Most platforms gain traction through a killer app. In the second generation of real time, that killer app was market data for financial traders. What will it be in the third generation?

Today, the real-time Web is associated with social networking status updates via services such as Twitter and Facebook. But whether this will be the killer app for this generation is not clear. As we enter a period of “social update exhaustion” (as in, “I really do not care what you had for breakfast”), the real-time Web may evolve into things that we really need to make a living or to get essential stuff done. The killer app matters, because the winner at the platform layer will be the company that hosts it.

Other Killer App Contenders

We think the killer app is something we call “trading scarcity.” Let’s first look at three other contenders:

  1. Data portability

    Because the real-time Web has grown out of social media status updates, the typical killer app that people have been working on is data portability: automated connections between different social networking sites. This is certainly how Gnip has positioned itself. Question: is this interesting to people other than the social media experts who write about it? Or is the mass market happy to choose one site and stick with it? Will we simply see bilateral negotiations between sites emerge, along with basic best practices?
  2. News delivery

    Question: is this interesting to people other than journalists and bloggers? News is a fairly big business, but in the big picture, it is only one niche. How many journalists are there? If all of them used Twitter all day long, would it be a big business?
  3. Customer service

    The ability to react to problems in real time, to nip problems in the bud, is important to companies of any size. This is big. Question: how practical will implementation be? The ability to respond quickly is only one aspect of good customer service; the other aspects (hiring, training, motivation, corporate policy) are both more critical and more complex.

The Law of Supply and Demand Has Not Been Repealed

The free, abundant digital domain is mirrored by an expensive, scarce physical domain.

Online, we tend to focus on the free, abundant digital domain. The debate on Freeconomics rages today, but the basics are simple. The Internet is an enormous, almost-free copying machine for anything digital, so price will tend towards $0. Air is the most precious commodity in the world (try going without it for a few minutes), but it is free (notwithstanding negative externalities).

But all that free stuff must be paid for by something that people would pay for. That is where the expensive, scarce physical domain comes in. People pay more for things when the demand is high and supply is low. So to make money, you need to sell products and services that are scarce… and in demand.

Or you could make money by connecting supply and demand using the real-time Web.

But it has to be real time. That is the whole point of scarcity. A hotel room may be available for $75 right now, but 10 minutes later it could be $125 (or $50). Acme’s services are available right now for $150 per hour, but 10 minutes later it is charging $200 because it is more booked up. You see a hand-knit cashmere sweater available right now for $350; it’s the only one, you want it, and it might be gone in a few minutes. Premium ad space is available right now for a CPM of $15… no, make that $17.

I could go on and on. This affects almost every market in the world. Plenty of untapped opportunity lies here for enterprises, startups, Main Street small businesses, and individual free agents.

Entrepreneurs have big technical challenges to work on. Message delivery (which we explored in our last post on the subject) is challenging enough but very minor compared to the devil-in-the-details issues at the application layer. These will have to be solved in domain-specific ways.

In this world, the status update tends to go from a socially driven message (“I just did this. Are you interested?”) to a more commercially driven message (“This is what I have available right now at this price. Are you interested?” or “This is what I need right now. Do you have it?”).

Like fresh fish? Are you willing to pay more for fresh, healthy, and delicious than stinky, old, and sickening? Then go here.

Trading Attention and Endorsement

For those of us who were steeped in the early days of social media, this all sounds a bit too commercial. Surely we are not just economic animals, are we? No, we are not. Maslow’s hierarchy of needs stated that clearly.

But even if you take money out of the equation, we are still trading in scarcity – in this case, the scarcity of our attention.

You have only 24 hours in a day and 365 days in a year, and the average life span is around 80 years. You are a limited resource. Sorry if that is news to you. 🙂

You are getting pinged from all around, forced to constantly make decisions about where to allocate one of your finite resources: time.

Your other limited resource is credibility. Social networks want you to endorse (that is, sell) their services to your friends. They may pay you in cash or ‘Attaboys, but whichever you take, you are dipping into a limited pot of credibility. Shill too much, and your friends will abandon you. Ask any Amway or multi-level marketing sales agent, and they will tell you how that works.

Eliminating the Curse of “May You Have Much Inventory”

Inventory is the curse of any business in the expensive, scarce physical domain. Think of what Dell did in the PC business: it used real-time supply chains to eliminate inventory, building each PC to order. This is as close to magic as you can get in the expensive, scarce physical domain. You turn negative cash flow (working capital that you need to expand) into positive working capital cash flow: you get an order, get paid, and then you pay the supplier. Perhaps on the real-time Web this all happens close to simultaneously, so the very concept of working capital begins to disappear.

Explaining the business value of trading scarcity using the real-time Web is not difficult, then. Ask any company, “Do you want to eliminate inventory?” You will get its full attention. This is not technology looking for a problem to solve. This is the biggest problem that most business people in the expensive, scarce physical domain (i.e. the real world) face every day.

What This Means for Real-Time Web Players

Envision a future where this has played out. Most of the world’s transactional opportunities flow through the real-time Web. You can tap into that flow to buy and sell. And you can be an intermediary, which is fundamentally the role of aggregating demand. What systems would you use in that future?

Those systems are the ones that the winners of the real-time Web have to build.

It won’t be simple. Meeting the challenge in one domain is complex enough. Building the platforms that accommodate multiple domains will take a lot of work, and we are at a very early stage.