Monthly Archives: April 2011

Part 1: How will our business models change — now? And why?

Analogous to living things, organizations and business models come in many different forms and develop in many different ways, all subject to:  internal operative structures and “intelligence,”  intermediating membranes and interfaces, and myriad conditions posed by the external environment.  Relying on some earlier analysis of a cross-section of businesses, IBM’s 2008 paper “Seize the Advantage:  When and How to Innovate Your Business Model” (pdf link: IBM Business Model Change ) provides some penetrating insights into how business models change in response to different conditions.

The paper succinctly identifies its purpose:  “Our follow-up research to the IBM Global CEO Study 2008 seeks to answer: When should organizations innovate their business models, and how?” 

There are a good number of insights drawn the data of the preceding surveys, including what may be the frequency of different types of  business model changes at different phases of the business cycle.  A more basic observation is that, over time, environmental stresses (changes in markets, competition, technology, etc) eventually will bring organizations to a point where incremental business model change will not suffice:

Or as the authors explain:  “Industry transformation drives the need for business model innovation.  During periods of relative stability in the industry landscape, companies can make incremental adjustments to their business model over extended periods of time. They can continue to realize the economic benefits of their existing business model. During periods of extensive industry change, however, companies must choose to either shake up their industries – harness disruptive technologies, go after new customer segments, dislodge competitors – or face their own demise” 

 The research also distinguishes three broad types of business model change or innovation (shown here): 

The paper reports that Revenue Model changes are relatively simple, while Industry and Enterprise Model changes are much more difficult, but tend to have more significant outcomes (and correspondingly are more postively associated with the “Outperformers” among firms making business model changes). 

In one of the source surveys (on which the referenced paper is partly based),  other interesting details are present:

By 2006 (and continuing through 2008), Technological Factors joined Market Factors and People Skills among the top 3 factors that surveyed CEOs cited as driving business model change or innovations.  This should be expected as businesses started to climb out of recessionary conditions and renewed investments in technology.

But what are the implications for today?  I can’t be  sure, because I have not seen a continuation of this data;   but I would suspect that Technological Factors, for many businesses,  continue as top drivers of business model change (more than even now in 2011 —  with the maturation of mobile device technologies,  the increasing maturation of cloud technologies, and the gradual re-opening of access to capital).  I would like to know whether current conditions, especially in Technological Factors, will be driving more Industry Innnovation and Enterprise Innovation in business models than was recorded in 2008.  My hypothesis is that, in many sectors,  this will be the case.   But where in what ways will this happen?   What will be the industries and types of businesses that will see the most change and innovation in business models?   What will these changes consist of, and what will they mean with respect to business  incumbents and new entrants?

Saugatuck: Cloud, Crowd, and Equity Funding Innovation

A Cloud-enabled, socially-driven, emerging capital formation technique called Crowdfunding is showing signs of disrupting traditional capital investment and funding models, potentially changing how (and how quickly) new businesses come to market, and how established businesses fund marginal business changes. http://saugatucktechnology.com/Browse-Research/875RA-Cloud-Disrupting-Capitalism-Crowdfunding-under-SEC-Consideration-723/View-details.html

Huffington Post (Redux): Not just business as usual…

I just can’t seem to let this one go. I am back with follow-on thoughts to my previous post, “The Huffington Post: A short course in platform economics” http://andrewkarpie.com/wordpress/?p=361. I am really not sure of what is making this phenomenon so engaging for me. But I think it is the window it provides on a rapidly developing information-services platform business that is subsuming and reorganizing traditional business sectors and business models (journalism, media, newspapers, etc.) and is transforming basic models of production, distribution, and consumption.

Online news delivery is not a new concept (in fact, the NYT was one of the first to offer an online edition — basically an electronic newspaper featuring all of its proprietary journalistic production featured in its print edition). I seem to remember that when it first came out, you could download a copy to your laptop, so that you could “read the paper” on the train or in the park. Initially, as I recall, it was not free, and adoption was not high. So consumption was changed a bit, distribution a bit, and production not at all. The established business model remained more or less intact: professional journalists produced (journalistic content), the newspaper/media business provided the profit-making, regulating distribution engine that packaged and delivered news and commentary (under a brand), along with paid advertising, to paying subscriber readers. We could call this business model the industrial production or supply chain of the news.

Some things are very striking about the whole Huffington Post phenomenon — including its speed of penetration/growth, its rivalry and contrast with the inveterate NYT, and its legal conflict with “volunteer blogger journalists” — all somewhat analogous to, but very different from, the Napster shake-up (and resettling) of the music industry. Somehow, though,  this phenomenon seems to throw many changes and issues  into stark relief, as if captured from fast action into a still photograph (austerely black and white, of course).

