Digitalwall: October 2006

Sunday, October 29, 2006

The Web 2.0 Revolution (9) New ECommerce

The B2C model won't disappear, so we need to think about how business patterns are likely to change when the cost of bandwidth, of online user communication more precisely, is in a downward trend.

[+] C2C eCommerce is in line with the Web 2.0 spirit

Among all the various applications rising with the diffusion of the Internet, eCommerce, particularly the B2C model, has the least to do with the Internet. While a consumer does place an order online, the vendor conducts the following procedures completely in the physical world - there is little to do with the Internet.

So we finally come to realize that Amazon is actually a retailer. It focuses on reducing stock and operational cost, lowering the cost of goods through bulk purchases, and lifting sales by promotion campaigns, just like any traditional retailers. Its gross margin is practically at the same level of the traditional retailing business - nothing much to expect here.

On the other hand, C2C model is more relevant to the Internet world. What operators like eBay provide was simply a transaction platform for numerous small buyers and sellers. Apparently, the model of e-market, which is formed by gathering many individual users, can expand at a much faster rate.

This was the time when Internet forerunners first learned about the power of the Internet. In the C2C model, the most costly problems, i.e. inventory stocking and logistics, of the B2C model is thrown back to small buyers and sellers.

By matching buyers and sellers, B2C operators are able to collect fees of posting items or advertisements. Online auction services have been in full bloom these days. At the time when it's just sprouted, there was no such term as Web 2.0, but who would say it's not Web 2.0?

[+] Craigslist replaces eBay, not newspaper classifieds

After ten years of development of the Internet, users now are able to get more bandwidth with less money. This is beyond question. As discussed earlier, when the cost of bandwidth drops to a critical point, new intermediaries will arise and old ones be challenged. Let's never forget the true meaning of Web 2.0:

The root of the Internet revolution is but one thing - the ever declining cost of digital storage and transmission bandwidth. Socially, it is reflected on "the continuously falling cost of interpersonal communication; on the business side", it is "the gradual disintegration of enterprises which used to thrive on their monopoly of capital and information".

Following the step of auction websites, classifieds websites such as Craigslist in the U.S. has become a popular new paradigm. The success factor of Craigslist is that, it shares with users the savings obtained from the declining bandwidth cost over the past decade.

Ebay's users will be charged for making transactions on it, but most Craigslist's users don't need to pay for their classifieds posted on the website. Yet Craigslist, a high-traffic C2C website, can still survive without being beat down by the massive bandwidth consumption. This tells us how much the bandwidth cost has dropped these days that it has affected the way business is done on the Net.

Most reports about Craigslist center on its huge influence on traditional newspaper classifieds. Yet to me Craigslist is indeed a newer breed of intermediary which challenges the position of auctions websites like eBay, an once-new intermediary that took the place of traditional businesses many years ago.

[+] How the Web 2.0 spirit is infused into eCommerce

So, does it mean that all old B2C websites need to start doing C2C business in order to adapt to Web 2.0? Not at all. ON the contrary, this is exactly what we should avoid, because B2C model will not disappear. Instead we need to think about how the way of doing business may change when the bandwidth cost, or the cost of communication among Internet users, continues to fall.

Take the tourism for example. We all know that selling air tickets or tour packages online has been the most popular line of eCommerce. Yet we also know that a group tour can be a torture to many of us, because the tourist agency can only offer an ordinary tour plan with very few characteristics. It is almost impossible to offer a tailor-made package, since it is very costly to gather a group of people who have similar requirements to travel together.

Well, this is exactly where we see an opportunity for Web 2.0. The "declining cost of communication among people" has made it possible for an agency to find a group of similar interests and age to tour together.

Through proper execution, it is likely to find enough people who would like to join a tour, even for not very popular routes, in a very short time at a fairly low cost. This will lead to the downfall of discounted packaged tours and the rise of unique boutique tours. Who in the tourism business will be able to seize the power of web2.0?

