Networks and the Future, or we are all connected
All businesses are connected.
This is perhaps simplistic, but it bears repeating, all businesses from the smallest food stall to GM are interconnected. They are tied together by relationships with governments, with employees, investors, suppliers, partners, and customers. As barriers continue to fall (mostly) throughout the world, this interconnectivity between businesses will only continue to grow.
These connections can be very direct and explicit, the food stalls above selling Pepsi and Coke products means that they purchase those from either Pepsi and Coke directly, or more likely, from a distributer indirectly. The food stalls may be connected to the Visa/Mastercard/American Express payment networks again likely through a distributer and vendor partner of those networks. The stalls are also deeply connected to many local businesses and families, customers, employees, small farmers, delivery services, and many others.
What does this mean for the future?
On the web and throughout Silicon Valley, there is a lot of discussion about “Web 2.0″ from great parties to discussions by senior VC’s. And while I’m myself helping co-organize the San Francisco Web Innovators meetups, these are great (and fun) but they are also missing a much bigger picture about the world and business. In this essay, I hope to illustrate a number of opportunities, some “online” but many only partially virtual. These opportunities exist as a result of the economic network which ties all businesses, individuals, governments and other entities together, perhaps in increasingly detailed and complex ways.
To start, consider a breakdown, not completely unique, of what types of businesses there can be.
1. Basic neccessities - shelter, food and water, clothing, power (in the developed world at least). And supporting these basic services like health care, security (police, fire, military), transportation (both the roads and bridges and the vehicles used on them), and communications.
2. Tools and enabling services. All of the providers of the above basic necessities rely on hundreds of other providers of tools and supporting services - from lumber to cash registers to computers, the components of any business rely on a large network of others. In some cases these can all be provided to the business through a small set of distribution channels, but the network is still there, just in many shapes. Other examples of enabling services are postal services, standards bodies, and very importantly common currency and banking services (i.e. the storing and exchange of value).
3. Entertainment. Seperating out fashion (more on that in a moment) there are many, very large, businesses which are about entertaining us, keeping us amused and not bored. They are about what we do when not working or perhaps more precisely how we fill time (including some time while working). Entertainment is fairly universal, but the relative size of entertainment vs. other businesses differs considerably across the planet.
4. Fashion. By this I mean not just fashion in clothing, but in all things. There is a variation between what is necessary and what we desire and want. To a large extent this variation is fashion. In a way, fashion also combines and imbues entertainment into other aspects of our lives - clothing for example can be transformed from something needed for protection to something enjoyed (or if not enjoyed then the reactions it causes enjoyed).
What does networks have to do with the above categories? And how does this tie back to software and Web 2.0?
Consider, for a moment, what happens when we analyze a business. It is not possible to do so in isolation from the networks it is a part of, though typically we do so with only minimal consideration of the networks. “The business” might be thought of from the lens of investors, they put money (linking back to a central reserve) into an organization (tieing in banks and governments who issue business charters and set up the legal structures). This company then hires a number of employees, some of whom (the founders, perhaps others) may also own a piece of the company. The company then sets up an office (or offices or facilities to work from employee’s homes/the road) which builds links to other companies and/or individuals. Then the company starts doing whatever it is in business to do, usually this requires more relationships with suppliers, often partners, and eventually (if the business is to continue) customers who bring value to the company such that the whole entity becomes self-supporting, perhaps profitable (i.e. brings in more value than it spends). Some businesses do this via the same amount of value from each customer, but most businesses differntiate between customers - some may even not pay anything (or in some cases get “paid” - i.e. a free magazine) because those customers are part of what other, bigger customers will pay to connect with (i.e. advertising).
Basic neccessities are not ever going to go away. No matter how much innovation (other than some world shattering singularity event) humans everywhere need shelter, food, etc. But innovations, cultures, and technology have and will continue to change what is available to meet these basic needs. Foods from across the globe, as well as from many different seasons, have now become widely available due to modern transportation, hydroponics, and other techniques. The preparation of foods and the many ways of preserving and modifying food continue to change and evolve, as do the methods of delivary - from fast food to foam serving five star restaurants.
Most software and technology, however, do not directly meet basic needs (food, water, shelter, clothing) rather they are often part of the tools and services which enable the fulfillment of these needs. Some software, like many games, are mostly entertainment (debates about the educational value of games aside). Others, like Second Life, might start out as mostly a game but evolve into something a bit more complex.
Most software, however, does or enables something. The software we install on our machines, whether personal machines or servers, is usually there to enable something we need to do. Usually it is just the starting point, we then use it to accomplish something else. Often this something else is also (at least partially) on the computer - writing documents, creating and serving webpages. Sometimes it is used to enable some other process - accounting software for a small business, the software which runs a cash register at a restaurant, or cad software used to design and then perhaps build a product.
Software as services as many people have proposed changes, somewhat, what we expect from software and the role it plays within the network of business. For one, it shifts from single, point transactions (with perhaps just a small usually annual services/updates payment) to an ongoing, reoccuring (or entirely per transaction) relationship. For another, it means that instead of being purchased on speculation of future need, software as services will mostly be purchased as part of an actual need (and similarly no longer purchased when the need goes away).
Most current Web 2.0 applications and examples involve consumers mixing and remixing applications for individual purposes. In many cases largely as entertainment, though there are some light layers of assisting in other transactions that have been seen (google maps mashups with real estate for example).
Business, however, is about both the individual transaction and the ongoing, reoccuring transactions. The initial sale, then the follow on further sales and continuing relationships with customers. As such, businesses rarely source from just the current lowest cost provider, to take just one simple example, few businesses only hire the cheapest person on any given day - instead most companies hire people, invest in them and retain them for at least some period of time. Likewise, there is more to a supplier relationship than just the monetary costs of the single transaction, there are time costs, volume and capacity, flexibility, scalability, growth patterns, and ongoing reliability and quality. All factor into the evolving decisions of business.
A new business today has to consider not just the single transaction with a specific customer, but how what they do will continue to evolve and interact with those customers over time. If they never evolve, if they never have an opportunity to continue to provide value and a service then the company has to keep gaining new customers. If the company evolves too much, changes too frequently, then the customers even when offered a great deal on a single transaction may not select the vendor to be a long term relationship and partner.
This is an evolving and ever changing picture and I have just skimmed the surfact in this essay. I welcome your comments, suggestions, corrections and examples. I will expand one these points in future essays and, I hope, respond to your comments.