The Next Organization

The Real Life Social Network (v2) Presentation

The Real Life Social Network v2

Groupon Business Model and Market Analysis

Groupon is a deal-of-the-day service in North America. According to Wikipedia, the company offers one "Groupon" per day in each of the markets it serves. The Groupon works as an assurance contract using ThePoint's platform: if a certain number of people sign up for the offer, then the deal becomes available to all; if the predetermined minimum is not met, no one gets the deal that day. This reduces risk for retailers, who can treat the coupons as quantity discount as well as sales promotion tools. Groupon makes money by getting a cut of the deal from the retailers.

Here's Groupon's description of the service

Groupon is emerging as a new monetization model for online community and social network. In the following slides, Christian provided a concise analysis of the revenue model and market analysis.

McKinsey Technology Trend 2010 - Multi-sided business model

Multisided business models create value through interactions among multiple players rather than traditional one-on-one transactions or information exchanges. In the media industry, advertising is a classic example of how these models work. Newspapers, magazines, and television stations offer content to their audiences while generating a significant portion of their revenues from third parties: advertisers. Other revenue, often through subscriptions, comes directly from consumers. More recently, this advertising-supported model has proliferated on the Internet, underwriting Web content sites, as well as services such as search and e-mail . It is now spreading to new markets, such as enterprise software: Spiceworks offers IT-management applications to 950,000 users at no cost, while it collects advertising from B2B companies that want access to IT professionals.

Technology is propagating new, equally powerful forms of multisided business models. In some information businesses, for example, data gathered from one set of users generate revenue when the business charges a separate set of customers for information services based on that data. Take Sermo, an online community of physicians who join (free of charge) to pose questions to other members, participate in discussion groups, and read medical articles. Third parties such as pharmaceutical companies, health care organizations, financial institutions, and government bodies pay for access to the anonymous interactions and polls of Sermo’s members.

As more people migrate to online activities, network effects can magnify the value of multisided business models. The “freemium” model is a case in point: a group of customers gets free services supported by those who pay a premium for special use. Flickr (online storage of photos), Pandora (online music), and Skype (online communication) not only use this kind of cross-subsidization but also demonstrate the leveraging effect of networks—the greater the number of free users, the more valuable the service becomes for all customers. Pandora harnesses the massive amounts of data from its free users to refine its music recommendations. All Flickr users benefit from a larger photo-posting community, all Skype members from an expanded universe of people with whom to connect.

Other companies find that when their core business is part of a network, valuable data (sometimes called “exhaust data”) are generated as a by-product. MasterCard, for instance, has built an advisory unit based on data the company gathers from its core credit card business: it analyzes consumer purchasing patterns and sells aggregated findings to merchants and others that want a better reading on buying trends. CHEP, a logistics-services provider, captures data on a significant portion of the transportation volume of the fastest-moving consumer goods and is now building a transportation-management business to take advantage of this visibility.

Not all companies, of course, could benefit from multisided models. But for those that can, a good starting point for testing them is to take inventory of all the data in a company’s businesses (including data flowing from customer interactions) and then ask, “Who might find this information valuable?” Another provocative thought: “What would happen if we provided our product or service free of charge?” or—more important, perhaps—“What if a competitor did so?” The responses should provide indications of the opportunities for disruption, as well as of vulnerabilities.

The Cloud Computing Opportunity by the Numbers

This is a very interesting collection of statistics that Rouven Cohen, the CTO of Enomaly Inc. put together. I highlighted some important facts and comments in red below.

How big is the opportunity for cloud computing? A question asked at pretty well every IT conference these days. Whatever the number, it's a big one. Let's break down the opportunity by the numbers available today.

By 2011 Merrill Lynch says the cloud computing market will reach $160 billion.

The number of physical servers in the World today: 50 million.

By 2013, approximately 60 percent of server workloads will be virtualized

By 2013 10 percent of the total number of physical servers sold will be virtualized with an average of 10 VM's per physical server sold.

At 10 VMs per physical host that means about 80-100 million virtual machines are being created per year or 273,972 per day or 11,375 per hour.

Fifty percent of the 8 million servers sold every year end up in data centers, according to a BusinessWeek report

The data centers of the dot-com era consumed 1 or 2 megawatts. Today data center facilities require 20 megawatts are common, - 10 times as much as a decade ago.

