Software commodification and the future of start-ups
By Alfie • Oct 2nd, 2009 • Category: LeadBeing an entrepreneur has always been hard. Don’t worry, I’m not priming for a story that’s about *me*. In case you were wondering if that opening line was a taste of the tone for this post - it’s not, but it is important to start with when you’re talking about making money from your ideas. Just to put that one to bed though - I’m an entrepreneur in the loosest sense of the word: “a person who organizes and manages a business undertaking, assuming the risk for the sake of the profit.â€. Hah! Profit? You’d be lucky son. No, I’m an entrepreneur in the sense that I believe that the only way to make your ideas a reality is to ensure that they have some way of being sustainable, and finding a way for them to make money is the easiest way. My last realised ‘business’ idea wasn’t really a ‘business’ idea, it was a coming of age thing. It was a love-child borne of excitement and limit-less potential as yet unrealised. It was a tantrum filled tween who sucked my pockets and my energy dry. It is now a teenager with potential but stuck with emotional issues, with parents who have moved apart and a student debt it’s not sure it’ll ever be able to pay off. In other words; a labour of love, and I a parent realising that maybe my baby isn’t more special than everyone else’s.
Entrepreneurship is a big part of what I want to talk about, and anyone who has launched their own business will know aaaalll about the feelings expressed above. It’s only part of it though. Over the last decade, software engineers have been the guys behind innovative businesses launching on-line. The characteristics of engineers however in general don’t lend themselves to the combustible mania that often characterises entrepreneurs, and so in most cases you see two-person teams coming up with and rolling out new software start-ups. One the manic socialiser the other the coding genius sitting quietly in the background. Although this dynamic isn’t set to completely shift, nor is it the only one which works for a start-up (IMO the best start-ups are those spear-headed by the brains behind them, take Matt Biddulph and Matt Jones of Dopplr for instance) it is becoming less common. The reason? Lots and lots more people who want to now have the skills (or easy access to them) to create their own software businesses. Critically, lots and lots more people have the tools to learn and hone their coding skills without the necessity of tertiary education. They then release their beautiful little special snowflakes out into the world through the web, and increasingly, via mobile market-places.
Over the last 5 years I have watched the role of expensive, magical seeming technology in the B2C market take a fast-forward swan-dive off the precipice of perceived value. Want a site that let’s people buy your physical goods, rate them, recommend them and pay for them over the web? There’s a (free) app for that. There’s an advertising supported infrastructure for that. From educational institutions shifting to Moodle to businesses running on Ning, we have watched the commodification of enterprise level software increase exponentially, plunging businesses once in ruddy legacy-contract-enabled health into the dead-pool. There are of course many notable exceptions - Huddle for example. Great business and doing well. Why? There are some really good reasons for that which will seem to negate my points on the commodification of enterprise level software, but I’ll come back to that. Huddle is a good example in another sense - it has direct competition from free(mium) services like Activecollab. So what is the future for these companies? There are good reasons to support continuing existence:
- customer support
- lower bottom-line costs by outsourcing technical builds and staffing requirements
- up-time and service guarantees
- low monthly costs
All great reasons. But how long will those remain good reasons? The commodification of software has a corrolary - the proliferation of coding and development acumen. At what point does it become cheaper to hire one or two mid level developers to get Moodle up and running for your education establishment and factor in a monthly retainer for support and module development? We’re already hitting that point, and it does not bode well for software providers like Huddle and Basecamp. The globalising effect of the web means that these previously wizard-like abilities are available at a fraction of the cost they would have commanded in say, 2005 even.
I’ve been poking around in the Android market-place a lot lately. I wish I’d kept a count on the number of Augmented Reality apps released over the last 4 weeks. AR is the bleeding edge of mobile app development, and yet I’ve seen at least 15 different apps doing pretty much exactly the same thing as the other launch there. Of course this talks to my points on the commodification of software and the proliferation of coding acumen, but what else does it say? I think it says that even if you are a great developer, even if you have a great product and even if that product has the same basic functionality as the other 14 in the market-place, you have almost no chance of your service getting take-up. There are three reasons I want to explore to help us understand why that’s the case. The first is that the mobile experience is intrinsically (and ironically ) far less social than the desktop/laptop based web. Screen size and ease of input are key differentiators; these completely change our desire and ability to share content or services that we like and enjoy using. So this means that if you have a mobile-only strategy based on the desirability and excellence of your product, even if your customers really really enjoy the product, it’s much much harder for them to share it with others. Another reason you are unlikely to get much take-up is that interoperability between devices (even devices from the same manufacturer) is ridiculously bad. I mean, fagghedaboutit. If you love this bubble bobble clone but can’t even play it (or send it to) with a pal who has a phone from the same manufacturer, we can’t mirror the model which has seen the scaling of social software on-line carve out a place for entrepreneurs. So this implies that mobile only strategy is not a great one for really growing a business - it needs the sharing and social environments that the desktop web is so good at to bolster it and drive new users. The last reason is simply the staggering array of choice available - your customers need a filter, and the filter is really the big decider.
