Tuesday, 25 March 2014

The value-of-free; companies using ‘free’

Candy Crush is fun but what else is free?  This follows-up a previous post by listing commercial use of ‘free’, in a timeline.

In the beginning

The technical specification of the internet was made freely available (1969).

Software that operates the internet are downloadable free.  Smtp, one of them is now the engine that drives most email systems today including public email services.  Would this have happened if not?

BSD, an early Unix operating system was made freely available (1977), a contrarian action then.

In commercial software, ‘free’ started with shareware (first on bulletin boards) which is really a limited function copy of a paid version.  Many simply used the shareware versions for free.  McAfee which introduced Virusscan, its anti-virus software (1987), if my mind serves was the first commercial software company that listed using this model.  Today, free open source software has started replacing paid software.  Shareware is passé.

As services began to be introduced, they too were mostly gratis.  Newsgroups (discussion forums), public email such as Hotmail, the early search engine Archie (1990), IRC (early messaging service), Mbone for video streaming (1992), etc.

Blogs (1994) began a new media form, books were downloadable from project Gutenberg, eZines (online magazines) abound, all complimentary.  The publishing sector was in the early stage of being transformed.

Free seem to underlie the foundation of the early internet.  Perhaps this early history had a role in developing the culture of ‘free’.

Dot.com run-up

Netscape was the first high profile company that used free by giving away its Navigator browser (1995). It caused a stir.

Then Yahoo (1996) with news content, Hotmail (1996) for email, Craiglist (1996) for classified advertisements (except recruitment), Google’s search (1998), etc.

Napster (1999) did it for music and to me, the creators were truly innovative.  Not only did it eventually re-price, perhaps right-price music, it birthed the sharing economy.  Music shouldn’t be free but it ought to be cheaper now that the internet is used for distribution. Their peer-to-peer model used the direct model of the internet to do this by cutting through middlemen and removing traditional distribution costs.  The p2p model is now reinventing industries, a massive opportunity.  See http://internetbusinessmodelasia.blogspot.com/2013/11/the-peer-to-peer-business-model-part-i.html

These are a few pioneering commercial entities that continued with ‘free’,  the beginnings of ‘free’ as a business model.  ‘Free’ made them.  They also made free what it is today.  Ask them if free have value?

Some use ‘free’ strategically

Dropbox, the free cloud storage provider uses ‘free’ strategically and succeeded in building up market share.  Facebook, Weibo, LinkedIn, Twitter, Instagram, Pinterest trade ‘free’ use for data, making them.  Others like WhatsApp, WeChat, Zynga use free for market share.  ‘Free’ helped YouTube transform tv. Yelp, Quora, Evernote, Spotify, Flickr business model seem to be based on ‘free’.

Would Android phones be so pervasive if not for Google’s game plan to give it away?

The net is famously full of free stuff so much so that it has entered the consciousness of consumers  and  expectation so perhaps this is one reason these firms use ‘free’ but whatever, ‘free’ has entered the lexicon of business.

They are mostly tech firms.

But actually non-tech firms, conspicuously, have also been using ‘free’

Local Motors Inc (US) open source their car designs so others can improve them.  BMW released a digital design kit for its GPS for anyone to design telematic features of cars.  Gratis R&D!

CAMBRIA, an Australian biotech institute makes available their results to scientists.

‘Liter of light’, a social enterprise put the design of its cheap ‘light’ (light up homes in slums with a litre bottle filled with water) in the public domain to help it spread.

TED created a free license for others to host local conferences, called TEDx.  Now TEDx events are held every day somewhere in the world.  These events add lustre to the main conference rather than dilute them.  This made the TED name a global brand at no cost.

The open source model is used by software firms for marketing, sales and R&D.  It’s about global reach at no cost with free software.  What is the traditional cost to do this; foreign offices, staff, risks, marketing budget?

