Business Models

Two totally different views of the Future Of The Internet crossed my desk within hours today.

Firstly, Tom Coates at dConstruct banging the Romantic Future drum (as noted by One Man and His Blog):

[Tom] was drawing a parallel between the work of King Darius in the year A Long Time Ago BC, who built a new transport network across Persia, and transformed the country as a result. (Prior to that, princes of Persia had to jump across roofs to get around). 

Today, we're in a similar situation, as we evolve the web from a place where each site was complete unto itself, into a place where the interaction of sites, through the exchange of data creates a new network that will reshape the world. Lanyrd.com is an example of something that was built quickly and easily from data from other sites. (But it isn't the semantic web that'd driving that. The top-down approach has been superseded by a more organic approach to building links - which is orthogonal to the efforts of the key semantic advocates.)

Aside: he built a slide with 150 transitions in 30 seconds. I am in awe....

That network is beginning to extend beyond the world of sites, into network-enables devices. He gave a range of examples from the Boris Bike to parking in San Francisco, but I'm going to focus on the Internet-connected scales. You could scan Twitter for the tweets from the scales, and do trends and maps... OK, back to the parking then - by tracking use and networking the data with traffic information, they can vary parking prices to ensure that there's always one parking space per block, and thus make traffic flow more efficient... Interconnected data opens up the possibility of positive changes to a physical living environment.

And that's what brings us back to Darius. We're building the inromation network that the next generation will build on to change the world.

And in the Pessimism Corner, the Economist noting that the roses in the garden are starting to smell a bit off:

Three sets of walls are being built.

The first is national. China’s “great firewall” already imposes tight controls on internet links with the rest of the world, monitoring traffic and making many sites or services unavailable. Other countries, including Iran, Cuba, Saudi Arabia and Vietnam, have done similar things, and other governments are tightening controls on what people can see and do on the internet.

Second, companies are exerting greater control by building “walled gardens”—an approach that appeared to have died out a decade ago. Facebook has its own closed, internal e-mail system, for example. Google has built a suite of integrated web-based services. Users of Apple’s mobile devices access many internet services through small downloadable software applications, or apps, rather than a web browser. By dictating which apps are allowed on its devices, Apple has become a gatekeeper. As apps spread to other mobile devices, and even cars and televisions, other firms will do so too.

Third, there are concerns that network operators looking for new sources of revenue will strike deals with content providers that will favour those websites prepared to pay up.

The Economist notes that:

[many of] the incentives that used to favour greater interconnection now point the other way. Suggesting that “The Web is Dead”, as Wired magazine did recently [broadstuff take on that is over here], is going a bit far. But the net is losing some of its openness and universality.

That’s not always a bad thing. The profits which Apple harvests from its walled garden have enabled it to provide services and devices that delight its customers, who may be happy to trade a little openness for greater security or ease of use.

Now, the Economist is obviously for the Free Trading ideal, but is noting that it is no done deal and that instead a Balkanisation is breaking out, simply because it is easier to make capital gain (financial, social or political) by walling off rather than interconnecting.

So - who is correct - the Coatesian Romantic or the Rational Economic Pessimist?

Well, of course they both are - to an extent. Coates is telling us what is possible if you follow the technology, the Economist is pointing out what is probable if you follow the money.

I would like to believe the former, but incline to the view that the latter is increasingly more likely as, to borrow a point by Edmund Burke, "All that is necessary for the triumph of evil is that good men do nothing" - or in the case of this industry, that so many people use the walled garden services with such joyful abandon is actually worse than "doing nothing".

We can only hope, as does the Economist - ironically for a Free Trade rag - that outside entities (Good Guy Governments and Corporates that Do No Evil) can come in and lead by example or even stir things up a bit. After all, it has always worked before.....

From TechCrunch:

Facebook is currently trying to register the word “Face” as a trademark. (It already owns the trademark on “Facebook”). Facebook took over the trademark application for “Face” from a company in the UK called CIS Internet Limited, which operated a site called Faceparty.com

It is also trying to patent the word "Like"

They are also going after companies with similar names like Placebook etc now, just because they have the pockets. (Whoever owns Phasebook.com, Faecebook.com and Fazebook.com - watch out!)

Maybe this is the way for Olde Media to make money again - use their cash to trademark all the popular words and then charge everybody for using them. If I recall correctly, to trademark something in the US is about $5k, so if I trademarked "and" and then charged every US media source $.001 a pop for using it, I reckon I'd be a gazillionaire by dinnertime.

Sadly, in the US they will probably get away with it, the whole US IP/Trademarking scene is (too often) essentially a "who pays, wins" game, irrespective of prior usage, legal rights or whatever.