So, the Big Boys. Let’s talk about the history of Railways for a moment. James Watt was an inventor and engineer who pioneered the age of Steam Engines, brought to practical application by John Blenkinsop. Watt is characterised as ‘…a rather poor businessman, and especially hated bargaining and negotiating terms with those who sought to utilise the steam engine.’ Remind you of someone? Indeed… Blenkinsop managed the Middleton Railway, which was the first steam railway in the world and although successful in it’s own right was privately owned and operated, so opportunities and desire for expansion were limited and not, it seems, properly investigated. I like to think that the Middleton Railway was Blenkinsop’s labour of love, and truly a very special child. That said, it would remain a child, which is why today we have Eurostar and Northern Rail and not Middleton International. In any era of technical innovation we see people like Watt and Blenkinsop pave the way, with the technology soon becoming commodified and the major players entering the space, using their capital and infrastructure to scale and deploy the technology in the pursuit of vast profits. There’s nothing wrong with this, it’s the definition of a free market capitalist economy, and I’m not taking a crack at anyone - I only wish to contextualise the place and time we web and mobile entrepreneurs find ourselves in. Funnily enough, the Big Boys today are our start-up peers; Google and Facebook, Myspace and Yahoo. As much as anything else this says a lot about the speed of software commodification in the age of digital replication and massively distributed coding acumen. We are in an age of Innovation, not an age of Invention. We take existing products and we finesse them into something more usable, more pretty, slightly better at a single task. There are not many opportunities for the Watt’s of the world to create new things these days- they simply don’t have the money…
Let’s take it back to my points on massively distributed and cheaply available coding/development acumen, the prevalence of free(mium) services replacing enterprise level software and the dominance of a few players in the web and mobile markets. Entrepreneurs are in a tough spot right now. The big boys are all playing in the same playground when it comes to mobile and web technologies, and they have way more marketing power and capital to both R&D and deploy their products to a global market-place. What are we to do? Do we have to head further out to the edges of what is possible through technology and engineering? That’s one way certainly. It’s a tough path though, as of course the Big Boys are playing there too, they’re just not quite as loud about it. We can continue to innovate and iterate, taking existing ideas and products and finessing them into more accessible and usable products. Occasionally, if someone is very very lucky and very very smart, they’ll do something kind of game changing, like Wolfram Alpha. The lesson is clear to me though: The age of the start-up as we know it is over.
What is the missing ingredient in what I’ve been talking about? The Filter. Malcolm Gladwell talks eloquently about ‘how little things can make a big difference’ in his book The Tipping Point. In the same book he talks about Connectors and Mavens. Mavens in Gladwells definition, are seen as almost bookish collectors of information, getting great enjoyment from being able to help others in their decisions by making their information collections available. Let’s take a blogger named Adam who writes extensively about under-water cameras. Adam knows everything there is to know about these devices. He has written a blog for the last two years citing the pros and cons of particular products, even making recommendations for particular cameras and pointing people to where they can get the best deal. Now the majority of people who want an underwater camera simply don’t know about Adam. They do a Google search but ultimately Adam isn’t really a connector in Gladwell’s sense, he just really really loves under-water cameras. The Google search throws up mostly ‘buy now’ ads for the first page, alongside product specs and details. Adam’s site however languishes on page 4 of Google, found only by the most committed searchers. So a Maven is helpful, but they don’t really have all that much influence.
You might know Jason Kottke, he writes a great blog at Kottke.org about the weird and wonderful. He is a classic Connector: Influential and objective, with a readership that spans many different types of people. Let’s say Jason is looking for an under-water camera for a trip he’s taking. He is one of those searchers who can separate the great from the garbage effortlessly. He is also someone who will likely skirt past all the product specs on the first two pages of Google. Once Jason finds Adam’s blog he realises he has hit the mother-load for information on under-water cameras. Pretty soon he has found exactly what he needs with a handy link to a place to buy it at a price he can’t match no matter how hard he searched. Jason really enjoyed Adam’s blog - it was heartfelt and funny, and enormously valuable to him personally (potentially saving him $70 let’s say). Jason writes it up on kottke.org and whammo, suddenly Adam’s blog is on page one of Google and he has people coming to his site in droves. At the same time, the manufacturer of the product that Jason bought suddenly sees a spike in sales of a camera that wasn’t doing all that well, and they put another 50,000 into production.
In the Web and Screen age the distinction between Mavens and Connectors is, IMO, and despite the example above, essentially arbitrary. In network theory and sociology, a maven is someone who has a disproportionate influence on other members of the network. Isn’t the web world we live in all about the network and sociology? The thing about Connectors in an innovation age is that a heckuva lot of them are also Mavens. In each specialist area we see the rise of the Connector-Maven. The difference between success and also-ran status for a start-up with a great product and one with a so-so product is in often simply in whether they can get a Connector-Maven talking about their product. Layar is a great example I think. It’s a Great product, but is it really that different or better than say, Somaview or Bionic Eye? Augment This! or Movue? The reason that Layar is the most referenced AR product currently on the market is of course due to a number of factors, but I believe critically it has been the role of Connector-Mavens at sites like Techcrunch and MAKE magazine, Boy Genius Report and Engadget that have given them the right audience and the presence that, in the end, defines you as the leader of the pack or an also-ran. With excellent coders if not a dime-a-dozen (truly Great coders will never be that), there sure are a lot more of them around now, so once you ship and have the Connector-Mavens talking about you, you have no excuse for not having a good product ready for iteration based on your users feedback. The start-up is dead, long live the start-up.
Alfie Dennen is a technologist and so-called entrepreneur. He’s currently hoping that a physical computing art project he’s involved in called Bus-Tops wins the London arc of the Artists Taking The Lead fund.
Alfie is a web and mobile troublemaker.
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Great post.
Long live the truly innovative…