Friday, October 8, 2010

The Emerging Business Models in Information Technology

Until recently, the traditional IT revenue model landscape was a rather trivial one. You had your vendors—the companies that developed software or hardware products for use by other companies— and then you had your clients who consumed those products through straightforward purchasing or licensing along with yearly recurrent maintenance payments. On the side you had consulting companies that served as honest brokers that helped to define high level strategies. Add to this the providers of ancillary services, and you end up with most of the IT world of yesteryear.

This simple scenario is no more.

Emerging IT technologies and solutions are now being offered under a cornucopia of models; many of which are only now beginning to be understood. Beyond the “pay-if-you-can” models spawned by the availability of Freeware, Shareware and Open Systems, the future will see the delivery of software under a variety of revenue models, including Software as a Service, Software as a Function, and ultimately the probable disappearance of software as a standalone product. Software-under-the-Hood represents a mindset shift wherein consumers are no longer buying software but rather the things that software can do. Companies providing these services will use a variety of revenue models: free plus maintenance, one-off purchasing, subscription, advertisement, charge per utilization, on demand among others.

Google, for instance, makes the bulk of its revenue from advertisement; not from selling search software. Likewise, eBay’s revenue model is based on its auction facilitation and commissions. Facebook’s revenue model has flipped the world from what was originally the customer (i.e. Facebook friends) into the actual product sold to advertisers (i.e. you, my friend, are the product!). The generalization of SOA and the emergence of more sophisticated technologies will facilitate the drive to offer services rather than software. After all, subscribing to WebEx may give you the chance to download a client-side software module, but what you are ultimately paying for is the ability to schedule meetings on demand.

Mix this recipe: pour a liter of globalized Internet seasoned with Cloud Computing; add a cup of SOA facilitated Software as a Service and a couple of spoonfuls of Business Process Outsourcing, heat with the mobility technologies and spice with the growing success of social networking as the new killer-app. What you’ll gave is a dish representing the transformative emergence of new players providing yet unheard of business services. Already, it is difficult to categorize Facebook or Google under traditional definitions. In the future, the roles played by Microsoft or IBM will still exist, but even traditional software companies realize the need to reinvent their product and business model if they are to better compete under a continually changing landscape. The future will also see the disappearance of some of the typical roles in the value-chain (witness the demise of brick-and-mortar electronic companies such as Circuit City or CompuUSA), and more importantly, the emergence of newer models, redefined to be better fit the changes in information economy. This type of change can only be ignored at the risk of the company’s survival. If you doubt this, recall Wang Laboratories and its Word Processing flagship product as it faced the PC revolution, Polaroid as it confronted the digital photography revolution or Blockbuster in the process of being busted by Netflix (pun intended!).

Just as earlier software models were based on the “a computer on every desk” idea, or the importance of search, or some other insightful tenet, the next Bill Gates, Larry Page or Mark Zuckerberg will most likely be a child of what has been referred to as “The Infosphere[1]”. The Infosphere is the paradigm that all informational elements will be accessible from the electromagnetic digital media around us. You can think of the Infosphere as 3G or WiFi coverage on steroids: ubiquitous, always available, and transparent. It will be the natural result of the pervasive advent of cloud computing and the continued decoupling from specific access devices[2].

Recall some of my earlier observations about how technology usually “evolves” from hype to invisibility as it becomes pervasive. Unlike Wired Magazine’s recent claim that the Web is dead (at least from the perspective of the Web Browser as a universal client) I believe that the Web is very much alive. It’s just that it is evolving into invisibility.

While the Web Browser is now embedded in the hidden fabric of technology, the delivery of new applications and content for new mobile devices on a demand basis, anytime, anywhere, is also becoming an assumed capability. There is an umbilical cord being formed between most of the world and the emerging Infosphere.

Already the rapid adoption of technologies such as Apple’s iPhone and other Smartphones can be seen as earlier examples of this Infosphere. Mobile devices are today’s equivalents to the PC’s of yore, computers that you can carry with you at all times—prosthesis for the brain. Using these devices to interact with the Infosphere from anywhere, at any time, is not a longer a technology question but a commercial one. If only phone carriers did the smart thing and lowered those outrageous data roaming charges!

Here we return from the digression of the topic. The key now is for someone to figure out the right revenue models to apply in the future Infosphere. Data roaming has got to go, ads on Smartphones might be fine but I doubt the revenues they generate will help pay for the totality of the mobile services. Subscription or membership fees to social communities may emerge, who knows… In the end, much will depend on what will become the killer apps and services in the next few years. Figuring that out is the key.

How to do this? Remember the suggestion I made about how best to predict the future of technology? The secret is to find the synergy. That is, to visualize the usually unforeseen ways parallel advances will combine to form a new game changing event.

Find the synergy, especially as it relates to the impact the future may have either on your business or your IT strategy, and you will be on the road to defining your follow-up transformation strategy. If you agree that we are in the midst of an accelerated transition to an Infosphere paradigm, then it makes sense to try to imagine what the likely future business opportunities of such transition will be.

More on this next time . .

[1] Even though the term “Infosphere” has been around for a while (according to Wikipedia, since the sixties), it should be noted that IBM has recently created an Infosphere brand for one of their Information Management software products.

[2] A more esoteric term “Noosphere” has been used to describe a future global sphere of shared human thought—a sort of collective consciousness of human beings. I suppose some nice essays could be written on how the evolution and use of the Infosphere could be the technological enabler for a future Noosphere!