Grauniad remembering nothing and forgetting nothing from the DotCom boom methinks:

Facebook is now being valued at more than $33bn (£21.3bn) as investors try to secure a stake in the social networking site in anticipation of its flotation on the US stock market.

The latest data shows that shares in Facebook are changing hands for up to $76 each, more than double their value at the start of this year. While Facebook is still privately held, shareholders are able to sell the company's stock through "secondary market" trading.

By buying at these prices, some investors are calculating that Facebook is worth more than eBay or Dell, or nearly twice as much as Yahoo!.

Secondary market trading can artificially inflate the value of a private company, as the relative scarcity of its shares may encourage a buyer to overpay.

In essence the article is somewhat like a cigarette ad - warning you that this stuff can seriously damage your wealth, while nonetheless pumping up the value. But those of less tender years will have seen all this before in the DotCom boom. And here it comes again:

Forgetting Nothing - that very small amounts of illiquid shares trade at stupid prices above real value.

Remembering nothing - that very small amounts of illiquid shares trade at stupid prices above real value.

Another snippet readers may want to look at relating to this - some, ahem, "assertively entrepreneurial" companies see this as a marvellous opportunity to add value in a way that bankers call "arbitrage"

Here we go again, time to throw the pensions into the bonfire of the vanities - and the meedja is leading the charge?. But in The Old Days you got pre-flotation shares at pre-flotation prices, not at a secondary market price driven by scarcity and speculation. Another notch on the post for flat earth news it would seem perhaps? Those who cannot remember the past......

Last time round Netscape's IPO started it all off. On the strength of this, guess who we're tipping this time.

Umair Haque has a theisis that if companies tried to treat their customers correctly, then that would be better than trying to fool and screw them. He notes:

Despite what many boardrooms believe, counting on your customers' ignorance isn't a great business model. It's more like russian roulette.

His basic hypothesis is that today people are both more savvy and yearn for a more genuine relationship with suppliers, and that there is far more data around so any attempt to behave un-ethically will eventually be strategic suicide. You can see more of his writings here at HBR.

I would love to agree with him, but sadly I can't - I have encapsulated my argument in the chart above, which is a high level result of my lifetime's empirical research into the behavioural economics of consumers, which says that by and large 80% of us are sheep 80% of the time.

Thus, as you can see, roughly 2/3rds of the time all consumer sheep can be fleeced all the time. In other words you can build a very sound busness by fooling people, and the (probably more costly) approach of Being Good only impacts about 20% of the market (the right hand side)

Let us hope that Umair is right, and that this number decreases due to all the information washing around, but my (again, empirical) observation is that the dis-information washing around online is growing at a far faster rate - just look at the typical Page 1 results you get on Google when you search for any consumer good these days. And there is a good resaon for that - a lot more money and time is going into dis-information these days, and the web is a cheap place for it.

I think there was a Golden Age when early bloggers etc, who were mostly the genuine, ethical sort, were the only ones really using these new media mediums, so there was a flowering of honesty. But now a quick look at any aggregator like Techmeme or on Twitter will show that PR Spin is inexorably increasing to Olde Media levels.`Greed, of course, is always with us along with death and taxes.

Sadly, that is why we have had to invent regulation and legislation in the past..............

Reading the ongoing Net Neutrality debate, here are a few comments on some of what is going on:

Firstly, Google has defended its jumping the fence and says its still a Good Guy, but no one is buying it. You can fool some of the people etc etc.....

Secondly, Facebook and all the other "Aggregators Without a Stake In Networks" lambast Google - well they would, wouldn't they - the last thing they want is the Distributors (Telcos and ISPs) cranking up the rents on their (currently) underpriced rides and Google hops over the fence.

Fred Wilson weighs in with a view on Net Neutrality, when he says:

I don't want to see the Internet regulated. I don't want rules that require oversight and adjudication. But given that we now have an on ramp that is tightly controlled by a small set of access providers with almost identical interests, I would like to have one basic rule that is so simple that everyone understands what it means and we can simply follow it.

Our firm are fans of the work of Barbara Van Schewick, Professor of Law at Stanford, who argues for the following simple rule:

A non-discrimination rule that bans all application-specific discrimination, but allows all application-agnostic discrimination. Discrimination is application-specific if the discrimination is based on the specific application or content (e.g. Skype is treated differently from Vonage), or based on classes of applications or content (e.g. Internet telephony is treated differently from e-mail).

That is all we need. Nothing more, nothing less. That is net neutrality. A policy that maintains the way the Internet works today. That has brought us Google, Amazon, eBay, Yahoo!, Facebook, Twitter, and many many more innovative web services.

