Hidden Business Models

Two factors helped Google become the dominant search engine on the Internet in the early 00s:

  1. It provided better search results than any other search engine at the time
  2. It came up with a business model that helped fund the search engine without detracting from it

When the advertising world began to inhabit the Internet in the late 90s, we all suffered the sparkly annoying banner ads that literally popped up everywhere. Google avoided that route by placing only small text ads around the search results. When it came to figuring out what ads to place next to what results and in what order, well there had to be an algorithm for that… Auctioning keywords became a billion dollar revenue generator. And the model scaled beyond the search engine, as web sites began to include ads managed by Google for a slice of the keyword revenue.

Since then, as new technologies gain mainstream awareness if not adoption, the question always being asked is: What’s the business model? For many, the answer is advertising. It’s the wrong answer.

Facebook is rumoured to be finally in profit. Revenue is claimed to exceed $1 billion this year, up from $700 million-ish last year but the infrastructure to support a 500 million user social network costs a fair bit. The assumption has always been that Facebook needs to find an advertising method that works for social networks the way auctioning keywords works for search and web sites. In the meantime, another company has found a better way to make money from Facebook’s social network.

Zynga creates games for social networks. If you’ve got any friends on Facebook, at least some will have tried to recruit you to join their gang to start a Mafia war, or will be seeking chicken food for their farm in Farmville… simple games can be very addictive and people will pay small amounts of money at regular intervals to keep at the top of the game. Zynga has tapped into that ego/ addiction and is estimated to be earning revenues of $50 million per month with a potential profit margin of 30%.

Google started out as a search technology but the money is made by owning the advertising channel – be it next to search results or on web sites. Facebook started out as a social network but the money needs to be made by owning the transaction channel – Facebook should be an online bank.

…and it looks like that small point hasn’t gone unnoticed. Facebook is planning to introduce credits with a view to taking a 30% cut from applications that use its social network. Not as strong an approach as Google’s auction method, they seem to be looking more to Apple’s model (which takes a 30% cut from all sales on the App store). Time will tell.

Apple’s approach is niche, albeit a big market – they own the devices and developers can only sell apps for the devices through the single App store. With strong market share and a strong brand, Apple have a loyal and large customer base for developers to sell to. Facebook’s network is certainly large but is it loyal to Facebook? Enough to pay artificially high prices that a 30% tax on Facebook apps will create… I’m not so sure. A better approach would be the flexibility of an auction that enables application providers to determine how much of their profit margin they are prepared to lose for access to Facebook’s network. And that approach would scale beyond the Facebook web site, just as Google’s auction scaled beyond the search web site.

References

Lessons from Facebook’s experiments

[Update] Adding links and references as they bubble up on this topic…

There has been a range of news recently about Facebook’s latest approach to users’ privacy.

Wired has an article – Facebook’s Gone Rogue; It’s Time for an Open Alternative – explaining the concern being raised by many. By default, Facebook is now connecting and publishing every piece of data you choose to share on the platform. You may think you are only sharing your photos with your friends and family, but you are granting permission for Facebook to share your content with everyone and anyone on the Internet.

Robert Scoble has an article – Much ado about privacy on Facebook – with the counter argument. That we’re kidding ourselves if we ever thought anything we share on a computer, especially one connected to a network, is private. Facebook is just exploiting that which others have exploited less visibly (or easily – and that’s the key difference) in the past, and in the process helping people find what they need in ways Google never can.

Robert has a point. However the picture is a little more complicated. Not everyone wants to share their entire life online with everyone else and every organisation on the planet. Some people have very good and legitimate reasons not to. You could argue that such people simply shouldn’t be on Facebook. But in the past, it wasn’t a problem – the default behaviour in Facebook’s privacy policy was that information would only be shared amongst your network, which could be as large or small as you choose it to be. And your content stayed within the walls of Facebook unless you chose to opt-in to third party applications. That has now all changed and Facebook does not make deleting anything easy. Even if you choose to leave, if your ‘friends’ have already shared your content or tagged their own content with your name then your identity will continue to persist without you. And if you choose to stay, for certain content it is now all or nothing – if you try to opt-out of sharing with everyone then it will be removed from your profile and friends will no longer see it either.

Facebook is transitioning from a site for building social networks between friends to being one giant social network. A new mesh of connected personalised data is being created that has never before been possible. And that mesh is being shared with whatever organisations Facebook chooses to do business with. At the same time as we are seeing new tools arise that can mine massive amounts of data for patterns and profiling… We don’t yet know what all the implications – good and bad – will be. And whilst Robert highlights the good, history tells us there will also be bad. This is a live experiment that over 400 million people (and that’s just the active users) unknowingly volunteered to participate in.

