There was one part of the book that really got me thinking and it was about the loss of the local notables.

If we look at the long tail from Chris Anderson we are now  seeing that the long tail does exist but also creates havoc in a lot of professions due to the price pressure of the (often quite capable) amateurs. This counts for filmmakers, photographers and many other professions where there are also a lot of amateurs craving for attention. There are of course some that are succeeding and even flourishing but as a profession they are hit hard

A second effect is that in some cases there are winners that really take it all. Examples like Google, Facebook, Amazon and (some) others. These have become highly profitable companies that have become un-beatable monopolies in markets they often created themselves (but we now can not do without..).

What we are now losing is the middle ground, the vanishing local notables. On the one hand we have highly profitable de-facto monopolies and at the other end of the scale we have hordes of amateurs whose business model consist of their 15 seconds of fame and a proverbial Apple. In the area in between in the past lots of people were able to get relatively rich on a local level. The doctor, the lawyer, the local care dealer, the supermarket owner. their numbers are going down due to the transfer of part of their business to the few (global) winners and part of their business to amateurs that work for an Apple.

With their disappearance we also see a disappearance of local culture since these often were the people and companies that supported local activities. We may gain some brilliant cultural  institutions like “The concertgebouw orkest” but we will lose many local orchestra’s, museums but also social activities that will not be sponsored anymore by the local notables.

In the digital realm this is probably an enhancement of our lives. After all, we only need one concertgebouworkest since we can listen to their breathtaking digital recordings for ever after. However, we also have a physical local presence that we should cherish.

What is the answer to this dilemma I do not know, neither does Jaron. But it is certainly something we will have to think about in the years ahead.

At the start of the open source movement the statement was that Open Source was to be free like in free speech, not as in free beer. In English the word free has two connotations: free as in gratis (no money) and free as in libre (free to go). Unfortunately open source has become free beer.

For an innovative product to be sustainable it needs a business model. Picture a young programmer that, in his time off from his day job, creates an innovative product that others start to use. After some time more and more demands will be made for new functionality and the solving of bugs. More and more of his free time will be spent on this product. He can not quit his day job because his innovative product does not bring in money in license fees since it is gratis. After some time he quits the project. Sourceforge, the place where many open source projects have a home, is filled with interesting but nonetheless failed projects like these. Sourceforge is the place where projects go to die ..

The main reason why a few examples like Joomla and Linux survive is because of many companies around it make money by delivering services. Because it is not innovative it is a product category that is understood by potential customers that are willing to pay for services implementing it. What we need is a business model for the software itself. What we need to do is to severe the connection between the openness of the software (to be able to inspect code is a good thing) and the business model behind it (being able to make a living creating great products).

We run the risk that the same thing now is happening in the open data movement. Pressure is set on several organizations to open up their data so app developers can build applications on top of it. We should realize that, once these organizations do not make money on that data, that the quality and access to that data will not be of strategic importance to them. We should as much as possible enforce the openness of the data to prevent a monopoly of information access. But the original creators of that data should be able to make a llving out of it.

Data should be free like in free speech, not as in free beer …

The building of the General Motors Headquarters in the 1920's. A textbook example of the big Firm

A couple of years ago I read the book “De eeuw van mijn vader” (“My father’s century”) from Geert Mak. In this book he describes how the Dutch society has changed from 1900 to 2000. One of the passages that struck me most was his statement that the majority of people in 1900 were not an employee at a firm. Many people were self employed as sail maker, baker, carpenter and other craftsmanships. Other were employed on a temporary basis as day laborer. For many people this independence meant of course mainly insecurity and near starvation.

It did open my eyes that the big Firm as a way to organize work is something relatively recent and started around that time. Before the Firm work was done by many individual and small informal companies, afterwards much of the work is done in large companies with often an emphasis on management and control. At the same time there was the shift from mainly local transactions to global transactions.

These days we again see a move towards smaller size of companies and and more informal contacts to coordinate work. Most important example is of course the explosion of Independent Professionals. But also many examples of small companies that supply a specific service, often on a global scale, like BasecampHQ, Evernote and others. My conclusion is that the Social Media and Cloud and the themes they bring forth put pressure on the size of Firms. Big is beautiful nor efficient anymore.