Now this is fine as far as it goes, but what it forgets is those great services - Google, Amazon, Facebook etc - grew up on an economically unsustainable transport network, ie the ISPs have spent most of the last 10 years massively underpricing their pipes and that is coming to an end as video starts to fill them up. And its that underpriced ride that is filling the key issue now, and what is behind the Net Neutrality gerfuffle.

If I may step back to the beginning (about 10 years ago or so......) and tell a little story of how we all got here.

Once upon a time, long long ago in the 1990's, there was a deregulation of old national Telcos, and a resultant speculative boom in "New Telcos". Many miles of cable were laid, acres of hosting space was built, and Sun handed over many months' production of its tins on credit to the Application Service Providers (an ancient term for Cloud Service providers). This whole panjandrum than went spectacularly bust in about 2001 - leaving all these assets at firesale prices, and they were picked up by the big survivors (the Telcos and ISPs of today).

"Net Neutrality" at this time was the argument about "equal access" - ie that the large oligopoly of surviving Telcos and ISP Ogres should not give their own services priority in the quality of service stakes. All bits were to be treated equally from ingress to egress.

Move onwards to about 2005, and Broadband is growing like topsy. The Telcos realise its a race for consumers so price it at ludicrously low to grab market share from each other. Ths allows all the aggregators (Google, the Social Networks et al) to get a near "Free Ride" over the pipes - which they immediiately priced into their long term business models and then persuaded all their VCs and other backers that the fairy tale that was "FreeConomics" ruled for ever and ever.

At the same time, another thing was happening - the arrival of internet Video meant the Pipes were filling up far faster than predicted, and the Telcos/ISPS started to look at the prospect of having to either (i) invest billions in new infrastructure or (ii) start to throttle traffic on existing capacity. Given the under-recovery due to low pricing, (i) was economically impossible unless some form of subsidy or long term guarantee was given, or unless they started to charge the upstream providers (mainly the content aggregators who had the money) more for access to the pipes.

It was at this point that the Aggregators and their proxies started to conflate the original Net Neutrality debate with the "Equality of Assets" argument - ie the Telcos didn't really own their pipes, they were common goods and thus everybody's pipes, so everyone needed access (at the same price, and preferably a price of $0) regardless of whether they were shunting a few emails or megastreams of videos. This refrain was picked up avidly by what I term the "Net Hippies" who believed in free love, free services, and most of all - free access to big bandwidth for free content. A typical expression of this view was Cory Doctorow:

I say, it's our dirt, so we make the rules. If they don't like those rules, let them get their goddamned wires out of our dirt, off our streets, out of our basements. Let's give them 60 days, and if they haven't pulled up their wires by then, we'll buy them for the scrappage price of the copper.

Now, whether the "Net Hippies" were put up to all this by the Aggregators, or whether the aggregators just joined in (which is what I suspect is more likely) is unclear - but this view was in their interests so they enhusiastically promoted it.

(By the way, I don't disagree with the Net Hippie's view that internet infrastructure is a common good - in fact I think we are not going to get big pipes in any "free" market unless regulation or government intervention occurs - see below! I just disagree with any solution that says "shaft the Distributors and let the Aggregators get free reign)

Fast forward to about 2008 and you see two things happening:

Firstly, the smart aggregators (eg Google, Amazon) are building out their own infrastructure to reduce their dependence and costs in distributing their wares. While enthusiastically promoting Net Neutrality they are busy building their own distribution infrastructures. Others are not and some, like latecomers Facebook, Twitter etc, are still emergent and can't afford to. All of them keep on paying and playing for the Conflated Net Neutrality argument, but - as we predicted at the time - the smart aggregators were doing it to buy time as they bought infrastructure.

Secondly, the Telcos and ISPs were in a bind as their pipes filled up and they weren't charging enough to build out the serious infrastructure that video needs (market hypercompetition isn't helping either), and started to actively think about how to make enough money to pay for the next generation of pipes. The more planned digital economies (Japan, South Korea, Scandinavia, and later - after experimenting a bit with free markets - France) had seen this one coming and have effectively legislated for big pipes, giving the national Telcos sufficient incentives to build them out. In countries where "the market" is the solution the average broadband pipe speeds started to fall behind. It starts to dawn on all the Telcos and ISPs that they need to start forcing a 2-sided or multi sided business model, which - however you look at it - requires charging the upstream aggregators more for big volumes of higher quality of service traffic.

This, of course, the Upstream aggregators want like a hole in the head, so an enormous amount of smoke, mirrors, storm, drang, lobbying, etc etc is generated by them.

