Monday, 27 May 2013

internet business model Part 3.0; of rules, methods, character, systems and economic models

[This is a re-post (originally posted on 25 Dec 2012) with minor edits, deleted the original post by mistake.]

This is the first post of seven that postulates a set of internet ‘rules’ ie. methods, systems, driving the internet economy that makes up part of its operating system.  This post is about values, what it is and how are values created in the internet economy.

In a meeting between a newspaper and Apple a few years ago in which the newspaperman tried to argue for better terms for news publishers, Apple’s response was something like this "I don't think you understand. We can't treat newspapers or magazines any differently than we treat FarmVille".  Similarly, phone calls will be free in time because it is no different to emails.  
{For blog & book only - Why it is not today is because of the momentum of the voice industry and the fact that it is still a controlled industry…..}

The internet, a vehicle of the information age, engenders its own operating model.   It is not obvious…yet. It is different.  The iconic large web companies are visible but there are also many other smaller online companies, innovative, using the new ‘rules’, what I refer to as internet business rules, to remake industries, create new ones.  Airbnb (‘hotel’ booking), Gilt Groupe, Yelp (review), MMC (music), Quora (reference), Vayable (travel agent) are some examples.  There are local success stories too but they are less visible.  The Gilt Groupe has a market capitalisation of USD1 billion in fours years and in the process redefining online retailing by “tapping cutting-edge viral and social marketing techniques to scale the customer base quickly” in an interview with Open Forum.

They exploit the internet business model with its unique set of ‘rules’.

Google Adwords is today’s best example of a new model for revenue generation.  Advertisements pop up when a search is made based on the words used in the search.  Advertisers pay Google based on the number of clicks on the words chosen such as Kenlen hotel.  Unlike traditional advertisements, Adwords is ‘direct’.  It’s nirvana for oriental advertisers who eschew waste and wants more certainty.  The consumer is more likely to look at an advertisement for Phuket hotels if his search is on holidays in Phuket.  There is also ‘immediacy’ if the consumer not only sees the advertisements, but place orders within the same hour maybe because it was compellingly easy to do so.  In Internet 2.0 firms’ parlance, this is about user experiences.  More of this later but it is not what we are used to traditionally although it sounds obvious.  And of course the reason you use Google to search in the first place is because they have a lot of content.  These were mostly ‘crowdsourced’.

The terms ‘crowdsource’, ‘direct’ and ‘immediacy’ are among a slew of the internet’s characteristics, methods, ‘rules’, systems and economic models which will be deliberated throughout these articles.  I shall not differentiate much because it is evolving.  Some of these like ‘direct’ and ‘immediacy’ are common terms but in the context of the online business, they have been deliberately used in powerful new ways, in ways only the vastness and connectivity ability the internet allows.  They are all part strategy, part economics, part ideology, part culture, part techniques and part business model.  We will do this by first exploring how the internet model creates, captures and delivers values be it economically, socially or values of other forms.

What is value?  Here it is financial and things of importance to people.  Financial is the easy bit.  You make money through the internet by selling unwanted items through eBay or become a sub-merchant there, use sites like online classified for your small business, use eCommerce to sell, trade in shares of internet companies, work in one or start one.  Wish you were an early staff of Facebook!  If you are a good gamer, you acquire online assets and sell them for real money.  Write a well followed blog and watch Google contact you to share advertisement dollars.  There is even a cottage industry where you get paid to hoodwink Google by posting links to selected websites to increase their search ratings but that’s a bit like some Wall Street bankers.  You can use online publishers to try to sell books you have written or go viral like Justin Beiber on YouTube and then monetising it.  There are a thousand more ways but you get the idea of leaching on the internet for financial benefit.

There is indirect value of our using the internet.  What is the value of using Skype to video chat with your granddaughter in Beijing?  Besides cost savings since it is free, which also make the conversations more frequent, what is the value of family cohesion?  It is the characteristics of the internet and how it operates that new worth is formed.  Looking for a job or being found for a better paying job through LinkedIn?  I personally know a friend who found an investor through a friendship first forged through his fung shui blog.  I think most of you have similar personal experiences as well.

