Home Dancing With Gorillas: The New Web Era

Dancing With Gorillas: The New Web Era

The new Web era is about the mainstream. This is when millions of small businesses and digital free agents make a good living by providing better products to a much more savvy market. This is the point in the Crossing the Chasm model when all the innovation stops, start-ups get consolidated into a few mega players and it all gets a bit boring until the next wave of innovation hits us.

This is the third in a 3-part series, by Bernard Lunn, on the new Web. Part 1 was The Whatchamacallit, Post Recession Phase Transition, Part 2 was The Emerging Main Street Web.

The Chasm model applies to the discrete waves of innovation and consolidation in specific technology markets that Moore was describing. It is less applicable today when the market is the Internet and the Internet touches the lives of billions of people every day; and is the primary communications, work and media tool for hundreds of millions of people. That market cannot consolidate down to a few players.

Nobody controls the Internet. Let me repeat that for people with fantasies or fears about a dark lord controlling the Internet. Nobody controls the Internet. The best candidate for controlling the Internet would be those two nice guys called Larry Page and Sergey Brin at Google. If you want to fuel these fantasies, read this incredibly prescient and technically sound post written in July 2002 (do you remember those dark days?). Ford does a good job predicting the total take-over of the Internet by Google by August 2009 (yes, less than 18 months from now). Or you can follow Silicon Valley’s traditional paranoia about their northern neighbor, the Beast of Redmond, in Dave McClure’s entertaining rant about Microsoft controlling us all via Hailstorm 2.0.

Both are entertaining and thought-provoking pieces, in the genre of Brave New World or 1984. They make predictions by extrapolating current trends far into the future. This usually does not happen and the biggest reason, as I recall my Literature teacher proclaiming, is because people are not sheep and they won’t let it happen.

We all love watching a good fight. Now that we are so civilized, we don’t go to boxing matches any more, so the geek variant of watching Ali vs Foreman in their epic rumble in the jungle fight in Zaire, is watching Google and Microsoft duke it out. Reporting on that gets onto the Techmeme front page and gets profitable page views from the audience.

That human drama has its inevitable ending. Boxers grow old. Nobody really thinks an old bruiser like Microsoft can actually control the Internet in the way they controlled the PC. Google looks a more likely contender, but they have plenty of weaknesses and there are plenty of up and coming contenders and big bruisers poised to give them a hard right punch the moment they leave an opening. Google also fully understands that any attempt to insert proprietary standards via lock-in will fail. That is why their services are loosely coupled. Which means that you can pick and choose what you want to use.

If neither Google nor Microsoft can control the Internet, nobody can.

Building features for the programmable web

The basic Web 2.0 venture play has been to build features for the programmable web (the web as a platform). It used to be that investors derided features – “that’s a feature not a product”. (For the next round, you had to hear “you have a product, not a company”.) The open standards of the programmable web changes all of that. It is possible to build a business around a single feature. The Web open standards makes that possible. It would like building an application on Windows knowing you could rely on things like cut and paste to work – but on a far, far bigger scale.

YouTube and Delicious are two examples, but most Web 2.0 ventures are based on features that are technically simple to replicate. The value was all in the viral marketing to create proprietary data. Voting yes/no on stories is a simple feature – and a sizable business at Digg.

Building features for the programmable web has been a great play throughout the Web 2.0 era. It looks a bit weaker in the new era without a clear revenue model. The real play for most ventures is to sell to one of the big guys. In a downturn that gets tougher.

There will be more programmable web feature ventures, with features that we cannot envisage today. Those that have a simple revenue model will do great. Those that are dependent on a big acquirer finding that revenue model will be much riskier.

Three types of opportunity in the Main Street Web

The future opportunity is to deliver value (read “extra income”) to the 3 key players in the Main Street Web:

  1. Independent retailers.
  2. Digital content creators.
  3. Global micro brands

Serious technology is needed again and a lot more feasible

In the mainstream era, we may see a return to models that require some more significant technology investment. These will be ventures at the top of the “new web stack”. In the old days we would have called them vertical applications. These were the CRM, ERP, banking and healthcare applications sitting on top of Windows or Unix (or VMS or MVS if you really are a historian). I am not sure what you would call them now. Vertical Search is weak, just one feature waiting for the Google steamroller, social media site sounds too Web 2.0ish and Yet Another Social Network. My best attempt has been Emergent Business Network.