Google currently controls 2% of all servers or about 1 million servers with it saying it plans to have upwards of 10 million servers ( 10⁷ machines) in the next 10 years.

98% of the market is controlled by everyone else.

Hosting / Data center providers by top 5 regions around the world: 33,157

Top 5 break down
USA: 23,656
Canada: 2,740
United Kingdom: 2,660
Germany: 2,371

Netherlands: 1,730.

According to IDC, the market for private enterprise "Cloud servers will grow from an $8.4 billion opportunity in 2010, representing over 600,000 units, to a $12.6 billion market in 2014, with over 1.3 million units.

Market opporunity based purly on server count. $160 billion dollars divided by 50 million servers = $3,200 per server.

The amount of digital information increased by 73 percent in 2008 to an estimated 487 billion gigabytes, according to IDC.

World Population 2009: 6,767,805,208
Internet Users 2000: 360,985,492
Internet Users 2009: 1,802,330,457
Overall Internet User Growth: 399.3%
Fastest Growth Markets (Last 10 years) - Africa +1,809.8%, Middle East,+1,675%, Latin America +934.5%, Asia +568.8%
Slowest Growth Markets - North America +140.1%

Cloud value by world population: $23.64 per person
Cloud value by Global Internet population: $88.77 per person

-- Conclusions --

Based on these numbers, a few things are clear. First server virtualization has lowered the capital expenditure required for deploying applications, but the operational costs have gone up significantly more than the capital cost savings making the operational long tail the costliest part of running servers.

Although Google controls 2 percent of the global supply of servers, the remaining 98 percent is where the real opportunities are both in private enterprise data centers as well as in 40,000+ public hosting companies.

This year 80-100 million virtual machine will be created, the traditional management approaches to infrastructure will break. Infrastructure automation is becoming a central part of any model data center. Providing infrastructure as a service will not be a nice to have but will be a requirement. Hosters, Enterprises and small business will need to start running existing servers in a cloud context or face in-efficiency which may limit potential growth.

Surging demand for data and information creation will force a migration to both public and private clouds specially in emerging markets such as Africa and Latin America.

Lastly, there is a ton of money to be made.

Why and how companies should be prepared for technology proliferation, even of the one they helped to create

No time in history before, technology is changing at the pace we are experiencing now. As the world is connected, network effect accelerates technology adoption and drives proliferation and commoditization very quickly. Once technology is everywhere, it is no longer a tool, but becomes the state of the environment that organizations operate on. Technology however is becoming embedded in our lives and therefore changes human behaviors. These fundamental shifts demand organizations not only to learn how to use technology, but to adapt to new environment and behaviors. The question therefore is not "how to use the technology", but "what my organization should be" given technology is the environment.

Let's look at a couple of examples to see how the fundamental shifts happen and change the rule of the game.

Just more than 10 years back, when doing commerce on the Internet was still very rare, most companies were trying to learn how to use it. The dotcom bubble motivated massive number of fiber optic cables to be laid, which literary commoditized the bandwidth. Enabling financial services flowering and quickly became readily available with minimal cost. Application vendors also made online transaction a standard part of their offerings, sometimes even free. For companies, the word eCommerce seems to disappear. However, companies had to go through a phase of redefining themselves given that the majority of their suppliers, customers and competitors now have the ability to do business using the net. Making it worst, many customers are getting used to it, thereby changing their purchasing behavior and refuse to do business otherwise.

Let's use government as another case. Governments within about one of two decades years back started to bring more PC into their business. The idea at the beginning was to automate their administrative works. However, as PCs and network are available at most of the citizens and organizations they are dealing with, the purpose of eGovernment changed. It's now how government should operate when parties they are dealing with are using and gradually demanding using PCs and network in their transactions. Peer pressure from governments in the same groups is another force to drive this change. Unfortunately, many didn't understand this and spent their money investing into technology without rethinking the way they organize and work. The disaster of the CP 112 program in Vietnam is one painful example of this.