The social aspect is harder to articulate but things of meaning to people are a good start.  There is value in connecting with other people, finding new friends, new relationship or maintaining old ones.  We all know of friends who found spouses while chatting online.  There is much value with communities of families, many spread across the globe and maintaining family ties to several degrees.  How many of you have asked old friends for their Facebook handle during old boys gatherings, the previous means for large scale social gatherings of former school buddies?  Getting back in touch with a large group without social media would have been difficult.  There is value in expressing oneself or gaining other people’s attention, once a difficult endeavour and now only a few keystrokes away.  There is personal satisfaction contributing to society by joining a volunteer organisation but those who prefer something less physical could contribute to (of the United Nations) and a whole host of similar online initiatives where you sit at your home computer . In the process you are self developing.  Share your experiences online so others can learn from you.  And an active retiree is less of a burden medically.  While these are mostly everyday activities, online or offline, the social experiences are magnified through the ease of connectivity, low cost and the networking effect of the internet.  Values created through social behaviour have been around ever since the hunter gatherers but over the internet, it has taken a worth of its own.

Then there is indirect career advancement.  When a contributor of an open source software project downloads its code to check for errors and scrutinise its performance, he is actually making himself a better programmer.  Partly it is his interactions with the other volunteers.  Because by nature only the passionate will ‘waste’ such time, it normally attracts higher performers.  Merit begets merit which increases his career worth and thus salary.  With the open source model being adopted beyond its software roots to producing other goods and services for companies such as BMW and Goldcorp, a Canadian Gold mine, it is evolving into an economic model of the information age.  A future column will examine this.

There is symbiosis.  Today when you carry out a search, access a portal, pin something to pinterest, blog, create an entry in wikipedia, make a comment on social media or even use a free email service, value is created for the websites, the vendor, while consumer benefits from the free service.  We gain even more for if done in masses it produces a richer online experience for everyone.  Quality of content in a wiki is improved, better search results, better chances of finding someone, a better package tour deal or find better bak kut teh.  If you were an early Google investor, you would already have monetised such values.  These activities lead to Big Data, briefly described in the first article of this column and a whole new area for economic activities.  Big Data will transcend online service providers to any organisation using the internet to reach out to its customers.  Interestingly because data now has value, the traditional relationship between the consumer and the vendor is altered.  Consumer value has increased.  Previously it was more a one way street, whatever the marketers say; the vendor produces a product, we simply consume.  Would this change how marketing is carried out?

The ease to ‘let fly’ online is probably the single most important producer of value.  Don’t like something or think something is missing, create it yourself.  There may even be an audience for it.  Unlike pre-internet, the connectivity means the like minded 0.001% among the billions can locate your site and finds it interesting, however strange someone else may think of it.  Ideas are weird only because it is not yet common.  There is a difference with 0.001% of Singaporeans compared to 0.001% of the global population.  If it doesn’t, so what, the cost and effort to do this is low.  This dictum has created billionaires.  Just-do-it captures its essence.  The 0.001% may turn out to be 10%.  Citizen cameramen bother to do so because it is simple to post videos of anything that catches the eye of a passer by onto YouTube so why not? 

They are all greased in part by the open culture of the internet which provokes a sense of freedom to do things.  Or simply to be entertained, any time (unless you are working), in anonymity or authenticated that is so liberating, fuelling creativity, a high value activity.  Volunteerism was the bedrock during the formative years of the internet, now this culture pervades the online consumers.  Of course there is also a dark side (subject of a later post) or negative value, since society is interwoven into it but the openness is a defining character of the internet and thus defines its business model. 

The treatment of values has been lengthy.  This is because the internet business model is able to monetise social and the other non-financial values.  While such values allude to benefit businesses, such methods can as easily be used by governmental and non governmental entities.

The next post discusses how values are captured.

LinkedIn – dr tommi chen

©Chen Thet Ngian, (2012, 2013).  Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited. Excerpts and links may be used, provided that full and clear credit is given to Chen Thet Ngian and with appropriate and specific direction to the original content.

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