[+] Apply Web 2.0 to reduce the cost of B2C eCommerce

B2C eCommerce is characterized by low gross margin similar to traditional retailing business, therefore B2C operators will care more about cost control than those running other types of websites. If the introduction of Web 2.0 services will only lead to the increase of bandwidth cost, then it's really not a good idea to go after Web 2.0.

Let's recall the case of eBay. Are there any things other than the costs logistics and warehousing that we can throw back to online shoppers? How can we make the best use of the trend of Web 2.0 to lower the operational cost in the name of consumer participation, and achieve a win-win situation for both operators and consumers?

Take the example of tourism mentioned above. Wiki applications may be very suitable for sharing individual travel experience. So, is it possible that a travel agency can reduce the number inbound calls for customer service and further lift its online sales through these applications that enable consumers to share their content voluntarily?

Here I would like to leave these questions to B2C eCommerce operators. If you still think that Web 2.0 means those terms like Blog, or RSS, or SNS, and you have no idea how these terms can be associated with your own business, then please allow me to remind you once again: the key is cost. (
2006/10/29 - By Digitalwall.com - Way to
China Internet/Telecom )

- Today in History

The Web 2.0 Revolution (9) New ECommerce - 2006/10/29

The Web 2.0 Revolution (8) Transformation of the Telecom Industry - 2006/10/22

Sunday, October 22, 2006

The Web 2.0 Revolution (8) Transformation of the Telecom Industry

The P2P technology enables Skype to provide service without making huge investment, since the bandwidth cost has been handed down to users.

[+] The operational cost of email service

The lowering of communication cost is the best gift brought by the commercialization of the Internet. Most people can't even remember when is the last time they wrote a letter with a pen on paper to friends afar, but they write emails to colleagues next desk in the office everyday.

Emails are sent through a central mail server from a sender's PC and forwarded through another mail server that link to the receiver's PC. This method has completely replaced paper letters that are more costly and slowly.

Emails may have eliminated traditional paper letters, but it is also facing the challenge from yet another communication tool. In fact, since there must be a mail server in between to deliver emails, an email service provider has to afford a significant amount of storage and bandwidth cost.

If the delivery of electronic messages can be completed by connecting two PCs directly without servers involved in between, and thus shifting the storage and bandwidth cost to the sender and receiver, then the financial burden of communication service providers may become lower.

Instant messaging (IM) software like QQ, MSN Messenger is such kind of service, the provider of which is only responsible for connecting the communicating parties. After the connection is established, all messages are transmitted from one individual user to another, with no server involved.

[+] The low operational cost of P2P model

In fact, IM software has partly replaced email tools. As those we contact frequently are mostly acquaintances or partners at work, IM is more convenient and responsive. Many times we choose IM, instead of emails, to communicate with others.

Users of these communication tools users may not be aware of the technology involved, but for communication service providers, P2P is more cost efficient than Client-Server architecture.

Though the use of these tools has nothing to do with Web, but the emphasis on peer-to-peer (C2C) rather than client-server (B2C) communication is in accord with Web 2.0. In fact, let's keep in mind the true meaning of Web 2.0:

Finally, the new generation IM service provider has brought a radical and unprecedented change to the application of P2P technology: the arrival of Skype is the consequence of P2P architecture introduced to the Internet telephony service which used to be dominated by client-server technology.

[+] Revolution can not succeed by mimicking your competitor

In the case of traditional telephone service, a call is initiated by a caller, who dials a number, and switched by a telecom operator, which sets up the connection with the receiver; the switch continues to take care of the transmission of the conversation that follows. Every word you say will first enter the telecom operator's switch then be forwarded to the receiver - what we see here is a client-server relationship.

Telecom operator thus needs to invest in costly equipment to provide such service. As the subscriber base continues to swell, the investment will grow in a relatively linear manner. Operators are constantly driven and by the demand for bandwidth by new subscribers - this difficulty is intrinsic to the client-server technology.

