• What Can We Learn From Web 2.0 Companies?

    One of the main themes I've been tackling at the LEF has been evolution, in particular how and why business activities evolve. Whilst there exists a common process of evolution, it is not exclusive to activities, but also impacts practices, strategies and even organizations. I discussed these concepts at a recent Strata Conference in NYC - watch the video here.

    This process of evolution also drives the large economic cycles which impact our economy through changes in technology. What is worth noting here is that novel forms of management practice also tend to emerge as a result of this. Given that cloud computing simply represents a shift of activities across the computing stack from a product to a utility service world, is this technology change enough to allow for new practices to emerge?

    The first place to look would be those practices which are tightly coupled to the evolving technology and hence should in theory co-evolve. For example, in the case of computing infrastructure, it would be architectural practices. Here we find that the past 'best' practice was all about physical machines (large highly resilient servers), whereas the 'next' practice solves resilience, disaster recovery and capacity planning through software. Hardware in this new world is increasingly confined to a commodity and good enough components.

    These new architectural practices are becoming commonplace in a small subset of web 2.0 companies. Hence, I set out on a research trip across the US to see if I could determine a range of next practice which might be useful to the more traditional enterprise. Whilst there were some surprises - use of small cell structures, open source as a tactical weapon, focus on ecosystems and big data - one of the most enlightening areas covered the question of inertia.

    In turns out that a vendor's past success will often act as an inertia barrier to any change and hence future survival. This inertia barrier can become entrenched in the organization, even institutionalized and reinforced by financial markets. It is often most clearly heard through denial of an industry change, concerns over cannibalization, disintermediation etc. It is also no coincidence that the company which has most effectively exploited and driven the evolution of infrastructure towards utility provision - Amazon - is a company which was not encumbered by a successful business model in the previous product domain i.e. Amazon has no product rental or hosting model.

    These inertia barriers affect all forms of organizations - web 2.0 and traditional alike. Furthermore, activities often cluster behind inertia barriers until one company makes the leap and a flood of change, a time of disruption and war occurs. At the largest scale this is what causes those major economic cycles and ages but at the micro scale, the evolution of activities in concert with those inertia barriers create smaller cycles of peace, war and growth in each industry.

    Today, the IT industry itself is in a phase of war created by this shift from products to utility services. This is why we often hear about peace vs war time CEOs. However, it shouldn't be forgotten that those same inertia barriers which may prove fatal to many hosting providers, did have a beneficial effect during the peace phase by minimizing change i.e. hosting companies were doing particularly well prior to the introduction of utility services.

    This is where a major difference comes to light between traditional and web 2.0 companies. Many traditional IT organizations have lived through periods of relative peace and change is viewed as something to be managed and minimized. Whereas many web 2.0 companies see change as a weapon and something to be encouraged. Their motto is "you become what you disrupt".

    In this world, open source and a host of other tactical moves are being used to compete and disrupt others. These new engines of commerce fight by different rules, they play a different game. We will been revealing more on this and our recommendations in the upcoming report on what can we learn from web 2.0 companies. In the meantime, we are undertaking a survey to confirm our findings. We would be grateful if you would take 10 minutes to give us your views and if you'd like a summary of the findings please complete your contact details at the end. Thank you.

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