Category Archives: Technology

Some businesses fall in the middle ground of Few vs. Many, or we can say evolve to a state which is encompassing more than one of the two rigid blocks (few and many). They start with one and develop into other. More common is the scenario where you start with a niche area targeting a few big customers and slowly the market expands and evolves into a mass market.

For example Customer Relationship Management services. It started with big corporates looking for highly customized solutions to manage their customers. The big players in this business are companies like Oracle and SAP. Slowly small and mid-size businesses started looking for CRM solutions and providers like Salesforce and Microsoft Dynamics emerged in the market.

Another example that comes to mind is stock trade. Years back stock trade was done by a few financial houses and businesses working at the stock exchange. Now there are dozens on online brokers like Etrade, Ameritrade, Scottrade etc. and any individual can participate in the market.

Internet has been a big enabler of getting the service to the many due to a couple of reasons. First, scalability. Internet has drastically reduced the scaling cost of various services. Second, customer service and support. You can use community site to support your product or service.  This is a fantastic way to provide support because then you can use the community power to improve the product as well.

The interesting thing to understand here is when the business shifts from few to many, most of the times the major players changes as well. This states that it is completely a different ballgame when it comes to serving the many as compared to few and the companies that are focused towards serving the few cannot shift gears that easily to serve the many. Few big difference: a different pricing model, a completely different way to connect to customers (physical to virtual) and adapting to different technologies.

How does an individual use a personal computer? Barring edge cases, like using niche applications for business purposes, we can generalize it to editing and storing documents, pictures, music and other files, managing appointments and tasks, and doing a whole bunch of things on Internet like checking emails, social networking, surfing, getting news and so on. These uses of a personal computer makes it such a formidable force, both at home and work. The base of a personal computer is an operating system (like Windows, Linux, Mac OS) making it the platform of the computing world.

Now consider a web browser such as the Internet Explorer or Firefox. What can a web browser do? It can connect a personal computer to the grid of servers out there somewhere in the cloud. All you need is this browser and an Internet connection. If this grid of servers can store your documents, pictures, music and so on, and the browser can provide you with tools to create and edit these items, manage your calendar and let you use the Internet as usual, your need of owning a powerful computer and cutting edge operating system diminishes significantly. The platform now changes from a personal computer to an Internet browser running on this personal computer.

When the required platform changes from an operating system to a web browser, what happens? You stop looking for the latest operating system for your personal computer and start marching towards the latest and most efficient web browser. No doubt you will still need a personal computer, but you might not need to update it every three years to stay in sync with the doubling computing power. This challenge posed by a web browser to the operation system is a case of challenging an existing platform not with a better platform, but with a different platform.

Gateway to a personal computer: Windows.
Gateway to the Internet: Google.
Gateway to your social world: Facebook.

What we are talking about is a business that provides a single resort to meet (most of) your needs in a particular arena. I would define a gateway business as one that encompasses a platform that can host applications to fulfill ones needs in that world. 

How to develop a successful gateway business? Develop the world inside the gates. Visualize four gates in front of you. You get a chance to peep through each one of these gates to see what’s on the other side. Which gate will you go through? The gate across which you will find the most of what you are looking for. In a gateway business, sometimes you don’t have to be the best, but have to provide an ecosystem that delivers the customers best of what they are looking for, or in other words, you need to be the best platform out there. For example, you can debate that Windows is not the best operating system out there, but it is the one which supports the most applications providing majority of people what they want from their personal computer, making it the best platform for personal computers in the market.

Interesting thing to note here is none of these platforms we consider to be iconic gateway businesses were the first in the field. Windows was not the first operating system, Google was not the first search engine and Facebook was not the first social networking site. They all had someone before them that were not able to develop a formidable platform. This brings up two important points. First, a gateway business, though considered to be less vulnerable have its own vulnerabilities and is not indispensable. If you have a gateway business, better remain on your toes and keep evolving. Second, if you are planning to start a gateway business, and you think you can do better than what’s out there, go for it. Just something else already dominating the market is not a barrier enough to abandon the plans.

Web 2.0 solutions are often said to be in “Constant Beta“. Instead of running a long development cycle and coming out with a final product release, there is this iterative approach where the product reaches the users in record times, and the product usage insights are harvested for further improvements in the next development cycle.

Let’s look at the factors that facilitate the Constant Beta approach of product development. I think the biggest factor leading to Constant Beta is the delivery of products as services. Software services are hosted at a central location and are controlled by the service providers. These services are easy to update and can take fast upgrades leading to continuous improvement of the product. Agile Development approaches like eXtreme Programming and Scrum are used in the services world to get the product out of the door as fast as possible followed by constant iterative improvements.

Other factors that encourage Constant Beta approach are competitive nature of industry and fast evolution of services. Internet is a fiercely competitive environment where new start-ups emerge every day doing things in a better way. In such an environment, you got to keep evolving your offering to retain the customers.

In this Constant Beta world, I believe the beta tag is debatable. We can either say that it is understood that the product is always in a state of “work under progress” or stick the beta tag to it for ever making it almost irrelevant.

Back Office: the departments in an organization that are not directly involved in generating cash for the company. For example, the IT department in a company, or the accounting department in a broker-dealer organization. These departments are absolutely indispensable, because if they were not, they wouldn’t exist.

But does it really make sense to have such a cost center in the organization? Specially when you have options around it. A couple of ways to eliminate the back office would be by outsourcing your back office to someone else or developing expertise in the work you do in your back office to an extent where you can make it part of your business offering.

Your back office is for some one else the “front office”, or the core business offering. So instead of putting resources in your back office and diverting your attention from your core business, a better option would be to look for the best choice out there and outsource your back office. Benefits of this approach are cost savings in most cases, since you will be choosing from a pool of service providers, and ability to pay more attention and resources to your core business.

Another option is to expertise back office work and spin-off the back office into a money generating business. This has been a very successful operation in the software industry, more since the advent of software as the service. The most visible example that comes to mind is Amazon S3 and related services. Amazon hosts big servers through its IT department to power its online store. Amazon now uses the expertise of its IT department to provide a host of services to enable other businesses use its infrastructure and do computing in the cloud, eliminating its back office by turning it into a profitable offering.