A new business indicator for enterprise 2.0

By | 07/12/2008

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.

 

6 thoughts on “A new business indicator for enterprise 2.0

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  5. Briac

    telcos are usually monopoly (well, it’s an oligopoly but everyone know they collude…)
    Basically if you can resell their product, they won’t be able to do price-discrimination policy and generate the best profit through, while producing at the best output. (i.e businessman can’t resell his cheap data minutes to a student in exchange to cheap sms)
    Therefore, if resell is enabled, the monopoly will exclude price-discrimination and will work with a single über high price policy where he’s able to get his supernormal profit, and will have an excess capacity, so our country will produce inefficiently, and as customer and citizen, we loose. If you wanna have marketplace where customers trade minutes and SMS, which is a brilliant idea, first we’ve to kick some ass in the telco business and get a bit more competitive. It seems to me that when orange-bouygue-sfr collude, they still get a ridiculous fee.

    I like your model though, it’s a really clear indicator, you should mix it in some way with the Herfindahl index to have an indicator on the competiveness of this offer (sum of all squared market shares, to indicate the level of competitiveness, the lower the better.) Indeed, if the ratio of how they transform money flow into revenue is interesting, it would be even more interesting to know how much they can do it in a competitive situation :)

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