Related Blog Posts

References

Other posts of interest on this topic:

Did the clouds just get darker?

Dark clouds over Bournemouth from freefoto.com

In February 2010 three Google executives were convicted of a privacy violation in an Italian court and received suspended prison sentences. The reason for the trial and conviction: they allowed people to upload a video to Google Video showing someone being bullied. It was two hours before the video was removed following complaints.

“It is like prosecuting the post office for hate mail that is sent in the post”

The BBC covers the story in more detail here.

The trial sets an interesting precedent and could have far-reaching consequences for social media and cloud computing services. In particular the costs to provide such services if content is supposed to be pre-screened and the viability for organisations to use them for business data. Will Internet Service Providers be held to the same level of account if an employee complains about data an organisation stores using online business services? China is not the only country with a government wielding local power to disrupt global Internet services. And although Italy is singled out in this example, Australia has been planning to introduce strict filtering controls that could restrict access to social networking sites. The UK is exploring how to prevent illegal downloads and considering blocking broadband access for those accused. The list goes on… Providers of online ‘cloud computing’ services will find more turbulence as they cross political borders.

References:

Image courtesy of freefoto.com licensed under Creative Commons Attribution-Noncommercial-No Derivative Works 3.0 License

From PowerPivot to Pivot

Hot on the heels of announcing the new PowerPivot for Excel at the SharePoint conference recently, Microsoft’s Live Labs have announced another new tool with a very similar name: Pivot. So it seems we have PowerPivot for Excel and Pivot for the web.

There’s no mention of whether or not the products are technically related or just share the same name. What they do have in common is the goal to easily visualise massive amounts of data.

Side note: I wanted to embed the video (you can see it on the Pivot web site – link below) but the embed code provided didn’t work. Wish Microsoft could use a simple standard for embedding like everyone else…

References:

Programming Office

The reaction to a previous post – Rethinking Office – has been interesting. Quite a few people have argued that Microsoft won’t make an online version of Office available until they absolutely have to, because it will destroy sales of the full product. It makes sense to protect the full product, given it contributes a third of total revenue (generating a nice $4.7bn in the last quarter). But I think it’s a mistake to assume that an online version of Office will cause Office sales to plummet.

I’m not a Gartner or Forrester and haven’t conducted a huge amount of research here. But with the 100 or so customers I have talked to during the past 12 months, not one has the remotest intention of moving all of their data into ‘the cloud’ any time soon. Privacy, compliance and security concerns are the top 3 reasons, closely followed by reliability and speed (or lack) of Internet connections. They want to be able to do some work in an online environment but not everything. That’s why I think Microsoft is crazy not to plug this gap now, whilst it is still so immature. The only people likely to switch completely to online tools are those who almost certainly aren’t paying for the product anyway. But demand for online capabilities is beginning to grow. The collaborative features provided by Google Docs is gaining traction within education – i.e. the next generation to enter the workplace. People are looking for tools to publish docs online – as being demonstrated by the popularity of tools like Slideshare and Scribd (acquisition prospects?)

Not only does Microsoft give the impression of ignoring demand for online features, they are not doing a great job of promoting what the products can do for business. Here’s a simple example. I am currently building a new portfolio management system for a small financial services business. Their information-working habits have barely changed in the past 10 years. A simple review of their current processes and it became obvious that we could reduce their administration overhead by approximately 25%, all but eliminate the potential for errors, and do analysis to highlight business development opportunities. How? Automating manual processes and calculations. What with? A combination of Access, Excel and Word. Access will hold the database, forms and reports. Excel will be used to create a performance dashboard and real-time summary report. Word will be used for mail merge (currently completed manually – there’s the first fix)

Target return on investment (ROI) – 6 months.

Why use Office? Simple. I can use macros and VBA (Visual Basic for Applications – built into Office and therefore doesn’t require specialist developer tools) to automate as much of the data entry as possible, including workflow-driven forms to manage business processes and automatically generate client letters pre-populated with data. Data validation rules will capture and correct anomalies. By building the solution inside of Office, the administrators will still have access to all the other standard features. For example, they can create queries, ad-hoc reports and custom mail-merges (such as creating a targeted newsletter) without requiring me or another technologist to come in and do it for them at cost. I don’t have to second guess every possible requirement and charge them for developing features they might not use as much as they initially think. The user interface is consistent and familiar-ish (I’ll be spending half a day with them to help acclimatise to the new ribbon system), and, to save my bacon, is Microsoft’s responsibility to support. I can concentrate on making the forms, reports and processes as user-friendly and intuitive as possible. The programmability side of the application is a lot more mature and secure (especially macros) than in the 1990s.