One thing should be clear to us, from this and other developments: the “supply chain” of news is being dismantled (or at least reorganized) by forces not entirely within the control of the established stakeholders, and the means/modes of news/journalism production, distribution, and consumption appear to be “up for grabs.” I wonder how many of us pause to think about whether this should be a cause for a “sense of liberation” or for “deep worry and anxiety.”

Another thing this phenomenon brings into clearer focus is how not only journalism/news distribution is changing, but also how production and consumption are radically changing, with co-production and co-consumption commingling in a complex dance. As the Huffington Post has argued, volunteer blogging providers of news and journalism (apparently accounting for less than 20% of Huffington content) are actually being compensated (for the content they provide) by being given access to the Huffington exposure/visibility platform — so it’s not that a balanced economic transaction did not occur, it’s just that it did not involve any monetary exchange. Moreover, it has been pointed out by Huffington, that consumption of journalism/news is not just about passively “reading the newspaper” (maybe sending an occasional letter to the editor); consumption now includes the act of responding and participating (actually participating in the production of journalism and the news!).

So what does all of this mean? One thing is for sure, it means that technology-enabled platform entities have enormous power to bring about significant, rapid change in existing business sectors and models, institutions, and human patterns of behavior. Disruption effects of technology, however, are certainly not new to us. We have seen such transformations in consumer finance, retail, travel, etc..   So what, if anything, makes this phenomenon so noteworthy?

As I think more about it, I come to think there are at least two distinctive characteristics of this particular case.

  • One is that, in this case (relative to those of the past), there is less experimental about the development of this platform business. There is more deliberate strategy and tactics, based on accumulated experience and expertise, than would have been so for earlier business model transformations in other verticals. On the one hand, this is a trivial observation; but on the other hand, it is indication of the development and solidification of a platform business management body of knowledge.
  • The other is that there is something about journalism/news that separates it from pure commercial enterprises and activities (such as in retail or travel). We are not dealing with pure commercial transactions, but rather transactions (a not very adequate term in this case) that have many more signficant dimensions beyond economics. Many social network platforms, such as Facebook (at least in its initial phase), have focused on structuring human relationships, without any commercial transaction involved (something changing presently in the case of Facebook).  In the case of journalism/news, the restructuring of human relationships is also evident (though more of a bi-product) — and there is much, much more involved.  In this case, the object of value which is being produced, distributed, and consumed is not simply something with economic value and impact, its significance and impact are more far reaching for humans and society:  information access, visibility, validity, etc..  While online consumer finance certainly involves all of these dimensions (including that of government regulation), in the case of journalism/news, it is most definitely at a whole different level (including that of government, where in the US  a key constitutional principle is involved).

So it appears the Huffington phenomenon is an example of another modern, information-services platform business wreaking havoc and transformation among established businesses and institutions.  However, in this case, the event and process illuminate much more. 

What exactly?   I am still not sure — but it does raise some questions in my mind:

  • How does the balance of economic power and the allocation of economic benefits/incentives shift among different parties (professional journalists, consumers, and finally the advertisers and other interests that may want to channel, shape, or embed themselves in the streams of news and content flowing through the platform)?
  • What is role of the platform owner? Is there ultimately a controlling role or some other type of continous role that enjoys economic rents and returns, (or is the platform owner’s role simply to catalyze creative-destruction driven by technology–though seemingly not a rational outcome)?
  • Will the platform unbundle into mere commoditized technology (like the old public telephone network), on the one hand, and information filtering/fact checking/routing functions, on the other, that somehow create and regulate higher level social networks between those who have reason or incentive to exchange information?  Or will the information filtering/fact checking/routing functions be direct services of technologies that individuals (or others) manipulate, like so many dials and contol bars, to tune into just the right “mix” of certain news, music, other entertainment, etc. that will integrate into the flow of consiousness — ever so seamlessly?   The potential is there for enhanced individual control over one’s own life (aka real information, freedom) — as well the opposite.
  • What is role of government in the matter?  Is the press free enough on its own, or is  there an obligation to further guarantee a “free press?”  And if so, what would that mean in terms of what a “free press” should be?   Should the action be proactive (through,  for example, the FCC), or reactive (though the political process or the courts)?   Should a NYT or NPR be supported financially by government, as financial institutions or automakers have been — or, at the other extreme, defunded by intended or unintended effects of public policy, leaving the market to work?

The Huffington Post phenomenon…    yes, an interesting business case study of a modern platform business (issues of network effects, co-production, etc.)…    But clearly it is much more.  It is a case where the significance of a modern platform business extends well beyond issues of mere e-commerce transactions and requires serious attention to many highly important issues and questions in the private and public spheres.