And now we are in 2010.

Google's massive foray into Mobile IP has forced its hand, it has to move into the distribution game or be strangled by the existing ISPS and Telcos. It can build hosting centres and peer at Tier 1 for backbone, bt it needs mobile distibution at preferential rates - hence tie up with Verizon.

The Telcos and ISPs know that they are damned if they do, damned if they don't - but if they don't they will be unable to invest in fat new pipes and they will wither on the vine.

The Aggregators Without Infrastructure know that if they can't continue getting a near vree ride then they can't offere near-free services to users anymore, and - worse still - some Aggregator/Distributor competitors like Google will pay less than them for higher quality distribution.

So what is the likely outcome?

Firstly, back to the original point Fred made - to my mind there is "White Hat" net neutrality, ie Equality of Access - that there should be no discrimination on access for any application (so Skype is treated the same as Vonage) is a no brainer and should be regulated.

However, if you look at "Black hat" Net Neutrality - Equality of Assets - ie the argument, that a video bit that needs to be streamed fast in sequence alongside all the other billions of video bits. is the same as an email bit, then I think that is far less fruitful ground. The eventual endgame of utilities is that they are eventually charged for by quantity of usage and quality of service (granted there is often a fixed price or even free "minimum deal") and thus as broadband becomes a utility - nay, a human right even - then this will increasingly become the case.

The other thing - pure and simple - is that unless the distributors can earn enough money to build the next generation of pipes and capture a return on investment, they won't do it. To this end, "Free markets" have (so far) failed to deliver the necessary security of investment. Thus, if the endgame of the current Net Neutrality spat does not, in some way, yield the cash and secure enough investment conditions to build more bigger pipes, then Net Neutrality will devolve to beggars fighting over access to dirt roads while private high speed networks are built for those rich enough to afford them.

Thus, my parting shot in this fairy tale to the "Black Hat" Net Neutrality defenders is "be careful what you wish for". Not all Ogres are always mean, and not all fairytales end happily ever after

I am somewhat bemused about the gerfuffle with Google's climbing down from being a champion of Net Neutrality. They signalled they would do this clearly in 2008 - we wrote about it here- I quote:

There are 2 bits to Net Neutrality - the initial idea was to assme that you got Feedom of Access no matter who you were. This was later conflated by some more Web 2.0 hippie types into Freedom of Assets - ie the right to pay no more for dumping shedloads of video traffic into the pipes than a few email text bits. It suited the NN lobbies' interests to conflate the two.

And the GYM club were all at it it, they only supported Net Neutrality to give them time to get their own assets into line, as is probably also the case with their strategies for Open (Most Other Stuff). Especially now that FreeConomic speculative funding is pretty much drying up and the hunt for real revenue is on.

If you look at the value chain, its clear that distributors will always (i) make money and (ii) control their pipes. Google knows this - it played Net Neutrality until it could effectively peer at Tier 1 level, and it will now do that until it has built its own backbone network.

Some people continue to think of Google as the cute startup that can Do No Evil, not the huge public limited Ad company and Microsoft - in - waiting it now is, and the tend to be bamboozled by the doublespeak, but the above strategy is very clear once one takes off the Googleglasses.

That was what we wrote in 2008....

We also wrote last year about the inevitability of end to end players making a settlement as the cost of creating alternative distribution systems is too high:

To explain, if I may - at the top of this post is a good old 4-market model. In the 1990's the Internet came out tops over a bunch of walled Online Service Providers (OSPs) who were trying to be monopolists (or at least warring oligopolists) at the Aggregation Layer. But it won only because of some strong forces helping it.

Firstly the distributors - Telcos (those people everyone accuses of Net Un-neutrality now) were totally neutral in allowing anyone with a modem to connect to anyone. Secondly, at the time the main consumer device players (Apple, Microsoft) were provider-neutral in that they allowed you to connect to AOL or Prodigy or the 'Net. Thirdly, content was neutral in that AOL et al - despite trying - could not lock up the content online.

The issue now is that the monopolist forces are operating at the aggregation layer again, but also trying to build end to end walled gardens, from content to device. (Think Apple i-Series, Google's various forays from content to mobile phone)

......

But I suspect that strong legislation - and a lot of [end] user campaigning the like of which would make the Net Neutrality debate look like a coffee morning - is also required [to ensure an equitable settlement]. But forewarned, as they say, is forearmed.

In other words if you (i) knew how the industry value chain worked, (ii) understood what Google was signalling, (iii) assumed they could execute, and (iv) were paying the teeniest bit of attention, then all this should come as absolutely no surprise by Q3 2010.

