Wednesday, November 26, 2008

RESTful Business...

One of the key drivers behind Cloud Computing, of course is the standardization of web API's around the REST programming model. Whether you are a Technology provider, Content provider or Service provider there is always room for a strategy to monetize or deepen customer relationships, foster a stronger community via REST API's. So, based on your target market, chances are you can always unearth Business models that can monetize your API's with appropriate Billing, API usage provisioning capabilities.

Lets look at a few examples:

1. NetFlix: By opening up the API's to their movie titles and subscriber queue's, they enable richer user experiences outside of the Netflix web site context (e.g. I'm sure there are iPhone apps for Netflix in the works), Enables new partners and generally all sorts of niche players (e.g. Online Bond movie communities building apps around their interests). Its all about moving "down" the Long Tail, and get a communities to build stuff that NetFlix can't do alone. Its all about faster innovation, driving more "positive" feedback in to their user base.

2. BestBuy: is all about getting their catalog/estore to wherever you hang out on the web. Talk about extending your customer reach...literally, extending your sales channels. again, is all about growing the eco-system of customers, partners by enabling off-site experiences.

Exposing API's, Metering the usage of the infrastructure supporting the API's, catering to the "Long Tail" via enabling crowd-sourcing...all of these facilitate new business models or extend existing business models in a highly leveraged manner. You're literally extending the reach of your business development activities, and with appropriate tracking/measurements in place (e.g. what part of your API use cases are popular, growing like crazy etc) you have a mechanism to weed out and surface viable business models or extensions to current business models.

Of course, it takes a lot of discipline and focus to manage these changes (e.g. watch out for cannibalizing existing channels or incentive structures etc). Corporations, however big, can't think of all the great ideas themselves, it just makes sense to enable communities, accept the wisdom of "crowd sourcing". After all, isn't this the age of the programmable web?

Monday, November 17, 2008

Scalability, OSS, Cloud computing business models...

Just to get a perspective on how technology trends (cloud computing, open source software, need for web scale infrastructure) and network effects impact business dynamics, consider:
  1. Moore's law (CPU power doubles every 18 months)
  2. Gilder's law (Fiber bandwidth triples every 12 months)
  3. Storage capacity doubles every 12 months (is this called Storage law?)
While these propel improvements such as CMT, greater I/O throughput, greater storage capacity and performance at lower costs, they also enable other developments such as Virtualization etc resulting in lower cost, greater performance, better utilization levels.

Now consider some of the business dynamics based on network effects:
  1. Metcalfe's law: Value of a network is the square of the number of users (think LinkedIn, your very own Ning network etc)
  2. Power law: Proverbial long-tail and the so called "Freemium" business model (i.e free software == zero cost marketing), you pay when you need extra services.
While few companies enjoy the "head" side of the power curve, things like AWS, Zembly speed up the deployment cycle all along the power curve, even the long is clear that helping Companies go up the power curve is a good business to be in, faster hardware just makes it faster!  Why? Because there is room for every type of community or customer base, however small it may be, and the marginal cost of delivering to those segments is becoming smaller every day, because of web scale frameworks and variable cost infrastructure made possible by these innovations.

Open Source software + Cloud compute model helps with Economies of Scope (i.e breadth of activities you need to handle in a profitable way) in an unprecedented way: you just don't worry about IT needs in the traditional manner anymore.

Meanwhile HW innovation trends discussed above + Network effects + Cloud compute model can also help with Economies of Scale (e.g. pay as you go model with AWS) by letting you build on a business model with miniscule "conversion rates" off of a very large online customer base.