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August 29, 2006
Pieces on the chessboard
Fascinating. eBay does a deal with Google for international advertising, plus click-to-call services through Skype. This, only months after eBay announced a broad strategic partnership with Yahoo!, which is still in place.
The leading Web-based companies are developing the co-opetition matrix for the next phase of the Internet economy. No one is a pure-play here. Amazon.com and eBay are primarily e-commerce providers, but they've made significant strides into areas such as communications and application infrastructure. Google and Yahoo! are search engines, but they are also purveyors of services, facilitators of communities, and aggregators of content, among other activities. And Microsoft is, of course, much more than a software company.
Sooner or later, these companies will likely hone their focus on a set of core competencies. They will identify that set of functions they do better than anyone else, and provide the platform for their erstwhile competitors in that area. Google is, for example, the dominant platform for connecting advertising and eyeballs, although Yahoo! is a strong competitor. Amazon.com and eBay could do the same thing, but why? They are better off putting their energy into the areas where they dominate. It's the syndication model I described several years ago in a Harvard Business Review article.
The landscape is still uncertain, however. That's what makes lif interesting.
Posted by Kevin Werbach at 9:50 AM
August 24, 2006
The new edge and the new core
Two of the most exciting technology companies these days are Amazon.com and Sun. They're interesting because they've identified an impending sea-change in the computing landscape, and positioned themselves to take advantage of it. That makes Wall Street and the public skeptical. They much prefer a narrow focus on the next quarter and extending existing markets. Yet such linear thinking is what produces the innovator's dilemma trap identified by Clay Christiansen. If the world is changing, you can't thrive by standing still.
And the technology world is changing.
It's changing through the emergence of what I like to call Internet-scale computing, which sometimes goes by names such as grid computing and utility computing. In this model, applications run across a distributed, fluid, globally accessible fabric of resources, rather than a local machine or a remote server farm.
Internet-scale computing is broader than the Web. The basic idea is that, to quote Sun's famous tagline, the network is the computer. Sun has used the expression for years as a metaphor, but now there's enough connectivity, with enough standardization, and cheap enough storage and processing to make it literally happen.
The company most deeply committed to the Internet-scale computing paradigm is Google. That's why it's building football-field sized data centers stocked with vast numbers of cheap computers running its homebrew software. Microsoft, with the arrival of Ray Ozzie, has also gotten networked computing religion, although it has a long way to go to shed its anchor of desktop software. IBM and HP seem more focused on commoditizing computing to move the value up into services, which isn't quite the same thing, although both have significant investments in Internet-scale computing. And don't ignore eBay, which may become the NYSE of the Internet economy, the vast transaction-processing engine of an inconceivably massive market.
All those comp[anies, however, see Internet-scale computing primarily as a way to deliver their own services. Which brings us back to Amazon and Sun, which are taking more of a platform approach. Amazon just announced of Amazon's EC2 utility computing initiative, on the heals of its S3 virtual storage offering. Sun has a similar offering at network.com. Amazon and Sun are different companies in almost every respect, yet they've both identified a major opportunity in building scalable infrastructure for Internet-scale computing.
I admit to some bias, as both Sun CEO Jonathan Schwartz and Amazon.com CTO Werner Vogels spoke at Supernova this year. And having the right vision is no guarantee of success without great execution. That being said, both these guys very deeply get it. I don't think the market understands what they are doing, but the wind of technological change is at their backs.
So, why did I call this post "the new edge and the new core?" Think about it. We all like to think that the world is decentralizing. That's a key theme of my writings, and of Supernova. I'm still convinced it's true, but we need a better understanding of what decentralization means.
The Internet-scale computer is the network; it's the core. Sure, it's an open, flexible core connected to smart edge devices, but it's the core nonetheless. Call it a decentralized core.
What, then, is the new edge? It's what surrounds those football-field Googleputers in Oregon, and all the other manifestations of the Internet-scale computer. It's our friends, the network operators. The telcos and cablecos own the pathways radiating out from the brains of the network to what lies beyond... which is all of us.