In 1936 (Nobel price winner) Robert Coase wrote the artikel “The nature of the Firm”. In this (very famous and often cited) article he states that the size of a Firm is based on the difference in transaction costs between the market (buying the service) and organizing the service yourself. He describes the relation between transaction costs and size as follows. The firm grows when:

• the less the costs of organizing and the slower these costs rise with an increase in the transactions organized.
• the less likely the entrepreneur is to make mistakes and the smaller the increase in mistakes with an increase in the transactions organized.
• the greater the lowering (or the less the rise) in the supply price of factors of production to firms of larger size.

Transaction costs in this are all costs associated with a transaction: communication, contracts, delivery, etc. If we compare these with the themes Scalability, Communication, Cooperation, Anyplace and Anywhere and Transparency it is clear that these themes are lowering the external transaction costs dramatically.

Scalability: the advantage of the Firm has always been that within the Firm it is easier to share resources over several activities. Now many operational costs have become variable costs in relation to turnover this advantage of size is not valid anymore. The risks of major investments in infrastructure is therefore also largely diminished. Due to the high level of automated processes there is less advantage in high volumes of purchasing

Communication and Cooperation: Finding people has become easy, contacting them has become easy and exchanging information on specifications and expectations has become easy. This means that transaction costs go down. This holds mainly for external costs since internally searching and working with people was enabled by the Firm.

Anytime, Anywhere: The Firm creates a context where it is easier to know what to expect from others and has a management structure to enforce compliance to this context. Social technology now enables us to contact everybody from everywhere at any moment. A natural advantage of the firm was that it was easier to do business within the Firm on a global scale. Now small companies can do the same in a virtual enterprise.

Transparency: We now see reputation mechanisms to build trust without previous experience with that person of service. We see reviews of previous experience of others that are similar to us. We know we are looking at the same data stored in the cloud. I know where you really are because of location based services. This transparency drives down risk immensely.

From all of the above it follows that due to social and cloud technologies Firms will shrink in size. Small will be more efficient. This also has a lot of impact on middle management whose role it was to coordinate work in the Firm. This coordinating role of management will evaporate and thereby create flatter organizations: Pancakes!

WWGD

I just finished reading the Book “What would google do” from Jeff Jarvis. It is an interesting book but it puzzles me on two parts. In two words: Adds and Apples.

As for Adds, on the one hand he stresses the importance of the business model of Google by selling adds based on the data that you collect of a person. And of course, Google is wildly successful in selling adds. But on the other hand he explains that, due to the networked transparency that the Internet creates, advertising is less important. He even points out that not needing to advertise is a sign of success. To me that sounds like a contradiction. The more successful companies become in using the transparency of the Internet (created and improved in a large part by Google) the less profitable Google will become (and therefore not being able anymore to sustain their role in creating transparency). This catch 22 type of situation will no doubt have some equilibrium but is totally disregarded by Jeff Jarvis.

Another question about the business models on advertising that always puzzles me how far it can take us. If everybody would have advertising as their business model, who would pay for add? This “Addtention” economy can not encompass all, somewhere along the line people will have to pay for real products and services (and the companies selling these services are in the end the ones that are paying for the adds).

The second thing that puzzles me is Apples or, since they are unique, Apple. In many ways Apple is the opposite of Google. They create their products like an autist in splendid isolation. They are completely secretive about what they are doing and what products they are working on. They are closed in their hardware and most of their software and are ruthless towards people that breach that secrecy (or perhaps, HE is) is. And they too are wildly successful.  This discrepancy is mentioned by Jeff Jarvis but immediately is put aside because “Apple is a class in it’s own”. But of course, Google is a class of it’s own too. The reasons why companies like Google, Apple and Microsoft are successful can never just be copied because their current success feeds on the fact that they became an outlier (meaning a small difference in the beginning created the opportunity to keep enlarging that advantage).

The good thing about the book are the hypothetical cases he discusses in the end. What if banks would be operated in a Google manner, or insurance companies, or a hospital. Lots of foods for thought there (talking about food: also what if a restaurant would operate like Google).