Internet phone emerged ten years ago when the operators were thinking about lowering their cost by providing voice communication service via the IP technology. Yet their thinking was still centered on a client-server approach: users purchased an Internet phone set and had it installed at home; users' conversation was still transmitted through operators' switch.

Such way of thinking is no different than that of the traditional operators and has kept the cost of bandwidth and equipment high for Internet phone service providers. To compete with operators they have to set their rates lower in order to attract subscribers, which has capped the growth in their revenue. That is why the Internet phone business remains lukewarm for these years.

Obviously, it is a naive idea to try to compete with traditional telecom operators by mimicking their business model. The telecom market is characterized by severe barriers to new entrants because of the huge investment needed in building up the client-server type telecom infrastructure. To challenge telecom giants, the only way is to come up with a new business model.

[+] The achievement of Skype: challenging the cost structure

Skype, as an IM tool, didn't bring too much surprise to the world at its debut, but it did leave good impression to users by its good sound quality. Its focus on providing Internet phone service was a refreshing approach.

When users using Skype, all communication data is transmitted directly to and from the both parties without any Skype server in between. This P2P model enables Skype to provide service without making huge investment, since the bandwidth cost has been handed down to users.。

This is what really upsets the telecom operators. Telecom operators are not particularly concerned about of potential competitors with deeper pockets as long as the market barrier remains high. Now even small companies can join the business, which has shaken the fundamentals of the industry.

Why Skype's Internet phone model didn't show up ten years ago? As a matter of fact, the broadband service was costly and not very popular then. But now people can enjoy the benefits of high-speed access with relatively less money, so that it is possible now for Skype to shift the bandwidth cost to users themselves with the help of P2P technology.

When the Internet phone service will succeed in revolutionizing the telecom industry? It is when users are able to benefit from higher bandwidth with even less money. At the initial stage, the high perpetration of ADSL and Cable broadband service has paved the way for the scene, now we are expecting FTTB (Fiber to the Building) with stronger broadband capabilities to drive the progress.

In terms of wireless communication, we've already seen 3G on the stage, and we have high hopes for WiMax which promises even high bandwidth. It may take five to ten years to see the results of these developments. Yet we should always keep in mind the big question: what would happen to the world when people can get ten times the bandwidth at the same price they are paying now? (
2006/10/22 - By Digitalwall.com - Way to
China Internet/Telecom )

- Today in History

The Web 2.0 Revolution (9) New ECommerce - 2006/10/29

The Web 2.0 Revolution (8) Transformation of the Telecom Industry - 2006/10/22

Sunday, October 15, 2006

The Web 2.0 Revolution (7) Death of the Intermediaries

When the cost "to find a certain type of people" has dropped to a critical level, new intermediary will emerge, which will surely impact on conventional businesses.

[+] Online job sites has taken the place of newspaper job advertisements

There are two major sources of classified revenue for traditional newspapers: one is job advertisements, and the other is real estate advertisements. Both have been encroached by the Internet during the Web 1.0 period. Online job sites, which has grasped a significant share of job advertisements from newspapers, has managed to reap profits very soon and has become a model.

Long time ago, a job seeker needed to buy newspapers, and those companies in search for employees could only afford to post job advertisements on newspapers for usually several days. It took some luck to find a good job or a good employee. In other words, the cost for both parties to find their counterpart was relatively high.

Newspaper as media could charge higher for advertisements since they monopolize the channel for both parties to access information. Yet the emergence of online job sites has changed the phenomenon of information asymmetry. Companies looking for talents need only to pay a relatively small fee to post job advertisements even for months.

Through the automatic matching service by the system, a large number of CVs will be sent to you everyday for your screening. For job seekers, they can get the employment information from many companies. The cost to match jobs seekers and talent seekers used to be high, but the low matching cost on the Internet has changed this.