The Guardian newspaper in Britain encourages public access to a data source of their articles through an engagement platform.  This enhances its content, inputting new ideas and no doubt strengthen customer relationship.  This taps into outside creativity.  It is using ‘free’ in business development.

Free has little friction

And so it can be a powerful tool for business development.

‘Free’ is being used today for market surveys, marketing, sales, design, science, product development, service development, community development, social development, R&D.  It has been used to build brands and for global sales. It is one way to attempt the network effect to scale up an opportunity fast.

The freer it is, the faster it spreads. 

More conventional companies ought to look into it.  After all, it’s free!

Tuesday, 18 March 2014

Transformation of the Banking industry is underway

“Banking is a consumer-to-consumer business.  Consumers supply the cash for other consumers as loans through the bank.  It’s the perfect fit for the peer-to-peer model.”

After the telco, media, retail and travel sector, financial trade is in the early stage of transformation in the internet economy.  To be sure, the full impact of the transformation is yet to be felt even with the first to be touched - the telecommunications industry.


The perpetrator this time is the peer-to-peer business model.  The basis is friction in the industry.  The enabler is the internet.  By friction, I mean the viscosity of issues – low returns faced by consumers (conversely high margins for banks), poor customer service and somehow the feeling that we are lucky they are there to serve us.  As they say, any regulated industry results in lofty margins from lack of serious competition.  The financial industry is also famously opaque, profiting massively from it. 

What’s also driving this transformation is consumers becoming more ‘self-directed’ and getting comfortable online (use).  Pampered from the ease of online services, they demand it while banks remain in second gear.  It doesn’t help that bankers have blinkers on.  They look at IT mostly as a back-office tool to improve operations, not at the front for business development which internet tech now offers.  If they and the regulators are reluctant to change the status quo, the invisible hand will, now that internet mechanisation allows it.  The high margin is the motivator.

Enter the technopreneurs

The p2p model allows more direct transactions between entities when once a trade goes through layers of middlemen.  In digital form (online marketplace), there is only one, reducing costs.  Then because of the reach of the internet market, the business culture becomes highly customer sensitive with ‘competitors only a click away’ resulting in much improved service.  Trust is built upon peer reviews and feedback.  After the 2008 financial crisis, many do not unquestionably trust banks anymore anyway.

Aspects of banking, insurance, financial services and venture capital have been parlayed. Similarly for money transfer, loans, credit/debit cards, wealth management, payment system with more to come.

The p2p business model disrupts.  Any sector that acts as a middleman between consumers is fair game, friction the opportunity.

Internet economics egged it (p2p) along

In internet economics, the directness (ease of) that internet connectivity allows is the reason layers of middlemen is obliterated.

Most of all, the internet broadened the democratisation of society (people are now more self-directed), promoted the open culture (customers prefer transparency, something online firms adheres to better than the opaque financial industry) and changed the persona of consumers ‘when once consumer only consumes, they now also produces’. So they use their resources in this case, spare cash (looking for better returns) through online p2p marketplaces to supply the loans.  Trust is crowdsourced.

And so now we have

·         Funding Circle that connects small businesses with investors who fund their loans
·         CurrencyFair for transfer of money allowing participants in countries to exchange currency by agreeing to the rates themselves.  Or WorldRemit, that is tackling the antiquated consumer money wiring/remittance market.
·         Friendsurance that offers household, personal-liability and legal-expenses insurance
·         LendingClub that lends money to help consumers pay off credit-card bills, consolidate debt, etc
·         Africa’s use of mobile banking led by M-Pesa
·         Square’s point-of-sale systems
·         Digital wallets, etc

And there is PayPal for internet payment and Kickstarter that you already know of, the alternative to traditional venture capital where consumers fund start-ups.  Others are trying their hand at online currency, issued by gaming, social media and online firms.  Others are attempting to develop a de facto global digital currency.

