Hype vs. Real Emerging Models for High-Tech Industry

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I’ve been home sick a lot lately. First a cold that needed steroids to knock out, later a stomach flu which the whole family bonded over, and now a fever my son and I are sharing. (Let that explain why I’ve not been posting much).

Yet during these times, I see an upside that I can get caught up on some piles of magazines that have been neglected. I just finished reading Business 2.0, Fast Company, a couple others. And some of these other publications seem to becoming the People magazine equivalent of business magazines. Or am I imagining that? Fluff! Hype! Myth! It’s like reading Shape magazine and thinking it’s going to make a difference to my fitness level. If high-tech firms are paying attention to this superficial nonsense, they’ll spend money badly and ultimately fail. These publications (no surprise) lack a vision, a theology, a perspective that will help the industry. Okay, enough diatribe.

But it gets me thinking to what I think IS real, and consequential to the software industry and high-tech models for the future.

I think there are 6 fundamentals that will matter as evolving business models get created in high-tech:

1. Downstream Revenues
Yes, it’s true that advertising-based models are causing interesting new ways of getting ‘free’ stuff online. A colleague just shared with me an idea of getting 1,000 mobile games available for ‘free’ with bookended advertisements integrated in. It’ll make money, it’s a good model. But what I want to point out is that is only 1 small piece of the fundamental model shift. Revenue receipt is far different from that experienced in earlier business models. Similar to what occured in the adoption of ink jet printers, secondary revenue streams are coming into play as companies give away to get, as in the Flickr model. Selling a product or a service to gain an annuity revenue stream from other items is important. Packaged apps can be ‘given away’ on line for free by some companies if they can get residual revenue streams from the services.

2. Mosquito Development
Mashups spur fast-moving companies that develop with extremely low cost, like HousingMaps.com, powered by Google and Craig’s List. I see those companies that continue in their 18 month release cycles as using “Titanic” engineering models and they are vulnerable. With AJAX and RoR, people can create software (anywhere = cheaper), and do quick integration with other pieces of modular software. What that means is that 1 company doesn’t have to innovate all the pieces. And funny enough, those smaller companies only need a little bit of revenue to survive. It’s effectively a ‘mosquito world’. Meaning, the mosquitos could surround the dinosaur revenue stream, draining it of its nutrients. The dinosaur is then killed by mosquitos that can survive and thrive on 10% of the dinosaur’s take. That little analogy was generated by Brian Hall, a really smart CEO of Markspace.

3. Ecosystems
One of the things then that matters from the new development model and funding model is which set of partners are forming together. This is leading to a more developer-centric model that provides faster results and more value for the customer. If Nokia gets more developers on its platform, vs. Motorola, then they get a stronger set of applications that users want, thus creating real market differentiation. This is no minor issue and it’s one that has been back-burnered in this industry.

4. Users Seek Each Other
Users want selectable levels of privacy, demonstrated by Facebook and MySpace. This is key to peer group ID and trust. If Internet 1.0 was about the network, then 2.0 is about being user to user, as evidenced by many sites using peer endorsements and product review. Users want to know others who will think a site, service or product is cool and join that community. And co-creation or nomination of features is critical to users. They want to be engaged with each other and with companies.

5. Marketing is about Content, and the Product
No more spin. no more spin. No longer can vendors pull out the traditional bullhorn that PR uses and talk at customers.. Outside experts and experienced users are more credible sources of purchase recommendation than vendors. As Internet communication tools grow, these people have much more ability to communicate one to many. Basically, word of mouth from influential people is becoming vastly more powerful. Therefore, the power of traditional marketing is steadily eroding. So, influencer marketing becomes key. Companies think marketing is something they can control directly, but in the world that’s emerging, marketing is much more a process of partnering with people who can advocate your product and carry your message for you. This has huge impacts not just on marketing spend, but also on ways companies think about and plan marketing. And by the way, PR firms think they can change on this to go from bullhorn to real influencer marketing. Show me one that has. Real people, using real products need to talk to other real people with ideas.

6. Enterprise: The User is King
One of the hot topics in the software industry today is Software as a Service. Companies like Salesforce.com are selling their software online as a service that people subscribe to, rather than as a packaged software program that gets installed on a corporate server or desktop. This has a huge impact on the software company’s financial model, which has been very well covered in the tech press. But another important effect that hasn’t gotten much attention is the change in the sales and marketing model. Traditional enterprise software is sold down from the top, working through IT departments which make deployment decisions for the company as a whole. Because Software as a Service is sold as a per-user subscription, it can be bought by departments or even individuals within the corporation. And there’s nothing to install on the corporation’s computers, so users don’t have to go through IT to buy. So the sales and marketing model for a lot of next-generation enterprise software is starting to look much like consumer marketing. (This makes me happy.) Companies that already have consumer marketing skills, such as Microsoft and Adobe, are in a very good position to take advantage of this. Companies that know how to sell only through IT managers are at risk and will need to learn a new skill set. Or hire my firm, of course.
By the way, Barry Bonds might actually matter more than the hype suggests. But there is no way Star Wars III ever would.

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