Thursday, March 30, 2006

Did You Hear That Tree Falling?

SXSW and the IA Summit must have given everyone a hangover. On Technorati, there are barely 3 pages of blog entries about Flickrites Stewart Butterfield and Caterina Fake appearing on the cover of Newsweek!

Now, your reaction may be that this is just a confirmation of the bubble. Be such a cynic at your own risk. My mom reads this magazine back in St. Louis, and now she might finally understand what I do!

Now, I won't say, "This is the best story ever!" It's ok, but gives too much space to myspace and the hangers-on that are trying to capitalize on exactly the same idea. BORING!

However, the story is a good intro for neophytes and indicates that there is a growing acceptance past the technorati that the Web isn't just for breakfast anymore. The highlight of the story is this nugget about 3/4ths of the way through:
Flickr was a good business, too, as many users chose to pay the $25-a-year fee for unlimited photo storage and relief from advertising on the site. But that's not why Yahoo bought it for an estimated $35 million. "With less than 10 people on the payroll, they had millions of users generating content, millions of users organizing that content for them, tens of thousands of users distributing that across the Internet, and thousands of people not on the payroll actually building the thing," says Yahoo exec Bradley Horowitz. "That's a neat trick. If we could do that same thing with Yahoo, and take our half-billion user base and achieve the same kind of effect, we knew we were on to something."
The New Wisdom of the Web, Newsweek, April 3, 2006

What a great paragraph! Look at the business realities that this highlights:
  • Little capital, lots of revenue: a small number of users paying for a service can generate outsized revenues (especially per employee).
  • Goodbye command center and call center: A small number of people (10 in Flickr's case) can run and provide service for a site that supports millions of people.
  • Participation is good business: get users to help you build the community.
These scale issues highlight the challenges for businesses today. The vaunted barriers to entry are crumbling. I'm interested to see if some of the small companies take some of their capital and try to take on larger players in the market. I'm thinking something like Flickr buying a camera manufacturer or myspace buying a mall complex to create. That's a stretch, but it's fun to consider.

On the flip side, imagine a large company whose financial ratios start looking more like Flickr's than GM's!

Thus far, Amazon, Yahoo, and Google look like they have realistic shots at making something magical happen. IBM looks like it wants a piece, too. I'm skeptical about the latter.

Plenty of companies talk a good game, but how many of the business leaders you know or see on the news truly understand how deeply these upstarts are connecting with their customers? Or even have the time to really observer their customers?

The big question is: how can we show the teeming masses of Ford Excursion-sized companies that they too can create great products and actually get real participation from their customers?

Aside: It's fun to think of an economy built of companies like Flickr, 37signals, myspace, etc. The idea borders on ridiculous, true, and I seriously doubt that anyone really wants to go through the macroeconomic devastation that would come with the collapse of the large enterprise economy.


Ali said...

Great entry, added to my regular visits.


Kyle Brady said...

I love this blog, but you need to update more! I visit constantly, and only find the occasional update.