So all the gnashing of teeth and wailing, calling Google a "Surrender Monkey" is to me a sign of Tech bloggers being either largely incompetent or asleep at their terminals for the last 2 years (or - could it possibly be - wishing to get as much linkbait now as they can ).

Of course, the Net Neutrality Hippy community will wail and gnash their teeth, but that will ever be thus - and as we wrote in 2007:

What is more germane is that the battle about who will pay for switching on the bandwidth will become up close and personal in 2008, as the Telcos do feel that Service Co's make billions from "Free Ride" economics over their pipes with the emergent rich media services.

We can confidently predict that all the resultant issues - throttling, net neutrality etc etc - will not go away in 2008 either.

This is an attempt to influence the inevitable reglation to serve the interests of major players, who have thrown their lots together as the scary alternative is that the customer wins..

As you can see, we thought it would all come to a head in 2008, so if anything this has all taken longer than we thought.

So, as overnight shocks go, this has been around for some time.....

McKinsey on "10 Top Tech Trends" to watch - my take on them (in the form of a precis of their argument and my response plus scoring in italics):

1. Distributed cocreation moves into the mainstream

In the past few years, the ability to organize communities of Web participants to develop, market, and support products and services has moved from the margins of business practice to the mainstream. Wikipedia and a handful of open-source software developers were the pioneers. But in signs of the steady march forward, 70 percent of the executives we recently surveyed said that their companies regularly created value through Web communities. Similarly, more than 68 million bloggers post reviews and recommendations about products and services.

This form of loose confederation seldom copes with periods of real pressure well, especially where hard execution to deadline is required. A lot of the corporate "value creation" is better described as what Nick Carr calls "Digital Sharecropping" - ie people working for free in spreading the corporate load. It's fickle (people drift off or find the new new shiny) and also tends to get messy when IP distribution raises its head. And as for 68 million bloggers reviewing products and services, often the vessels making the most noise are the "paid" blogs trying to whip up an echo chamber.

Rating: Its a popular and comforting concept that the Digital Hippies love, so it will continue to resonate, but fails in delivery when the chips are down. Best used in one-off project based environments. Read the blogs by all means, but check out the quality press too. Caveat Emptor 4/10


2. Making the network the organization

In earlier research, we noted that the Web was starting to force open the boundaries of organizations, allowing nonemployees to offer their expertise in novel ways. We called this phenomenon “tapping into a world of talent.” Now many companies are pushing substantially beyond that starting point, building and managing flexible networks that extend across internal and often even external borders. The recession underscored the value of such flexibility in managing volatility. We believe that the more porous, networked organizations of the future will need to organize work around critical tasks rather than molding it to constraints imposed by corporate structures.

Today's networks are great for "weak link" tasks, but - as with point 1 above - tend to come apart at the seams when under any pressure to deliver something hard to a hard stop. In addition, Coasian theory has yet to really become practice, as the transaction costs of capital formation, branding and market making are still very high. Nonetheless for SME companies this structure is a godsend so they will continue to push it - the pushback is the (largely poor) deal that the networked agents get - low rewards and security.

Rating: Companies will push for it and the technology will continue to aid it, but it will be limited by inability to deliver predictably and reliability when chips are down. Also, watch out if you are one of the drones in the network without a value add of your own (see point below) 6/10

3. Collaboration at scale

Across many economies, the number of people who undertake knowledge work has grown much more quickly than the number of production or transactions workers. Knowledge workers typically are paid more than others, so increasing their productivity is critical. As a result, there is broad interest in collaboration technologies that promise to improve these workers’ efficiency and effectiveness. While the body of knowledge around the best use of such technologies is still developing, a number of companies have conducted experiments, as we see in the rapid growth rates of video and Web conferencing, expected to top 20 percent annually during the next few years.

The Taylorisation of knowledge work no less, moving it from a craft to a commodity. This will reduce the per capita value of the individual and remove the surplus to the organisation that commands their labour (sorry, invaluable creativity). It was ever thus. The replacement of physical comms with electronic ones is probably an irrestable force for lower value transactions.

Rating: Will increase, as the economic forces are irresistable, but - as with the point above - try to ensure you're not one of the drones in the knowledge assembly lines. 8/10


4. The growing ‘Internet of Things’

The adoption of RFID (radio-frequency identification) and related technologies was the basis of a trend we first recognized as “expanding the frontiers of automation.” But these methods are rudimentary compared with what emerges when assets themselves become elements of an information system, with the ability to capture, compute, communicate, and collaborate around information—something that has come to be known as the “Internet of Things.” Embedded with sensors, actuators, and communications capabilities, such objects will soon be able to absorb and transmit information on a massive scale and, in some cases, to adapt and react to changes in the environment automatically. These “smart” assets can make processes more efficient, give products new capabilities, and spark novel business models.