The real battles among all these players have just begun. It took twenty years from the adoption of TCP/IP to build out the commercial Internet. It took ten more to deploy the always-on broadband network we have today. At the same accelerating rate of change, give it five more to finish building the Internet-scale computer. If you're playing this game on any shorter time scale, you're in trouble.
Posted by Kevin Werbach at 2:52 PM
Web 2.0: A snake eating its own tail?
Steve Rubel perceptively points out a risk factor in the burgeoning Web 2.0 economy: Startups are depending on advertising from other startups. As he notes, this was one cause of the dotcom crash in 2001. When one set of startups failed, the impact cascaded onto other companies (including more established players like Sun and Cisco) that had become dependent on their revenues.
The positive sign for today's generation of startups (or at least, some of them!) is that big companies are starting to grok the value of the collaborative, user-generated activity that many Web 2.0 startups facilitate. That's something we're definitely seeing at Supernova. The established companies are justifiably hesitant to throw money at new platforms without good data to justify the experment, but that's starting to come in.
Of course, this doesn't mean that most Web 2.0 startups will succeed. Most startups fail, whether or not they are part of a catchy trend. And the fact that some Web 2.0 startups will cross the chasm to mainstream advertisers will say much more about those companies than it does about the catchy trend.
Posted by Kevin Werbach at 9:10 AM | Comments (0)
August 23, 2006
The online video gold rush
Sony Pictures is buying Grouper for $65 million in cash. This should open the floodgates for online video sharing startup acquisitions, following similar patterns in social networking and Web-based office productivity tools.
Google and Yahoo! will be acquirers in this area, but as the Grouper deal shows, so will traditional media companies. For example, I'd expect Fox, which is actively building a digital media empire, to do a video distribution acquisitions before long.
One interesting question this sets up is the competition between centralized services like YouTube and distributed P2P approaches. Given skyrocketing valuations, the window may be closing for YouTube to be acquired pre-IPO, although I wouldn't be shocked to see Yahoo! or AOL make a multi-billion dollar offer. (At some point, though, it's going to be part of a larger portal.)
Either way, the bandwidth demands of centralized video hosting are going to be astronomical. Google, with its dark fiber and distributed computing capabilities, could probably handle it, as could Microsoft,but over the long run, I think everyone else will have to go do a P2P approach. It's just fundamentally more efficient. How that affects the shape of the market, now that big media companies are finally willing to work with P2P platforms (and vice versa) is a really interesting question, which I don't think anyone has fully thought through.
Posted by Kevin Werbach at 11:54 AM | Comments (0)
August 22, 2006
Net neutrality as consumer protection
At the Progress and Freedom Foundation annual conference, FTC Chairman Deborah Platt Majoras asserted that her agency has the authority to address discriminatory actions by broadband providers. The implication was that Congress and the FCC need not adopt new rules to protect network neutrality. Majoras' remarks were clearly directed at Congress, where net neutrality is a major sticking point on proposed telecom legislation.
Her remarks raise a deeper question. Is net neutrality a consumer protection issue? Advocates such as Tim Wu have often positioned it that way, and the FCC's broadband policy statement, modeled after former Chairman Powell's "Four Freedoms" idea, is couched in terms of consumer rights. I can see the logic in such an approach. Talking about safeguards for you as an Internet user sounds more appealing than promoting protection for companies like Google, Earthlink, and Microsoft.
In the long run, though, I'm not sure consumer protection is the right way to frame the debate. The kinds of broadband discrimination that directly block users from reaching sites are the easiest to detect and the least likely to succeed. It's subtle architectural choices within the network, along with new economic models for interconnection with content and applications providers, that we should be worried about. And those don't show up on a "consumer protection" radar screen.
Posted by Kevin Werbach at 8:49 AM | Comments (0)
August 21, 2006
Losing Control
JP Rangaswami: "I've said before that it's all about Trust. Now I think it's more than that, it's also all about Losing Control. Gracefully."
Posted by Kevin Werbach at 12:36 PM | Comments (0)