Bruno Fernandez-Ruiz

There seems to be at least 17 startups taking on the A-Team of the desktop applications, and possibly another hundred thousand teenagers creating their own little Web 2.0 application-du-jour in communities like entrepreneur extraordinaire Mark Andressen’s Ning.

Since the software-as-a-service business model is mainly only attractive for smaller to medium companies, why are there so many web 2.0 applications popping out everywhere?

I believe the catalyst has been a generational change. Web 2.0 is not anymore an emerging phenomena only found among geeks playing with XML, and asynchronous HTTP requests. The generation of young adults in their early- to mid-twenties have grown using the internet as a routine. They learned how to collaborate online using Yahoo!, how to use Google to find the solution to their assignment or homework, how to download MP3s using eMule, etc. and most importantly how to skim through the rubbish to get the very simple: content. The internet is just one more thing they use in their lifes, just like a phone. Given that they have grown on it, doing homework and making friends on the web, it is the collaborative aspect of the internet what possibly makes software-as-a-service interesting. It’s Wiki-Extreme if you let me put it that way.

Okay, so you have a market. You have entrepreneurs. How do they meet each other? Most of the startups doing Web 2.0 services will fail (I hope this is not a surprise!) and only those that are able to see beyond the collaborative, minimalistic aspects of the software-as-service business model will be able to survive. Simple usability, Apple-like design and aesthetics, and a beta-always badge are requirements to be in the Web 2.0, but fulfilling functional requirements are at the end of the day what makes an application work. Collaboration is fine, but not all business processes are suited for collaboration. So, what’s the new old?

• Information lock-in is the biggest simple asset these startups should leverage. They will need to lock in their customers into their proprietary document/workflow formats, to avoid switching. It’s a market with almost no barriers of entry, and the only protection they will have is information lock-in.
• Web 2.0 software-as-a-service should offer the products for free right now (yes!). The marginal cost for you to give the application to an additional user is close to zero, so your only short-term objective should be to create a large customer base, bigger than your competitors. As the market develops, the number of players will be reduced, but you will have your customers locked-in.
• As the market matures, you will need to start making money (uh?). Seriously, don’t expect to make a business out of AdSense! So how do you make money? Your best returns will come from premium services targeted those companies to who software-as-a-service is borderline to not being competitive anymore, and would be tempted to go for traditional solutions ala Microsoft Office. For these customers you will need to offer the extra mileage: better backups, better training, consultancy, etc.
• Price accordingly: free for most, pay for a few. The more free customers you have, the more the few will be willing to pay to ensure format compatibility.

These are nothing but the good old economical principles that apply to the web 2.0 information economy. Not surprising.

The British policy makers seem to have a tendency to first develop land and then put suitable transport infrastructure in place. Obviously, a significant factor for people choosing their next residence is road infrastructure and, to a lesser degree, public transport. Current government plans include creating over 100,000 new houses in regions like the South East, partially to release some pressure from the already overcrowded London. In cities like Ashford, in Kent, the local job market is almost non-existent, and the only population that can potentially be attracted to these new developments are London commuters which move their residence but keep their jobs in London.

The authorities seem to forget who they are really promoting housing for: without suitable public transport, London commuters will not chose to live in Ashford; without an inflow of public money and incentives to businesses to relocate to Ashford, there won’t be any job creation. The government policy is however to invest in infrastructure only after there is housing demand. Obviously there won’t be any housing demand since there is no infrastructure for the London commuters.

To be completely fair, some level of investment is being made in road infrastructure. Road construction creates local jobs and gives a huge inflow of construction money to the regions of Britain, boosting local economies with public money, and providing a fertile environment for new businesses, thanks to public money and modern transport links. Altogether, road infrastructure investments create significant public wealth and are a powerful vehicle to redistribute wealth.

Road infrastructure investments however result in increased flows, and surprisingly do not reduce traffic jams but in the very short-term. Quite the opposite, new motorways end up creating more traffic congestion, measured as person*hours of wasted time to the economy. While road infrastructure investments have clear benefits for local and regional development, they don’t quite help to attract new population since road infrastructure does not make a commuter’s journey significantly shorter.

The British authorities should consider investing more in public transport, and less on motorway expansion. Without better public transit, it will prove impossible for the authorities to introduce the planned road pricing and ramp metering changes; at least not without becoming a political suicide.

Most London commuters use trains, often their only choice. The railway system offers very poor service levels due an ageing and undersized infrastructure, and it requires multi-billion investments to be fit for purpose. Unfortunately it’s not only a matter of money: the railway system is very hard to scale around London given the scarcity of land. It proves to be a very unpopular choice to demolish a voter’s house!

Giving these constraints, British authorities should really look of infrastructure as an instrument for local and regional development, and they should clearly consider alternatives such as High-Occupancy Vehicles, Fast Lanes, Commuter Bus Services, and potentially faster rail commuter services.