In the Web 1.0 period, we first tasted the cost-saving benefits brought forth by the Internet. Old intermediaries have been replaced with new ones coming onto the stage. The key behind this is that new intermediaries can provide more efficient matching service with a lower cost. And the information is liberated completely.

[+] Head hunters still good in business

Yet, after ten years of development, online job sites still can't make any breakthrough in one area - the market for middle and senior positions. Generally, companies will seek the assistance of online job sites when looking for basic level employees; but if they want to find suitable people for a position like vice president, online job sites are not their preferred channel.

For job seekers above a certain age or senior position, it is practically impossible to find a job through online job sites. This is because the market for senior positions has the following characteristics: First, senior level people don't like to be exposed, and they do mind their CVs being browsed freely by some companies.

Second, Companies too don't like to expose the information about their recruiting middle and senior level people, because competitors may detect their future developments. Third, as both sides are very cautious, recruitment for senior positions is often done through acquaintances.

So far online job sites can only address to the demand for basic level positions. Some online job sites have moved up to the segment of middle positions (like senior managers or experts with good salaries), yet they haven't posed a threat to head hunters that have been dominating this segment.

Based on the above characteristics, it may cost companies big money to find people for middle or senior positions. A head hunter may charge a company as much as several times the monthly pay of the talent it helps recruit as reward. This handsome reward comes from another form of information monopoly and is pretty.

[+] Personal references instead of head hunters

Companies are prepared to pay a good deal for recruiting people for middle and senior positions. Yet when the cost of storage and bandwidth continues to drop so as to enable the staging of Web 2.0, head hunters will start to be affected. Let's never forget about what really means by Web 2.0:

We have seen such a service launched by online job sites: users are encouraged to refer candidates for a specific middle or senior positions and will be rewarded for successful reference. Some social networking websites have launched trial runs of similar service. They also offered rewards for successful reference.

Instead of paying handsome money to head hunters, now companies need only to give away a reward of about one tenth the money for recruiting people. Everyone has her or his own network; to get the reward or to introduce good jobs to friends, s/he will refer suitable candidates naturally.

The reason why this model can work is that "the cost of interpersonal communication continues to fall," so it will cost less to find the people through people than through head hunters! As I have mentioned earlier, the arrival of Web 2.0 will force many B2C companies to be conquered by C2C.

[+] New business models and new intermediaries

As we have just entered the period of Web 2.0, it is still not clear whether the above models can work or not. The trend is clear, but there may be many ways to implement an idea. Yet it can be expected that middle level positions will be the first to be affected, and senior positions above the level of vice president will still be dominated by head hunters.

The most critical factor is the quality of people referred through social networking websites. Head hunters as intermediaries are responsible mainly for quality assurance as so to save the time of both parties - this is the value of their existence.

For online job sites or social networking websites, if they want to play a role in the middle level manpower market via their offering of C2C social networking service, they will have to work on the above mentioned details and ensure the quality of the talents recommended via this channel, so that companies will not have to cope with a large number of unqualified applicants coming through these websites.

Furthermore, online job sites or social networking websites may establish upstream/downstream relations with conventional head hunters in a supply chain. In other words, these websites will not directly charge companies seeking talents, but they can charge head hunters for offering a talent pool. Head hunters may do a preliminary screening and provide a shortlist to companies in need.

Head hunter can spare a part of their rewards earned for successful matching from the company, the talent seeker, to these online job sites. This business method is taking place in the current transition period. It may become a workable business model. But in the long run, this will surely have impact on the business of head hunters.

[+] Web 2.0: it's all about cost

Most people, when looking at Web 2.0, are dazzled by many fancy terms, among which social networking websites and classifieds websites are two most popular categories. The former attempts to practice the so-called Six Degrees of Separation, which is to allow any people to meet other people on the Internet and thus to expand their social networks.

The question is, how can social networking websites generate revenues once they succeed in helping people know each other? One critical factor behind the scene is: "the cost of personal communication keeps dropping." So it is a lot less costly to find a certain type of people through social networks of people.

