Traditional business is usually a vertical one: companies buy raw material, assemble them, and create products and / or services which they deliver to customers. Even Google, one of the most recent powerful enterprise, is following this model : Google buys computers, adds an algorithm, and deliver a set of services (this is of course a simplified vision, but not a wrong one). The innovation of Google relies in its business model: the core service (the search engine) is free, while the peripheral service (advertisment) is paid. But it is not a paradigme shift.
However, there are some interesting little signals of traditional industries moving from this vertical model to another one: an enterprise who manages a market place. Here are a few exemples.
- A traditional auctioner sells goods to people. Ebay creates a world wide community of people who trade together.
- A traditional bank loans money coming from its suppliers to their customer. LendingClub, like many other social lending companies (Prosper, virginmoney, zopa, ppdai, dhanax, fynanz, etc..) creates a marketplace where people loan to other people.
- A traditional major record musics from artists, and delivers it to customers. Sellaband, like many other sites (SliceThePie, spidart, indiegogo, etc…), creates a platform for people to invest into music, or film, and get revenus on the sale of the album, or the movie.
- A traditionel telecommunication operator buys products to create a network infrastructure to sell minutes, or bandwidth, to customers. Fon creates a marketplace where people do exchange their Internet access.
The underlying business is not yet huge. The social lending market was 647M dollars in the US in 2007. Not big, but it was 269M in 2006; a very good progress. Could this move amplify ? Well, there is no reason it could not, except if traditional businesses, or the regulator (when not the two..) fights againts this; the social lending space has been recently shaked: Zopa is closed in the US, Prosper halts operations, all because of non compliance to SEC regulation. Only LendingClub resists so far.
But I still believe that this move may generalize. I recently discussed with a retail brand who sells food products in many shops over the country. The trend is there: customers want fresh products coming from less than 100 miles away. Well, what happens if, economic crisis helping, people start producing fruits, vegetables, in their own gardens. What happens if the retailers becomes an intermediate between, on one side, his customers-consumers, on the other side, his customer-producers ? He then starts a local market place…
Therefore, I would propose to work on a new economic indicator of a “Enterprise 2.0” : the ratio of the horizontal money which flows between customers, to the revenue of the company. This indicator shows how many dollars are exchanged between customers in the marketplace for one dollar of revenue.
There is a case where this indicator can be easily computed: when a company earns a percentage of a transaction, the indicator is the reverse of the percentage. If we assume that ebay is a company which earns 2,5% as an average, the ratio is 40.
Linden Lab is another interesting company: if we assume that it generated 40 M dollars of revenu in 2007 (my guess after talking to them), and if we assume the SLifers exchanged 400 Millions dollars, the ratio is 10. Not bad.
On the other side of the scale, a traditional telecommunication operator, though delivering a service which is personal communication between people, is totally unable to generate any financial flux between his customers. I once proposed to a telco to create marketplaces where customers could exchange SMS, or even trade phone minutes. The answer was “are you crazy? We do not want to see a decrease in our revenues”. For telcos, the ratio is zero…
Interestingly, in traditional business, companies who already do trading between customers want a high percentage, therefore a low ratio.
The indicator I propose does not mean a low percentage, but rather the capacity to create a dynamic marketplace between customers.
It is a totally new approach.