There isn’t an online alternative to rival this capability, yet. The nearest appears to be Zoho. They are building online versions of traditional software applications covering just about every type of information-related activity you can imagine. Last week, they announced support for macros, programming and advanced functions such as pivot tables. The barriers to adoption? The reasons already given for not wanting to go fully online, product immaturity and lack of a partner network to help implement and customise the service. That’s probably going to change.

What’s interesting at this moment in time is the growing perception that Microsoft isn’t focused on software any more. Perhaps in part because of the news coverage. Steve Ballmer is the CEO and all he talks about is… Customers don’t know about the benefits offered by new versions of Office. They’ve never seen the visualisation features within Excel. They haven’t heard of Office Business Applications. Some still haven’t heard of SharePoint. And some that have don’t really know what it means. They can’t find examples to relate to or events to attend that might explain it all (‘Too techie’). They don’t notice the ‘people-ready’ adverts, different to the ‘realising potential’ ads from last year and the ‘dino-heads’ from the year before. They can recognise an IBM advert, just show the blue borders and they can recite their favourite line: ‘…so who’s responsible for getting this fixed?’. They joke about the PC vs Mac ads. They’ve seen an iPhone (Windows Mobile? Not so sure). They do know Microsoft is competing with Google and was trying to acquire Yahoo…

Anyone remember the scene in Jurassic Park, where the park warden explains the challenge of avoiding Velociraptor? You focus on the Raptors you can see up ahead. The one you didn’t spot comes in from the side and eats you.

The Vista Blue Monster

You may or may not have heard of The Blue Monster. It started life as one of Hugh MacLeod’s business card cartoons. It evolved. A simple picture conveyed the feelings of so many people who work within Microsoft but who are rarely heard or talked about:

Today, the New York Times has an article describing the Vista debacle – They Criticized Vista. And They Should Know – in relation to the law suit that has kicked off from customers unhappy that their machines were marketed Vista-capable when the sticker should have said Vista-incapable. The law suit has led to the release of a number of internal Microsoft emails and those emails show The Blue Monster has been around for a while but is too often and easily ignored:

The minimum hardware configuration was set so low that ¨even a piece of junk will qualify. It will be a complete tragedy if we allowed it¨ – Anantha Kancherle, Microsoft program manager

¨It would be a lot less costly to do the right thing for the customer now, than to spend dollars on the back end trying to fix the problem¨ – Robin Leonard, Microsoft sales manager

Maybe the lessons will be learned this time. Maybe more internal people need to follow Robin’s and Anantha’s lead. Be prepared to take the risk and speak out when you see the company make a wrong turn. Don’t just wear the t-shirt.

References:

Technorati tag: Blue Monster

SPC2008 – BillG Keynote

Having sat in on Bill G’s keynote at the Office DevCon 3 weeks ago, it was interesting to see what would be in the SharePoint conference keynote… Has to be said, the content had a bit more zing. Yes, the ‘last day at the office’ video was played. And as always, the Q&A threw up some great quotes.

Usual disclaimers. These are my scribbles taken live at the event. They are not a transcript, no guarantees regarding accuracy, etc. Enjoy.

Technology Trends

Same mega trends highlighted as at the Office DevCon. Talking about BI benefitting from chip improvements. Lowering storage costs enabling recording/indexing of media content. Natural user interfaces such as touch, pen and speech will transform apps. See MS Surface being integrated into meeting tables, white boards. Building up to the online services announcement:

“Historically, software was tied to a specific piece of hardware. Now software is becoming much more abstract, distributed across resources.”

Business Productivity focus areas:

  • Unified communications
  • Social computing
  • Enterprise search
  • Business intelligence

Comparing SharePoint Pie to Office suite 15 years ago. Previously, people had separate client applications for word processing, number crunching, presenting. Packaging the tools into a suite and lowering the cost made it easy to assume that everyone had the required tools to open and work with relevant content. Today, SharePoint is taking the same approach with server applications. Currently, many organisations have separate tools for business intelligence, search, web content management, CRM etc. SharePoint is tying them all together. Not necessarily about winning in each category, but creating a broad infrastructure that makes it easier to get stuff done. Simple scenario – rich new visualisations created within Excel 2007 that you can publish up to a web site hosted on SharePoint.

Software + Services Platform

Running software on-premise versus subscribing to a hosted service ‘in the cloud’. There are trade-offs in terms of ownership, resource management etc. It means that some elements will stay in-house (at least for a while), but other elements are straightforward enough to be hosted elsewhere. Expecting many organisations to have a hybrid scenario, a mix of installed software and subscriptions to hosted software in the cloud.