Recently in the U.S. there comes a kind of loan websites which are to help people borrow money from other people instead of acquaintances or banks. Rules are set up to ensure the quality of both parties and to lower the risks of lending money to strangers. Imagine how high the cost would be to find a reliable stranger and borrow him money when such service is not available?

In fact, there are quite a few loan brokers who help people borrow money from banks and charge commission from loan takers for successful cases. If there is a website that can help matching individual loan borrowers and lenders at a lower cost, this will definitely affect the business of brokers.

Thanks to the falling cost of computer storage and network bandwidth, the cost of personal communication continues to decline as well. When the cost "to find a certain type of people" has dropped to a critical level, new intermediary will emerge, which will surely impact on conventional businesses. This is the approach to take what we think about Web 2.0. (
2006/10/15 - By Digitalwall.com - Way to
China Internet/Telecom )

- Today in History

The Web 2.0 Revolution (7) Death of the Intermediaries - 2006/10/15

Another Picture of Digital Home Market - 2005/10/16

Corporate Website a Handful (3) Strategic Alliance Why? - 2003/10/12

Sunday, October 8, 2006

The Web 2.0 Revolution (6) Struggle of the Press Industry

We have been pushed into the era of "disposable content" when the content, once produced, will soon be disposed of.

[+] For-pay e-newspaper in PDF version

In July 2006, two established newspapers in Taiwan, Economic Daily and United Daily Evening News, launch their electronic versions in PDF format following the footsteps of New York Times and Washington Post in the U.S., Oriental Daily News in Hong Kong and People's Daily in China. Online subscription is offered to users at the same rate as hard-copy newspapers.

To publish hard-copy newspapers online in the format of electronic files, which are to be downloaded by paying subscribers, without changing the content and layout, the traditional newspapers must have made painstaking efforts to come up with a brand new process. Yet, it takes ten years of Internet development for the newspaper industry to come up with this step - I am not sure if it comes early or late.

To remain the same layout as that of the hard-copy paper, when displayed on the screen, this e-paper has small fonts and very different text arrangement from the webpages of online news which Internet users have long got used to. The interactive advertising feature it boasts of, an innovative design not seen in hard-copy newspapers, is but something very common for online users.

It has no longer been a problem to read global news online. It has even come to the point that the huge amount of news information has become somewhat troubling. So does this PDF newspaper answer to the demand of readers nowadays? In addition, buyers won't be interested in placing advertisements if the circulation is insignificant - it has nothing to do with the interactivity of advertisements.

I am rather hesitant to make criticism, as in the past decade the Internet revolution has been encroaching on the territory of traditional newspapers. The newspapers have yet to realize that what has been changed is not merely the habits of readers; the most critical and drastic transformation actually takes place in the cost structure of the media industry.

[+] About for-free and for-pay

"A media company can only profit through monopolization." is the best reflection of traditional media industry. A real giant press group not only owns the best people to produce content, but is also capable of controlling the distribution channel. Its greatness is the result of incorporating production and sales capabilities.

To achieve oligopoly and build up a barrier that is difficult for competitors to surmount, it calls for a vast amount of capital. However, the continual decline of storage and bandwidth cost on the Internet has driven the cost of publication to drop lower. The result is that anyone can do publication and distribution online - this is the reason behind the disintegration of traditional media.

The most baffling part is, traditional newspapers are for sale, and approximately half of their revenue is used to cover the distribution cost (to distribute newspapers to all sales spots). So, if newspapers are to be published online directly, considering the saving of distribution cost, it seems reasonable to cut the price to half.

This idea did not work ten years ago, and it can only get more difficult to succeed now. In fact, the press industry never makes money from selling newspapers. The money from selling papers is small and can only cover some overhead expenditure. The real big money comes from advertising business.