The third example is different in the sense that it's about the company that created the "technology" itself. Founded in 1994, Monster.com was the first Internet job board. Since then, the company has grown to 75 million resumes on file and covers now 36 countries in the world. The new industry was so successful that it even increased the job changing wave in the United States, according to Stevenson's "The Impact of the Internet on Worker Flows" report. The concept and especially behavior changed leading to implementation of Internet recruiting solution in large companies themselves. More importantly, companies have to pay more attention to recruiting and retaining their talents to survive the new wave.

Trend Toward SaaS & Microsoft's Hybrid Web-based Strategy

In response to the increasing adoption of Software as a Service (SaaS), Microsoft has announced its new hybrid business model strategy. The move is a careful step amid the software industry's shift in licensing and delivery models to meet growing desire for new ways of paying for services rather than software licenses.

In the recent years, SaaS is gaining more acceptance from customers, though still in limited scale. CIO Insight's survey indicated that 51% of its respondent said their companies used or would soon deploy SaaS. Half of those deployments, however, are within specific business units, functions or geographic regions; fewer are companywide. Most companies use SaaS and application service providers on a case-by-case, application-by-application basis. In addition, there is still significant concern regarding security and skepticism in the possibility of total cost reduction.

Microsoft is well aware of SaaS trend. Ray Ozzie, Microsoft’s chief software architect, has also accepted that “today the transformation toward services is the most significant one in the software industry.” However, Microsoft is still in a position not to believe that the trend will be big. They want to move into the new space while minimizing cannibalization of its existing cash-cow software market.

Web 2.0 Business Models (Part 2 of 2)

My last post covered the first five types of service categories, namely:

1. Virtual world, virtual goods
2. Online tools
3. Market broker platforms
4. Social media sites
5. Social networking sites

In this post, I will analyze the business models for other categories of services and point out some of my observations concerning the economy of attention, the long-tail, light-weight business model, young people's opportunities and the issue of partial attention.

Again, the list is not exhaustive and service categorization is mainly for the purpose of business model analysis. I would like to invite readers to add and give me comments.

Web 2.0 Business Models (Part 1 of 2)

Web 2.0, the new set of Web, or more accurately, hosted services was featured by O'Reilly Media in 2003 as having lightweight business model. After a few years of development, the concept is still quite valid, but in more detail examination, Web 2.0 has been dominant an economy of sharing, attention and creativeness.

I did a quick summary of the major types of Web 2.0 services, benefits and business models and came up with a summary as in the picture below:

a more detailed version with examples can be downloaded here:

Download web_2.0 Business Models - a quick survey.pdf

Google’s YouTube headache, or there is still no model for social media sites

Last year, I wrote a block entry indicating that there was no good business model behind the social network sites. yet. Recent events, including Viacom and CBS’s pulling videos from YouTube and recent news that Viacom filed a $1B lawsuit against Google. Apparently, only deep-pocket, fast-growing companies like Google would pay such a price for a tiny revenue and no investor even cared. However, the share of attention that Google executives paying to YouTube may be too much. If it had been acquired by a media company, YouTube might have had less legal cases, but the business model is still not clear how copyrighted materials to be tracked and revenue to be shared with the owner.

Anything-on-the-go and the iPod economy

I was amazed to know that my colleagues at SAP could bring the whole contents of a demo scenario on a Linux server blade to a big drive, then dump it on any standard PC and start immediately. Recently, RingCube has commercialized its software to allow mirroring software into a small storage device and start it again in a Windows-based machine. It seems that mobile computing may not only bring computing devices around, but also as simple as a small storage device... and one of the popular device that people bring along anyway is iPod.

Talking about iPod, on my trip to Vienna, I stayed in le Meridien and guess what, I saw iPod rental on the wall. Strolling last week in Saturn, a electronics chain similar to Circuit City or CompUSA in Germany, I encountered dictionaries for iPod, which are similar to Merriam-Webster's here.

What I can see from these two different sets of events is the iPod-economy no longer stops at music- or video-on-the-go. It has been and will be more as new technologies enable anything go mobile, from telephone, PC, dictionary to map, calendar, and God knows what next... Welcome to the new world, where anything is on-the-go, and how many devices do you still have? I see some day, human will carry only a single tiny, easy-to-use, lightweight device with smart (but no need to be powerful) computing capability and a lot of storage. Maybe, I will go and buy Apple's share now.

Uploaded in Heidelberg.