Friday, March 31, 2006

Business squared

Tampere (Finland) is my home city, a city of red brick factories and green parks with trees, and a river flowing through the center. There are wonderful cafes around the town, trendy new ones near the bigger department stores and the train station, ones where you can order a cappuccino and they actually understand what you're talking about.

There are others with a spirit of the city as it used to be, where you better just order a normal drip-coffee or risk being seen as an icky new-world metrosexual (if they knew what that was). Not that cafes or the city have anything to do with anything, except that I had some thoughts about the different levels of business while searching for some of those old-style cafes.

I saw an advertisement in some restaurants about a new type of service where you can order food to be delivered to you by a telephone call or a visit to a website. The thing is, the restaurants themselves are not providing this service, rather there is a company which will take your order and then order the food and bring it to you. In a sense they are providing food for their customers, as your order can be picked from a common menu, but yet they do not actually have to cook it themselves.

They found a way to take ordering home delivery of food into another level. Instead of providing one type of food and making it themselves, they can provide a more varied menu and provide a better service. There are other examples of this. Take used book stores. How to take that a level higher? Well, there is a company which has contacted many used book stores and provided them with custom software and instructions which enable them to easily sell their books in a common marketplace. Now customers can search which books they can find in many book stores, instead of just randomly browsing through one. Of course the biggest example would be Amazon Marketplace, where Amazon provides the book descriptions and images and sellers can offer those books for sale. For buyers, all the books for sale can be conveniently be found at the same location and Amazon is happy as they can get a cut from all the sales made by others.

Wouldn't you agree that there is something similar about these examples of book selling and with the food ordering service? All of these are instances of taking a common thing and raising it to a higher level. What other levels could there be? If you think of a restaurant, the problem that it is solving is providing people with something to eat. So instead of people making food for themselves, someone might decide to make food professionally for others and start to work in a restaurant as a cook. This would be going up a level. Let me indulge in a bit of pseudomathematical masturbation and call this level x.

There could be yet someone else, who would see that by hiring many people specialized in making and serving food, they could control the operation in an even higher level. Instead of making food as an employee in a restaurant, he could control the whole operation on a higher level, removing himself from the drudgery of actually chopping onions. He has reached x squared in his thinking. Well, I'm sure you're ahead of me here and know what I will say next, but I'll say it nevertheless. The example of the service which provides customers with food from restaurants through a common menu is taking this thinking to x cubed.

Be a clerk at a book shop - x, own a book shop x², start Amazon Marketplace -- x³.

I feel that Amazon Marketplace and the food delivery service are providing useful services. But there are cases when going up a level can be unnecessary. When making computer programs, some things can be done by using ready-made functions or classes arranged into libraries. This can make difficult things easy, like using the Google Maps API to get a map instead of making such a component yourself. Well, there are people who might say that they don't like how the API is and would rather create their own wrapper to it. To which I would say that this "higher level" is unnecessary and possibly even a hindrance.

Where am I going with this analogy? An example of an unnecessary level of abstraction in business would be real-estate agencies. They are providing a service which admittedly does take renting houses to a new level, since they can offer many options, but I feel that this level is now becoming obsolete. People are perfectly capable of communicating with each other effectively enough to make this intermediary unnecessary. A digital camera and a message board on the net is all that is needed. Perhaps the need for this level is still there, but at least it is shifting. By the way, someone came up with a way to take message boards up a level and has a website where people can easily create their own boards for free, of course with advertisements by you know who.

This is an exciting time. I feel that the boom is not over, or perhaps my mind has been irreversibly damaged by it or I am living in a state of denial. I still feel that there are possibilities to take things to the higher level, positions of useful intermediaries still waiting to be filled. And the scary thing is that once these positions are filled, it is often very difficult to change them. eBay has become the intermediary of used goods, and it would be very difficult for others to fill their position, as they have all the users. This is why Skype was sold for that ridiculous price, they have the userbase and competition would now be too difficult. It would not surprise me much to see eBay still being around after a hundred years. I cannot imagine mass desertion of deviantART (according to Big Boards they have 5 million members, same as the population of Finland) or Flickr either, a competing service would have to be significantly ahead in their execution for users to even consider such a thing.

There are still such spaces to be filled, businesses to be squared or even cubed. Whoever manages to fill those spaces properly may get a userbase who will stay faithful. This is especially true for anything with a social aspect -- eBay is all the more useful the more users they have. When the size of the userbase is essential to the usefulness of the service provided, it might be impossible for a competitor to take over. Can it really be true that with a few years of effort, eBay has secured themselves a place in cyberspace which will bring them enormous fortunes for all time ever after until the sun runs out of helium, or will the need for an intermediary shift?

I will end this on a bit lighter note. If you think up from the business cubed to taking it to the power of four, what do you get? Lawyers and investment bankers, helping people like me who are utterly convinced of the unique possibilities of the Internet age lose all their money trying to become the next big thing. How about business taken to the power of five? Monks. No, really. They have realized that all this talk over achieving fortunes is nonsense, that really it is better to forget about wanting anything in the first place. Jules became such a monk in Pulp Fiction. At level six we have god, for whom the whole question of wanting is irrelevant as anything can be created and nothing is needed.