As the devices get cheaper and easier to integrate the IOT will become more pervasive, due to the efficiencies it can bring across a value chain. Forces against will emerge if this is used for widespread privacy abuse, or to gouge customers in any way. One can imagine all sorts of things akin to "region imprinting" on DVDs (means you can't play music you bought in country X on your media player in country Y) will be tried. Also, "location" based IOT services that hand away too much privacy will rapidly wane once a few scare stories circulate.

Rating: No brainer 10/10 but beware the backlash if gouging or inappropriate usage occurs

5. Experimentation and big data

Could the enterprise become a full-time laboratory? What if you could analyze every transaction, capture insights from every customer interaction, and didn’t have to wait for months to get data from the field? What if . . . ? Data are flooding in at rates never seen before—doubling every 18 months—as a result of greater access to customer data from public, proprietary, and purchased sources, as well as new information gathered from Web communities and newly deployed smart assets. These trends are broadly known as “big data.” Technology for capturing and analyzing information is widely available at ever-lower price points. But many companies are taking data use to new levels, using IT to support rigorous, constant business experimentation that guides decisions and to test new products, business models, and innovations in customer experience. In some cases, the new approaches help companies make decisions in real time. This trend has the potential to drive a radical transformation in research, innovation, and marketing.

We (humans) are still largely structured for a world of data scarcity so dealing with data over-abundance is a new thing. Handling it well is critical, but there are 3 key requirements for this to become a trusted and deployable technology:

(i) Trustable filtering - filters that get a high level of choices right, without too many false negatives and positives.
(ii) Moderation of "black hat" datamining - which, if Google and Facebook are anything to go by, will be quite an ask. Probably needs regulation
(iii) The power cannot be too asymmetric, if users feel it is astacked against hem and used for gouging they will walk away. Already movements like VRM are looking at ways to make the power more equal, this will increase too

Rating: Fairly inevitable, should be largely beneficial, but beware the backlash if there is too much "black hat" datamining 9/10

6. Wiring for a sustainable world

Even as regulatory frameworks continue to evolve, environmental stewardship and sustainability clearly are C-level agenda topics. What’s more, sustainability is fast becoming an important corporate-performance metric—one that stakeholders, outside influencers, and even financial markets have begun to track. Information technology plays a dual role in this debate: it is both a significant source of environmental emissions and a key enabler of many strategies to mitigate environmental damage. At present, information technology’s share of the world’s environmental footprint is growing because of the ever-increasing demand for IT capacity and services. Electricity produced to power the world’s data centers generates greenhouse gases on the scale of countries such as Argentina or the Netherlands, and these emissions could increase fourfold by 2020. McKinsey research has shown, however, that the use of IT in areas such as smart power grids, efficient buildings, and better logistics planning could eliminate five times the carbon emissions that the IT industry produces.

The environmental impact of the ICT industry is a large and growing probem that it will have to take on board, but ultimately nearly every country will opt for digital dark satanic mills that drive economic progress over bucolic underachievement. And the technology to solve these issues will emerge where the costs are seen to justify it.

Rating: Overhyped - over time technology will reduce energy usage where it is economcally useful to do so, with or without any Green agenda - it's best option is to deploy subsidies in the areas that drive maximum sustainability. Sustainability PR will be the major industry here as companies compete to look Greener Than Thou. I would give it a lower mark than 6, except there will be subsidies so it will look more attractive than it actually is 6/10.

7. Imagining anything as a service

Technology now enables companies to monitor, measure, customize, and bill for asset use at a much more fine-grained level than ever before. Asset owners can therefore create services around what have traditionally been sold as products. Business-to-business (B2B) customers like these service offerings because they allow companies to purchase units of a service and to account for them as a variable cost rather than undertake large capital investments. Consumers also like this “paying only for what you use” model, which helps them avoid large expenditures, as well as the hassles of buying and maintaining a product.

Asset owners like to rent them out, users like to control the assets themselves until they are absolute commodities. Cloud based ICT assets are no yet simple, reliable or fungible enough to be consumed like water or electricity, and won't be for quite a few years yet.

Rating: It will come, but with lower penetration, will take longer and cost more than xAAS and Cloud enthusiasts believe (I say that with 10 years of close experience of the server-side of the industry, which renames itself every 2 years as the last "big hype" push crumples). Grid yesterday, Cloud today, what tomorrow? 7/10


8. The age of the multisided 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 (see trend number seven, “Imagining anything as a service,” earlier in this article). 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.