These systems have functional complexity, require deep domain experience and they are mission critical. They are driven by multi-party transactions which all have to “true up” to books and records accounting in multiple systems. This is not a simple hack with a scripting language. This will need the full multi-tier enterprise stack, probably using Java.

Which will need a lot of R&D capital. In the old days, vertical enterprise apps were bootstrapped by revenue from a few large customers, in a messy process that I would summarize as “three custom jobs, generalizing more each time, to get to a product”. That won’t work in the Web Main Street era, as all the companies are small. So this needs VC cash. They have record amounts of cash in their coffers so no worries on that score. And sustainable advantage based on technology is what they know.

Some VCs have a knee jerk dislike of vertical. “Its too small a market”. That used to be true. VC certainly would not have funded a banking application limited to VMS. A banking system on top of Unix or Windows? Maybe, but those were usually bootstrapped and did not need VC.

But a new online financial exchange? Sure.

A vertical niche that would have been way below the VC radar screen in the PC era can be a $100m plus revenue business in the Internet era.

The new web stack

What we have seen in the last few years is a quiet but dramatic shift in the stack. Sure the LAMP stack and variants are still there but the stack now looks more like three really, really big layers:

  1. Applications (as always) on top
  2. Programmable Web – libraries and APIs – in the middle
  3. Hardware As A Service (Amazon, Google, others) – at the bottom with all the traditional stack components.

The bar has been raised in both ways. The more powerful stack makes it easier to build, you are “standing on the shoulder of giants”. However this also raises the bar at the top – the one you need to grab. Just another e-commerce 1.0, or vertical social network or content aggregator won’t cut it in the new era.

Profit from gorilla paranoia

The web stack is so much more powerful and will continue to get better because the big gorillas are not complacent, they are rightly paranoid about their competition. This is the free market magic of competition driving innovation. Understanding how to use the competing platforms to best advantage will be key to entrepreneurial success.

Entrepreneurs can profit from the play-books of the big guys. They are all building out these mega, end to end, platforms that, yes, if totally successful would make them the dark lord of the Internet. Not just Microsoft and Google, but also Amazon, eBay, Facebook, possibly Apple and perhaps even Sun again if they pull off another one of their great return-to-relevancy plays.

Each of the gorillas knows that they have one overriding advantage (PC OS/Apps for Microsoft, search for Google, e-commerce infrastructure for Amazon, social graph for Facebook etc). Each knows that they cannot rely on that single advantage, so they build/buy the rest of the platform. A classic move is to give away the feature that they most fear from their biggest competitor. It is an attempt, occasionally successful, to take away their competitors cash cow and distract them. Google Apps looks like that kind of play (vs Microsoft Office).

That makes for a lot of free or dirt cheap stuff.

The key lesson for entrepreneurs is that the programmable web enables you to pick and choose. It did not use to be like that. You had to choose IBM or Univac on mainframes, DEC or HP in minicomputers, Windows or Unix in Client/Server. Each decision had far-reaching consequences. You were really locked-in.

That is no longer true in the programmable web. You can use Amazon web services, Google Web Toolkit, LAMP stack from Red Hat, YouTube for videos and any number of specialized APIs. The power to create sophisticated, complex web based systems has grown exponentially.

With this new power at the disposal of entrepreneurs, the gating factor is now the spark of innovation that will solve problems for millions of people in the real world, helping people in Main Street to make a living.

Build for the future and build for real

This has been a long post. Including the first two posts in the series, it has been a really long post. To those who persevered, thank you and I hope it was helpful. Nothing lasts forever. The Web 2.0 era has been great and everything we build in the future will use what has been created in this era. But the times are as always changing and entrepreneurs need to build for the emerging demand, the demand that is not quite obvious today. “Skate to where the puck is going to be, not where it has been.”

Think revenue. Web 2.0 solved the cost problem. The next era will solve the revenue problem in basic simple ways that everybody can understand. Making money online will happen if you enable other people to make money online.

Image credit: BohPhoto

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