergence of the elite and consequential polarization.
I don’t think it’s over generalizing to say that when ever you introduce an synchronizing device you gain some degree of measurable efficiency at the cost of displacing nameless uncountable other methods that don’t synchronize well with the method you’ve adopted. If you can’t name them then it’s going to be even harder to measure them. Why bother to even try if they are uncountable.