Having worked on multisided business models in IP Telcos 10 years ago and done some work with the Telco 2.0 Initiative and their 2 sided business mdel, my take on this is that:

(i) The concept is very seductive, the execution is very much harder
(ii) There is a limit to the industries it can be applied to in ICT (or anywhere in fact) as you have to be in the middleof a supply chain that has revenue opportunity on 2+ sides
(iii) Complexity and transaction costs are higher than simpler models, which increases risk. My observation is that this solution largely seems to arise in "duck and weave" markets under pressure, so I suspect it is evidence of a transitional phase in any market evolution

Rating: A few companies will be able to use this very well, some will get a small benefit, but many will find it impossible to manage as they are in flux 5/10

9. Innovating from the bottom of the pyramid

The adoption of technology is a global phenomenon, and the intensity of its usage is particularly impressive in emerging markets. Our research has shown that disruptive business models arise when technology combines with extreme market conditions, such as customer demand for very low price points, poor infrastructure, hard-to-access suppliers, and low cost curves for talent. With an economic recovery beginning to take hold in some parts of the world, high rates of growth have resumed in many developing nations, and we’re seeing companies built around the new models emerging as global players. Many multinationals, meanwhile, are only starting to think about developing markets as wellsprings of technology-enabled innovation rather than as traditional manufacturing hubs.

Necessity is the mother of invention, and developing economies' necessities are more urgent than rich economies - ergo higher innovation. It is also our view in fact that too much of what the OECD calIs it's "Innovation" is better described as "Continuous Improvement that doesn't rock the status quo". There is thus no doubt that a huge amount of potentially disruptive innovation is going on in the developing world, I've been watching mobile and payment services in Africa an Asia for example.

But I also know that there are 3 barriers:

(i) "Not invented here" syndrome
(ii) Most rich countries erect barriers to keep developing country "low cost" technologies from queering the pitches of their (lobbying) champions
(iii) Just because an X is extremely relevant in Africa, does not mean it will tranfer to America

Rating: Not as big or as quick as the enthusiats think, but there will be some real home runs 7/10

10. Producing public good on the grid

The role of governments in shaping global economic policy will expand in coming years. Technology will be an important factor in this evolution by facilitating the creation of new types of public goods while helping to manage them more effectively. This last trend is broad in scope and draws upon many of the other trends described above.

Its hard to argue with this as it is so broad, it is inevitable that governments will try and manage national assets better and there is a whole Government 2.0 movement going on. The difficulties will be all the ancillary efforts required to make it happen (eg making the water grid more efficient requires massive investment in new meters), and what to do about the 25% or so of any population who will be "digitally excluded" and cannot use the new services, thus removing a large swathe of the possible benefits

Rating: 10/10 for likelihood something will be done, but its a trend in the same sense as "I grow older every year" is a trend. Likely to take longer in many cases owing to upfront investment costs required, so 7/10 overall.

These things are always thought provoking though.

.....("It is magnificent, but it is not war.") said French Marshal Pierre Bosquet watching the British light cavalry wipe itself out in The Charge of the Light Brigade at Balaclava.

Michael Arrington of TechCrunch writes about the Google v Facebook contest for The Social Web and uses a Very Dodgy reading of World War 2 history in an article entitled "WAR! It’s Patton v. Rommel":

The Third Reich was to take over the world, as Facebook is poised to do today. All that stands between them and victory is a somewhat slow to move giant called Google (America). And our hero is also fighting another war to the death with Microsoft/Japan, making things more complicated.

.........

You can create any kind of playing field you want to watch this all play out. I take Europe and Africa in WWII and pit the underdog Gundotra/Patton against the guy who had everything to lose – Rommel/Facebook.

Oh dear - firstly, with a 7:2 advantage in numbers (and a 4:1 advantage in armour) and total air superiority the Allies after D-Day were hardly underdogs. (And, this may shock our US readers, but a number of other countries also fought the Germans in World War 2 - in fact the Russians took by far the most of that particular load ). Secondly, Patton was under the command of one Bernard Montgomery, the (British) general who beat Rommel twce - once in North Africa, and again in Normandy.

Not an auspicious start to the analysis methinks. Anyway, I digress. TechCrunch notes re the Google Invasion of Fortess Facebook:

Google has chosen a General in their War With Facebook – VP Engineering Vic Gundotra, we’ve heard from multiple sources. This is the person who will control overall product strategy and execution around their new efforts to find relevance in a quickly changing Internet landscape that is increasingly dominated by Facebook.

........