Announcing SharePoint Online and Exchange Online: Microsoft Online Services

Opening up the beta (previously, was private beta for customers with more than 5,000 seats). Aiming for general availability by end of year, regardless of organisation size. At the high-end, working with Coca Cola Enterprises, taking all their SharePoint work and putting it into an online environment. The new environment is a strong fit for the kind of work they are doing.

Demo of MS Online Services – John Betz: Login to MS data center – Microsoft Online. An administrator will get an admin view, e.g. add users, set roles, enable account and assign licenses for services to be made available for account. Can sync internal applications with online services (e.g. enterprise email synced with online mail). A sync tool for connecting to internal resources, including AD. Means you can external accounts to the GAL. (Assuming they act as external recipients)

For end users, the sign-in client looks similar to logging into an instant messaging service. The first time the user logs in, will have option to connect online service with user’s Outlook profile to auto-sync email. The quote from John Betz:

“the promise of enterprise class software being delivered as subscription services”

Search

Microsoft has three levels of search:

  • Entry level = Microsoft Search Server 2008 Express
  • Standard = Microsoft Office SharePoint Server 2007
  • Specialised = FAST

Announcing availability of Microsoft Search Server 2008 Express today

Search Demo – Richard Riley: Showed Search Server delivering federated search results, including integration with Symantec Enterprise Vault. Presenting a customised results page, with images presented alongside structured results (similar to the example in To click or not to click). Demo’d FAST, showing a preview pane within the web page built on Silverlight. Very nice demo. (Looks a lot like the Album preview you get in iTunes.)

Back to Bill:

Talking about business data connectors letting you get to information of all types. Search is great when it gets you to documents but becomes more powerful when you can also get to structured data sources.

Looking ahead, people shouldn’t have to worry about where the information comes from. The software takes care of connecting to the backend information stores. The SharePoint environment will enable new ways of interacting with data. Modelling is an important focus area – simulating what’s going on in the enterprise. This approach should reduce dramatically the amount of code that needs to be written. Currently at the early stages but it will make the value of information even more impactful. (He’s talking about declarative programming – see the Office DevCon Keynote Q&A for more information.)

Q & A

Q – Data access and data storage – concept of universal data access still isn’t there. Is it going to change in Office 14? And what about the Exchange storage engine?

A – Storage unification is a big deal at MS. A big opportunity to simplify the programming and admin model and ability to do integration. In SharePoint, you’ve got these lists that are better than tables in some way, but in SQL you’ve got the flexibility and scale that goes beyond what you have in lists. What’s the answer? Want to have the capabilities within SQL as a native capability within SharePoint. In the next version of SharePoint, we’re taking a big step in terms of putting a table from SQL into SharePoint and enabling those richer capabilities. The direction is straightforward – we want list semantics to be in the database engine itself, without giving up the reasons we invented lists – the approachability and ease of use. On to storage unification. (Side note: Bill said that SharePoint has always been built on SQL… Er, no. He must have forgotten about the first version being on the Exchange web store.) AD had its own way of doing distribitued info replication. Now moving more to a metadirectory – will be based in SQL and then do replication out to the stores that do distributed login capabilities. Exchange has its own store, SQL doesn’t do the hierarchy stuff that Exchange needs. To model that hierarchy, we need SQL to cope with tables within tables. Tnat will simplify the underlying store. But no timelines.

Q – When do you plan to go relational with data store: allow nested tables, relational dropdowns within SharePoint?

A – Lists today are pretty powerful, were built for the kinds of things people do in SharePoint. The idea of tables within tables – we’re taking a big step towards that goal in SQL 2008.

Q – What’s MS plan in being ahead of competition, i.e. Google Sites and Team Edition

A – SharePoint is about end users and being able to get their work done. Hilarious – Bill said “the day they announce the product is it’s best day… I may be biased…” It’s great that people have choices. The breadth of work required to build the likes of SharePoint is very high…

Q – MS-Yahoo?

A – We are very serious about competing in consumer search. We’ve learned alot about how to build up the data center in terms of hundreds of thousands of serv
ers. Needed as we host Exchange and SharePoint. But also need to develop what we can offer in terms of software management that can also help customer data centers. Shouldn’t have to have people on call 24 hours a day (i.e. software needs to be self-healing). That’s what we are working on in our data centers. The boundary between desktop search, SharePoint and web search is blurring – we are going to see more solutions drawing on all these different areas. It shows our bullishness about search and software regardless of whether or not MS-Yahoo happens – that is speculation at the moment.

[Update: 04 Mar 08] See the comments for a link to a YouTube video covering Bill’s comment about Google. You can view video of the keynote, and find the official viewpoint over on Microsoft’s web site – SharePoint Conference 2008 Virtual Press Room

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Technorati tag: SPC 2008