Most intriguing of all is Bitcoin.  While most thinks it as a digital currency, I look at it more as the new gold to back up the new digital currencies perhaps.  Bitcoin or its derivative could have an impact on the future global financial system.  But it is still raw, being formed and tellingly it alone among contenders is seeing a global eco-system built around it and has captured global mindshare.

”Bitcoin shares application of internet economic laws as do the disruptors like Areo, Napster, Amazon.  In fact it aligns the most, compared to other online financial instruments.  It is also the most innovative.  This places it far ahead as the potential disruptor and points towards the future of money and of the financial industry.”

Hang on for the ride

If they quote the startup internet-only banks that failed during the dot.com burst, you know it’s on.

Unlike the telco industry which only started to fight back (nullifying Net Neutrality), the financial industry will fight this right from the beginning and hard.  The banking lobby is probably already in play.  But they will fight losing battles, delaying at best as the wave of change is like a noose around the neck, the harder you struggle the tighter it gets.

It seems inevitable the near future will see the making of global online banks, nothing like banks today with web overlays but outliers that natively integrates into the internet ecosystem.

If the financial industry thought the sacrifice of their stock trading business at the beginning of the internet revolution at the altar was it, the gods are hungrier than that.  They learned it from Goldman Sachs.


Tuesday, 11 March 2014

Facebook buying WhatsApp; a good deal?

There have been many naysayers on this deal. Here’s my quick take, analysed via the ‘rules’ or dna of the internet economy plus some history.

Did they not say that YouTube at USD1.6 billion in 2006 was a crazy buy of Google?  Now YouTube is the second most visited site after Google thus maintaining Google’s prime position in the digital world.  YouTube also generated USD5 billion plus revenue and gross profit at USD1.96 billion for 2013 (Forbes).  But there are less successful ones; Microsoft and Skype, Newscorp and Friendster.  But these are not compatible marriages.  Facebook and WhatsApp are culturally similar.

1.     Is a leader in its sector
2.     Has a high number of users/active users and growing
3.     Is in a space that is transformational.  Messaging and internet voice (announced) is replacing sms and voice calls on mobile phones.  Datarisation is the cause (see http://internetbusinessmodelasia.blogspot.com/2013/06/reimagining-telco-impact-of-internet_12.html).
4.     Its business model is aligned with the rising internet economy which means the future’s sound.
5.     Is a next-gen factory mining data from messaging and no doubts would be processing them into informational products for sale directly or indirectly.  As a commodity, data has a lot of value in the information age. 
6.     Has a global market presence, not a local one.  While traditional voice/sms is mostly a local business, voice/sms datarised is a global one ie. volume of data is many many folds higher.  Perhaps one reason for the high valuation.
7.     Business model is also aligned with the internet economy drawing value from it.  WhatsApp relies on data as a commodity and on the value-of-free (see http://internetbusinessmodelasia.blogspot.com/2013/06/the-value-of-free-seeming-paradox-but.html).  Interestingly it also uses the peer-to-peer model, the basis of the currently hot sharing economy sector.
8.     Competitively it uses business methods more in tune with an internet economy.  For example it allows you to create/join a community which is sticky and uses social when it looks through your phone book and informs your contacts you have joined.  Contrast this to Skype which is modeled after the way traditional phones work.  Skype was also designed for PCs but voice and messaging is really a mobile phone app.  With a better model for the internet (and smart phones) it is starting to supplant Skype. In my opinion WeChat has an even better model, it uses more of the internet ‘tools’ and uses social in a more compelling way.  But there’s space for a few global messaging providers.

The only question is whether WhatsApp has cemented its place as one of the messaging platforms in the internet economy like Facebook has in social media.  It will be down to execution by management.  WhatsApp has strong competitors and this space will only get more crowded.  And alluding to Friendster, whether Facebook is going to leave WhatsApp enough alone.

But one thing for sure, telco executives will be alerted from their slumber perhaps realising that serious change is coming sooner, not after they retire!  I hope their response is not to block threatening content in line with an open internet.