Google hasn’t officially revealed any of its plans in social, but we’ve heard to expect them to be making a significant effort. The type of effort that suggests they’ve mortgaged the farm and have just the one crop left to plant. Their backs are against the wall. Etc.

Lose and they give control over the way the web is organized, and monetized for the next decade or so. The Age Of Facebook will begin. We’ve got an aggressive, zealous Facebook army controlling a third of the world’s Internet population, and they want more. Meanwhile, The old bully on the block, Google, can still rumble pretty well when he gets worked up enough.

To be fair, Mr Arrington is mainly looking at creating a playing field narrative to watch this all play out, and chose the Normandy invasion - just his history is a bit off.

In fact, you could better argue that Google is Germany - fighting another front with the Allies (Microsoft and Yahoo) already, it now wants to invade Facebook (Soviet Russia). This is probably more apt, as its an ideological fight for hegemony between two structured ways of organising the Web citizens. In which case Wave is Stalingrad and Bing is El Alamein..... (and followin this, Google is eventually partitioned between Facebook in the East and a Microsoft/Yahoo alliance that lands in their back yard.

But I think there is a better narrative - go back 15 years and look at how Microsoft didn't "Get" the Internet and the Web. They continually handed the resposnsibility for attacking "The Web" to underlings, who kept on failing because Microsoft as a whole was not on a "war" footing and mobilised to take on Netscape.

This changed only when Bill Gates himself turned the company around onto a "war on Netscape" footing (on Pearl Harbour day in 1995, as it happens), ordering Microsoft to throw everything at the Internet browser market. At the time, Netscape's share of that market was close to 90%; by early 2000, Netscape's share had plunged to 20%, and Microsoft's browser appeared to have won this war.

So, on this narrative path, where is Google?

Google has chosen a General in their War With Facebook – VP Engineering Vic Gundotra, we’ve heard from multiple sources. This is the person who will control overall product strategy and execution around their new efforts to find relevance in a quickly changing Internet landscape that is increasingly dominated by Facebook.

Nope, Google are not yet on a "War on Social" footing. They will only really start to win this one when The Triumvirate issue a similar Pearl Harbour memo to show they are really serious and prepared to shift the company's DNA, and take charge themselves.

What they are doing now may be Magnificent, but its not War and will likely be as ineffectual as the Charge of The Light Brigade.......

George Santayana once said "Those that cannot remember the past are condemned to repeat it". Nowhere is that more clear than in the breathless excitement today that Android has caught up with iPhone sales:

NPD's number crunchers have just announced their findings for Q2 2010, concluding that 33 percent of phones sold during the period had Android on board. This marks the first time in eons (Q4 2007, to be more precise) that RIM has not held the crown of most purchased smartphone OS on US soil, with its BlackBerrys accounting for 28% of the market and Apple's iPhone occupying third spot with 22%. Motorola and HTC are the key suspects fingered for Android's continuing ascent, with the "large screen allure" of their handsets playing well with the buying public.

This has of course led to lots of speculation about The Rise of Google, The Death of Apple, etc etc. But that totally misunderstands Apple's 4 decade old strategy - to go for maximising market return, not market share. This started in the 1970's with the original Apple II PC market and continues to this day - Apple like to take the 15 - 20% top margin customers in the market and leaves the (continually commoditising) remainder of the market to be fought over.

So, Tech pundits of today - get out your (Internet and Computing Technology) history books before penning another line.....

It has been clear for many years that the big New Tech analysis houses exaggerate the future impact of (sales, penetration, benefits etc) of new technologies (the Gartner Hype Curve was invented for the sector after all). The reason is also fairly well known - no one buys research from people who tell it like it is most likely to be, because then few business cases would fly, few VCs would invest and then where would we be.

We routinely divide Mobile industry projections by 2, as we know most will be reduced to this level 2 years later.

What I had never really understood though is why Tech Analysts from the Investment Banks were the most overoptimisitc in the dotcom boom (Henry Blodgett and Mary Meeker are the most infamous). An explanation from McKinsey shows why:

McKinsey research shows that equity analysts have been overoptimistic for the past quarter century: on average, their earnings-growth estimates—ranging from 10 to 12 percent annually, compared with actual growth of 6 percent—were almost 100 percent too high. Only in years of strong growth, such as 2003 to 2006, when actual earnings caught up with earlier predictions, do these forecasts hit the mark.

The capital markets, by contrast, have been more realistic: except during the 1999–2001 market bubble, actual price-to-earnings ratios were 25 percent lower than those implied by the forecasts of analysts.

So there you have it - Tech Analysts over hype, Equity Analysts are Overoptimistic, so Tech Equity Analysts...well, the 2x2 above explains it all