Business Model Design for Web Services: Ethan Bauley

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Information about Business Model Design for Web Services: Ethan Bauley

Published on March 4, 2008

Author: cokoo1



Overview of network economics and business model design for web services & media companies.

Survery of Umair Haque, Yochai Benkler, VC-scape, Web 2.0

Presented at BarCamp LA 5 by Ethan Bauley, principal @ SpimeCo.

ethan /at/ spimeco

Bubblegeneration & Benkler: Business Model Design for Web Services (& MediaCo's) Ethan Bauley // BarCampLA 5

What's the plan? • Fundamentals • Explore writing/analysis of 2 leading thinkers on network econ • Brainstorm business ideas/models • Technology innovation v. biz model innovation: technical_innov.html

quot;Sometimes…these nonmarket collaborations can be better at motivating effort and can allow creative people to work on information projects more efficiently than would traditional market mechanisms and corporations. The result is a flourishing nonmarket sector of information, knowledge, and cultural production, based in the networked environment, and applied to anything that the many individuals connected to it can imagine. Its outputs, in turn, are not treated as exclusive property. They are instead subject to an increasingly robust ethic of open sharing, open for all others to build on, extend, and make their own.quot;

What is Bubblegeneration? • • Umair Haque • Forthcoming book via Harvard Press • Bubblegen: Rethinking institutions of can quot;2.0quot; tech solve serious 3rd world issues • HBS blog: who will redefine brands? •

Typical Umair-ism: quot;I think there's a simpler way to put it. Most ad- supported startups will fail simply because 1) ads suck, and destroy value, and 2) they're not creating new value by making said ads any better. quot;In fact, the less they all focus on making ads better, the worse each of these players is, because the mediascape just gets more polluted. quot;It's a classic example of a negative equilibrium.quot; (just try Goog'ing quot;negative equilibriumquot;)

Markets, Networks, Communities • 3 modes of organizing that create value more efficiently than traditional org: FIRMS • AdWords, eBay=markets // Wikipedia, Drupal, craigslist=communities // MySpace, PageRank=network • Basic strategy: have a firm that makes and/or services an M/N/C (scales with higher & faster returns than doing it all within a firm)

“Edge Competency” (vs. “Core…”) • Usually takes form of web-based service (or network-distributed software generally) • Nerdness: cheap information dis- integrates value chains into highly specialized segments • Shift to the edge a reaction against hyperfragmentation; too many players for a firm to coordinate

Why are M/N/C’s so efficient? • Fundamental economic innovation derived from new techs: cheap coordination (i.e. communication) • Allocate resources better than meetings, memos, etc • Build & access social capital easier than firms

This is different for most business peeps • Building and sustaining M/N/C’s requires a completely different DNA. • Not about “selling out”, making cash at any expense • We want to create value without taking value from somewhere else • Good beats evil; open beats closed; a.k.a.“user focus”

Example: Music Licensing Agency • “Core” competency: taste/ear, relationships with licensors and record labels • “Edge” competency: online market that enables licensees/licensors to self- coordinate

More on the Edge • John Hagel:

M/N/C’s: “Peer Production” • “2.0 technologies allow production to be ‘atomized’ -- subdivided into arbitrarily fine microchunks of value activities. Prosumers can self-select and manage their own interactions with these microchunks, rather than incurring costs of managers, red tape, etc” • Newspapers atomized = classifieds (i.e. craig), blogs, rss readers, ad networks

Granular/Modular microchunk example: Music Service • iTunes: repository of recorded music… • Can sort of be remixed (playlists) • What if there was no DRM and every song’s individual multi-track recordings were available to be remixed and reused within iTunes?

Biz Model implications • Leverage multiple network effects • 1: simple network effect (you joining the community increases my value b/c it is more likely we can produce something valuable) e.g. fax machines • 2: IF the service is designed so that lots of tiny contributions are equally valuable to one big contribution, and so that the constituent parts of the project can be remixed and reused, the total value of the network of microchunks is greater than the additive value.

How do you figure out your Biz Model? - People pay to have problems solved - What is the problem you're solving? Who's problem is it? - In M/N/C, often many different parties you're solving a problem for...who's more desperate? - Scarce v. non-scarce resources

Resource for Biz Model Dev: VC BLOGS - VC pitches: standardized 15 slide deck: - - - - ...frame your service in these terms...these resources are all you need...

What are some operational Biz Models? Subscription, advertising, a la carte payment, micro payment, auction/open pricing… ? List of business models: %20List

More Umair-isms • Context (quot;connected consumersquot;) • Attention economy (v. abundant info)

Interesting M/C/N businesses craigslist, Y Combinator, GOOG, Wesabe/ Mint, GetSatisfaction,, Kaltura, DonorsChoose, MeetUp, Magento, Threadless, MyFootballClub, TipJoy

• Non-market social production is creating a increasing share of economic value • Lessig: quot;This is by far the most important and powerful book written in the fields that matter most to me in the last 10 yearsquot;

Yochai Benkler • Bruce Sterling SXSW 2007 rant • quot;Commons-based peer productionquot; • SETI@home, NASA project, Apache, Wikipedia...PAGERANK • Only barrier to communication: desire to communicate • Political implications: everyone views through the lens of someone who can interject into the discussion

What are some businesses/ biz models/web apps for... a quot;blog guildquot;, credentialed journalists, musicians, auto mechanics, people with dogs, local bars, grocery stores, Hype Machine, skin care product manufacturer, investment advisory, Twitter… ?

Main lesson I’ve gotten… (It's still not obvious to many) Everyone (esp media) should be a software company

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