Service Design: Stepping up and looking down from the Cloud…

Service Design is clearly a discipline that sees itself as allied with information technology to a signficant degree, especially as IT increasingly enables the transformation of  existing services, business processes, and value streams (as well as the invention of entirely new ones).  In coming years, Cloud technology is likely to have a revolutionizing impact on:   what services there are, what they consist of, how they will be produced and consumed, and what their value and cost will be.  This will be true at an atomic level (of specific services consumed discretely) as well as at the macro level (of long-lived transactions and service episodes managed for people, enterprises, and systems across multi-party ecosystems). 

The 20 page paper by Hagel and Brown (Deloitte), “Cloud Computing Storm” (cloudcomputingstorm) goes way beyond the usual highly-technical discussions of Cloud as a virtualized IT infrastructure.  The paper does an excellent job of defining Cloud technology and discussing its likely evolution and impact on services and related organizations.

It also does a number of other things that should be equally of interest to students and practioners of Service Design.  These include defining concepts such as a Business-as-a-Service or BaaS layer (of a cloud services reference model) or the distinction between “short-lived” and “long-lived transactions” and the role of  “Service Orchestrators” in creating and managing valuable transactions/services, on behalf of end users, across multi-party ecosystems. 

Pages 6-9 of the study, in particular, provide an extremely insightful perspective on how a whole range of services could be organized under a Cloud paradigm (in this case, a set of far-reaching travel services that are being or could be provided/orchestrated by a company like Rearden Commerce).  Pages 14-15 provide an interesting overview of the potential for application of Cloud technology in healthcare.

This is a must-read paper for Service Design professionals (link to read now or download):   cloudcomputingstorm

Hagel and Brown: Insights into business implications of Cloud

An astute colleague of mine recently introduced me to the impressive writing and thinking of  John Hagel and John Seely Brown and the resources of Deloitte’s “Cloud Computing – Center for the Edge”.  Hagel and Brown are precisely focusing on the ways in which Cloud may affect the development (and outcomes) of new and existing businesses and the execution and management of new and existing transactions and processes among multiple parties of industry value systems/ecosystems.  

In their extremely lucid  paper, “Cloud Computing Storm” (see cloudcomputingstorm), Hagel and Brown —  in addition to  forecasting four levels or phases of “technology disruption” from Cloud —  also provide very useful definitions of what to-date has remained for many a “cloudy” subject.  They insightfully break Cloud down into four “layers:”  Intrastructure as a Service (IaaS), Platform as a Service (PaaS), Software as a Service (SaaS), and Business As a Service (BaaS).  These quasi-architectural layers range from generic supporting infrastucture functions/services all the way up to complete, ready-to-go business process or value stream services. 

Given that most early-stage industry focus has tended to be on IaaS and PaaS (cloud computing), most interesting from my standpoint is Hagel and Brown’s identification of BaaS and its role and implications:  “BaaS includes application functionality coupled with physical and human resources required to perform a broader set of business activities –typically a major module of activity in a broader business process (e.g. a call center module, as part of a customer service process), or in some cases the complete business process itself (e.g. fully cloud-based supply chain management).” 

For more info related to Hagel and Brown’s observations and ideas, here are just a couple of links:

http://www.deloitte.com/view/en_US/us/Insights/centers/centers-center-for-edge/817495aec20c2210VgnVCM100000ba42f00aRCRD.htm

Is there a difference between the late 20th and early 21st century professional? Gartner says uh-huh…

The exponential growth and penetration of non-transactional, user-oriented, and “everything-spanning” information technology — in life and work, over past 20 or so years — has fully altered the foundations of work and what it means to be a skilled, knowledge worker/professional in almost every area of the economy.  Are businesses and educators responding adequately to this radical shift of conditions?  Are professionals?  Are we thinking about and internalizing the implications of the changes we have been observing and experiencing around us (in technology, in work patterns/organization, in newly defined jobs/roles)?  Can we imagine what would be the jobs of the economy, which my son might enter in 10 years or which I will be performing?