So, if a newspaper is given away for free on the street, can it get a very big readership and thus lift its advertising sales? The answer is negative. A free newspaper will have the worst advertising performance, as the quality of readership of a free newspaper is unacceptable to advertising buyers.

[+] Web 2.0 relieves the problem of immediate consumption of online content

I have bought up the concept of "the life cycle of content." The life cycle of a magazine is a month or a week; a newspaper is a day; and a TV program is an hour. To address to the problem of content consumption, media with a shorter content life cycle would require a bigger amount of capital.

In the case of Internet content, a piece of online news is consumed within a minute, which is even faster than a TV program, so how big the capital has to be in order to be able to cope with such kind of real time consumption? This is why historical records show that the Internet media which had claimed to produce original online news content were all gone at the end.

Yet these experiences have taught us some lessons. First, problems brought by the Internet should be taken care of by the Internet world. Since hiring reporters to produce own content can't not meet the demand for Internet content at such consumption rate, what about letting all users participate in content production? This is what is called Web 2.0.

Second, it may have never occurred to the press industry, which regards the content as its lifeblood, that the low production cost and fast consumption rate of the Internet content has pushes us into "the era of disposable content" when the content, once produced, will soon be disposed of.

Once these two points are taken well into account, it then becomes clear if a PDF newspaper is really a big deal. It says that PDF newspapers are good for preserving content, but most people won't pay for preserving consumables. I have attempted to find our if there is any kind of content that will remain constant, will not be consumed and is needed by the public everyday? Ten years have passed, and I haven't found any such things.

[+] The way for traditional media to avoid disintegration

The encyclopedia seems to have the quality of "remaining constant". Yet even for the encyclopedia, it exists and enjoys popularity on the Internet in the form of Wikipedia, which is constantly amended by hundreds of thousands of Internet users who contribute their knowledge.

Traditional newspapers which used to thrive on their monopoly of information and capital have begun to disintegrate. Yet the dying press has not found out that the cost required to find a group of good reporters or to scoop valuable news is much lower now than before. For the traditional media to avoid their disintegration, this is where to start.

This is somewhat similar to Internet writers who publish their books in the real world after turning famous in the virtual world. For the publishing industry, the popularity of the Internet literature may have caused the public to become less willing to buy books, yet the cost to find a good writer has dropped significantly too during these ten years - it used to take very high risks to discover new writers since there is no way to know whether they will succeed in the market or not.

In fact when the cost of interpersonal communication keeps falling, the cost to find a certain type of people will get much lower than before. This will encourage the emergence of more new business models, among which the most relevant to the press are new types of job advertisements and classifieds. (
2006/10/08 - By Digitalwall.com - Way to
China Internet/Telecom )

- Today in History

The Web 2.0 Revolution (6) Struggle of the Press Industry - 2006/10/08

It All Boils Down to Brand Names - 2005/10/09

Crime and Punishment of P2P (2) Fire of Greed - 2005/10/02

Three Musts of Digital Content Biz (4) Pricing by Consumers' Budget - 2004/10/03

Corporate Website a Handful (2) Division of Labor How? - 2003/10/05

Digitalwall

Sunday, October 29, 2006

The Web 2.0 Revolution (9) New ECommerce

Sunday, October 22, 2006

The Web 2.0 Revolution (8) Transformation of the Telecom Industry

Sunday, October 15, 2006

The Web 2.0 Revolution (7) Death of the Intermediaries

Sunday, October 8, 2006

The Web 2.0 Revolution (6) Struggle of the Press Industry

About Me

Labels

Blog Archive

Digitalwall

Sunday, October 29, 2006

The Web 2.0 Revolution (9) New ECommerce

Sunday, October 22, 2006

The Web 2.0 Revolution (8) Transformation of the Telecom Industry

Sunday, October 15, 2006

The Web 2.0 Revolution (7) Death of the Intermediaries

Sunday, October 8, 2006

The Web 2.0 Revolution (6) Struggle of the Press Industry

About Me

Labels

Blog Archive

Subscribe To