Behind Microsoft’s big bid for Yahoo, I argue in a column at Forbes.com, lies a bigger shift: the transformation of consumer software into a media business.
Behind Microsoft’s big bid for Yahoo, I argue in a column at Forbes.com, lies a bigger shift: the transformation of consumer software into a media business.
Software -> Media:
Programming turns into ….,uh,… programming! :)
The first comment from LinuxGuru that doesn’t make me think: “Wow. And You wonder why the world hates you Americans?” Congrats: you are improving. Not that funny, but better.
The deal certainly serves your thesis, and I have to agree with your idea—but what about it simply being Ballmer’s dream to make his “small five year-old” (search engine) grow faster by making it stand on the shoulders of a thirteen year-old, and be able to dunk from their [The basketball metaphor is Ballmer’s, from earlier All Things D]? Something he had to wait for the reasonable Semel & Gates to leave before he could green-light it?
I don’t think scale will be the essential thing with flexible standards and the access to open & large computing power. On the contrary: genius will be anything, because scale will be for sale. As you put it in your book, it should happen the same way as it did in the industry: scale & being located near to a river used to be essential; thanks to central power-plants, having the better qualified workers became the key element (and scale was important in power-production facilities, who became sovereign assets).
And that is my last, and key point: however obvious the tech crowd thinks this is, the Competition authorities will love to look into it, and only green-light what is an aggressive oligopoly—and in five years time, we’ll have to decide whether we want private or public handful of utilities controlling our lives.
I think you have it mostly right, but incomplete. Firstly, the movement towards web apps dramatically reduces the marginal cost of adding an additional user from a sales perspective, but at a small scale, it dramatically increases the marginal cost from a marketing perspective. Marketing investments are much more efficient at scale; as a result, scale becomes a critical part of the game of customer acquisition.
The other point I would add is that the marginal cost of running a customer in a web enabled world is relatively low. Low enough that advertising revenues can make these businesses make money, but it won’t end there.
As Tim O’Reilly has said, there will be an unprecedented amount of value created by aggregating the data sets that are collected by online software. We are seeing it today in the quality of Google’s search results and Facebook’s social graph. Currently, the primary vehicle for monetizing this information is advertising, but that is the thin end of the wedge. As this information becomes more valuable, it can drive the primary value proposition. It is not out of line to think of a CFO getting accounting software for free by subscribing to a benchmarking service to compare his performance against a cross-section of his peers (which is of course based on the data collected by said online accounting system). Or a VP of sales doing the same in a CRM system (ditto on data source). Low operating costs make this possible, and the current advertising bandwagon is the primordial soup from which innovative new software revenue models will emerge.
Back to your central point, scale matters now more than ever, either because the nature of customer acquisition has changed, or because the data that you get as a result of having scale creates tremendous business value that can be monetized.
Nick, sorry to be off topic! I promise not to do it again!
Bertil:
>> Wow. And You wonder why the world hates
>> you Americans?
I’m not sure which Americans the world hates. Is it: the Native American who survived genocide and concentration camps called reservations; whose fourth generation daughter got an IT degree worked a few jobs carrying PC around offices and after paying off her student load never worked in IT again? The black American who survived slavery, racial apartheid and years of civil rights struggles whose son got a CS degree and the best job he could land was telesales or cable technician? How about the second generation Mexican American woman who took Jaime Escalante “Stand and Deliver” classes in East LA passed the A.P. calculus test with flying color but could only land a job as a receptionist at JPL? If they are talking about the corporate colonialist Americans on Wall Street and in Washington that invade countries, overthrow governments and kill thousands in the name of the capital markets then they are right. If they hate any white American who is critical of his/her government’s technical immigration policy, they are dead wrong. It sure must be fun to be able to blame all the world’s problems on white people. However, it would be nice to blame the RIGHT ones and NOT the innocent ones who are only guilty of trying to improve their country for everyone red, black, yellow, brown, native and immigrant.
On topic:
>> Scale is everything
It’s also a matter of convergence. When humans first created content i.e. books, it was transferred from produces to consumer via physical means: it traveled by caravan on roads taking months or years. Later trains came along to speed things up: the time for content to get from produce to consumer was reduced from weeks to day or hours. When telegraphy was invented, the lines were laid along the train tracks, and content transmission jump to almost the speed of light become the preferred method over sending hard copy content over trains. When telephony/fax was invented the lines were laid next to the telegraph lines and it eventually supplanted them. Today, the Internet which started out as a service over the PSTN, is gradually supplanting the telephone system. It was kind of a historical accident that the first machines capable of true digital transmission were called “computers” because they were used to transmit the results of mathematical calculations. In reality, they were actually communications devices that initially just sent information across the lab. If would only be a matter of time until they were connected together and scaled down so that would become apparent that they were the successor to the telephone. Software is just part of the internal circuitry of the physical media that brings the content to you. Its cost is part of the cost of delivering the service not a commodity on the open market.
A little more offtopic. Guru, the hate mentioned, I believe, has nothing to do with anyone’s wellbeing or hardship, your examples are irrelevant. The problem people have with Americans is how they usually present themselves with utter arrogance while being almost unbelievably ignorant (so this hate does apply to oppressed minorities as well). One example of that would be the reasons for the hate you’ve dreamed up, I mean do you ever bother to ask anyone’s opinion before deconstructing it (or rather whatever you think it is)?
Hi Nick,
I’ve been following your bits about Media companies. This set off a chain of thinking that got me to a point where i proposed music in the clouds as a solution. This to me is the same outcome as you propose above, just coming at it from a different angle
more here if you are interested http://unreasonablemen.net/index.php?option=com_content&task=view&id=114&Itemid=42
Sergey:
>> your examples are irrelevant
No. These examples are real people I know. Their careers were ruined by the flood of H1Bs and L3s.
>> Americans is how they usually present
>> themselves with utter arrogance while being
>> almost unbelievably ignorant
Kids in Russia (and world wide) listen to American rap/hip hop and wear Nikes, American baseball caps and baggy pants. When Snoop and Pitbull perform in Europe, they get massive crowds coming out. Doesn’t look like they see the “arrogance” you are referring to.
>> bother to ask anyone’s opinion before
>> deconstructing it
What opinion is that? My comments were about the destructive effect of our government’s technical immigration program. I would be glad to hear someone opinion about that. We know Bill Gates option. We just want the politicians to hear ours. Peace!
Errata: In my previous post regarding the convergence of communication technology, using the verb “supplanting” is inaccurate. I think the verb subsumed would be better because as the physical media were overplayed the technologies became “nested”: Morse code (digital text) and voice/fax (analog data) probably traveled on the same wires. Two hundred years later, you can see this in the iPhone, the modern successor. All three technologies are bundled in the same device: text messaging (telegraph) , voice(telephone), email(fax). However, the new mode of communication offered by adding graphic interaction is still murky. To me it appears to be some kind of group collaboration involving complex media. I guess we’ll have to wait a hundred years for some future pundit to figure out what we are doing now. ;)