To add impetus to your own thinking about this important question, see this summary of the Gartner Group Study:  “Gartner Says the World of Work Will Witness 10 Changes During the Next 10 Years:”

http://www.gartner.com/it/page.jsp?id=1416513

Outlook on platform business model and strategy challenges from Telco 2.0

Telco 2.o has recently released  The Roadmap to New Telco 2.0 Business Models  (link and summary below).  Provides insights into business model and strategy challenges and choices faced by businesses in the “continuously-in-revolution” telecommunications industry (no doubt, these  ideas and perspectives are relevant to other types of platform businesses)

http://www.telco2research.com/articles/SR_Roadmap-to-new-telco2-business-models_Full
Summary: This groundbreaking 284 page Strategy Report plots the transformational path that telcos need to follow to achieve the $375Bn p.a. ‘Telco 2.0′ opportunities. It describes the six growth opporunity areas for the Telecoms industry, identifies new categories of operators, benchmarks the primary strategies needed by each to evolve and thrive in the new industry environment, and highlights leading examples of telco business model innovation. 

The Huffington Post: A short course in platform business economics?

Students of platform businesses would do well to closely examine the extraordinary life of The  Huffington Post (born in 2005 and sold to AOL for over $300M in early 2011).  The recent acquisition and the on-going and intensifying claims of “volunteer blogging journalists” have projected a new light into this increasingly popular liberal news outlet and platform business.  While new insights have become possible, many useful questions have now been thrown into relief, making this an interesting case study for platform business models in journalism and media — and generally as well. 

A great starting point for diving into this subject is this February 2011 article, “The Economics of Blogging and The Huffington Post,” published in the New York Times feature column, “Five ThirtyEight:  Nate Silver’s Political Calculus:”  http://fivethirtyeight.blogs.nytimes.com/2011/02/12/the-economics-of-blogging-and-the-huffington-post/.  Somewhat untrue to his own byline, Silver does do an excellent job exposing the under carriage of the economic calculus of a media platform, including the phenomenal growth in subscribers, relationships, transactions, network effects, etc. leading to an acquisition valuation of  $315M in hard cash and softer stock.   The details are mind-boggling (if not mind-numbing).

In keeping with the competitive rivalry between the “up-start start-up” (The Huff) and the liberal-news market publishing leader (The Times),  Arianna Huffington later let loose her merciless April Fools Day satire (http://www.huffingtonpost.com/arianna-huffington/a-word-about-digital-subs_b_843385.html?ref=fb&src=sp#sb=1223615,b=facebook) of the New York Times‘ (then-recently-announced) plans to begin charging subscription fees for full access to the NYT on-line edition. 

Two platforms, two business models, vying for market dominance–right before our very eyes.  This is exciting stuff!

So what kinds of issues and questions do we have open before us?   Here are just a few that come to my mind:

  • What makes a platform business like the  The Huffington Post achieve such accelerating growth?   Sure it’s right time and place, but specific strategies and tactics have had to be present.   What were the key ones?  Do existing models account for/explain this?  Does anyone have any idea if The Huffington Post is even profitable?
  • What are the advantages and disadvantages/challenges of a platform business like the New York Times?  Is it another newspaper publishing dinosaur?  Can it survive, let alone continue market dominance?   Whether it can achieve it or not, what would it have to do to survive or prevail in the new journalism-media market environment?
  • Even though journalism-media has always been a platform business (originally organized around printing and publishing)  what about the business model and the business ecosystem is changing, and what is staying the same?  Information technology is an obvious factor of change.  Beyond that, the model for sourcing and distribution of journalistic content has also shifted radically over just a 10 year period.  How does a “new generation,”  journalism-media platform business become and remain commercially viable over time?  In the future, will we really need one (or can access to our preferred technology and connections in the Cloud be enough)?

The life of a “swiss-army knife professional”

Like the venerable Swiss-Army Knife itself, the “swiss-army knife professional” can serve many purposes and accomplish many things (as the need arises).  The Swiss-Army Knife’s character of “useful readiness and versatile effectiveness” is very well-known; but when it is folded up into someone’s pocket,  it is  a very unobtrusive thing (for all appearances, just a small, unassuming, red plastic object — of  limited  value…). 

But in the field, where both the expected and unexpected can and do happen, the unassuming object bolts into action (cutting, opening, unscrewing, filing, hacking, magnifying, navigating, etc.).     So too the “swiss army knife professional.” 

And did you know, the “swiss army knife professional” (like its less animate and intelligent – -though nonetheless useful — cousin) is not a product as easily developed and manufactured as a steak or butter knife, or even a scissors?   No, it is a product of evolutionary design (constructed over time, through trial and error), leading to a tool, uniquely-purposed, versatile and valued.  One even comes to wonder how many tools and capabilities an individual “swiss army knife professional” can acquire and develop over the years, and how amazing it is that all of it could even fit into one person’s pocket.

What is Service Design?

Service Design is a relatively new business discipline and practice that has emerged over the last 20 years with the development of new services (and modes of service) enabled by new technologies. The following wikipedia article provides a good overview:  http://en.wikipedia.org/wiki/Service_design