200705200231

Is a Well Nestoria “insurance policy” against Google changing the terms of its service. Let’s try to understand why we could need such a thing.

The proliferation of API’s, widgets, social bookmarks, RSS feeds and web services as well as open standards are boosting web 2.0 and social media.
From a business point of view it is a magmatic tumultuous scenario.

quoting Dion Hinchcliffes

And as we discussed in the last post, it’s believed that letting users innovate with your online offerings by letting embedding them in their own Web sites, blogs, and applications can greatly broaden distribution and reach, leverage rapid viral propagation over the Internet, and fully exploit the raw creativity that theoretically lies in great quantities on the edge of our networks.

the key drivers of this evolution are:

  • lower barriers to entry the markets;
  • rapid development languages and extreme programming;
  • the spread of broadband;
  • the reduction of digital divide and the increasing digital literacy;
  • the explosion of user generated contents;

All these factors are driving back the internet to the pre web expectations and promises. As in his 1998 book Net Gain and its sequel Net Worth, John Hagel has the right vision and succeeds in pointing out critical path in changing environments. In this post he quotes Om Malik’s Web 2.0 end of Innocence:

The Web 2.0 story so far has been about taking APIs, mashups, low cost infrastructure and building applications that are then offered to customers for pretty much free, backed by an ad-supported business model. Think of this as the tie-dyed-free-love hippie phase. The Web 2.0 conference held in San Francisco in Fall 2006 was its Woodstock.

A lot of good things happened, innovation blossomed, but now we are entering a more pragmatic phase, where the large players like Google and Amazon who distributed the API elixir are taking control back.

API’s boosted the mash-ups phenomenon and the Do it Yourself way of life but

Many, if not most, of the Web 2.0 start-ups are features masquerading as businesses

To the lack of a real business model the API dependency is a terrific point of weakness for web 2.0 start-ups.
Haghel provides some interesnting “best practices”:

Well, recent actions by some of the large API providers like Google, Amazon, MySpace and Firefox suggest that there may be another, less welcome, exit – having the API rug pulled out from under you or, almost as bad, finding out that your friendly API provider has just introduced a service that competes directly with your own. Neither event is conducive to nailing that big acquisition exit deal.

The Firefox case it’s a little bit different taking into account that it is and open source project and that Flock is built on it. Anyway the lesson is:

The only sustainable edge in Web 2.0, as in all businesses today, is to get better faster by working with others. This isn’t a sprint where you can come out with a nifty new feature or service and then sit back until the buyer knocks on your door;
Web 2.0 is a powerful bootstrapping opportunity. It is most likely to pay off for those who take the resources available and rapidly build viable businesses with some reasonable barriers to entry – especially relative to the API providers you are bootstrapping on.

To keep safe the scalability of your business Haghel suggests this strategic path:

to pay off for those who take the resources available and rapidly build viable businesses with some reasonable barriers to entry – especially relative to the API providers you are bootstrapping on.

But it depends on your API’s provider stategy (Stasaholic failed in doiing this).

and the relative tactics:

  • accelerate the innovation in the services you offer so that you are constantly one or two (or more) steps ahead of those tempted to copy you.
  • find ways to use your service offerings to build trust-based relationships with your users, ideally with some powerful network effects that will make it very difficult for later entrants to pry these people away from your service. Ideally, these two approaches can be integrated by motivating your users to enhance your services themselves so that the more users you have the better your services become – the essence of Web 2.0.

The conclusion of Haghel is interesting for the future of web 2.0 business models:

I suspect that sustaining the right balance in the Web 2.0 ecosystem over time will hinge on a new development – charging relatively nominal fees for API use. This will put increasing pressure on API users to come up with viable business models and reduce the incentive for API providers to compete with their API users.

This pattern seems to be emergent and some players are trying to give a response. What do you do usually to cover your risks. Call for Insurance.
That’s what is doing mapastraction. Read Vecosys last post:

Well Nestoria, have decided to takeout an “insurance policy” against Google changing the terms of its service, by proactively supporting
“Mapstraction “a library which provides a common API for Google, Yahoo! and Microsoft’s javascript mapping APIs to enable switching from one to another as smoothly as possible. The aim of Mapstraction in mainly to protect companies building commercial products on top of Google Maps from changes to terms and conditions, the introduction of ads, or the emergence of a competing library with better maps, different imagery or preferable licensing terms.

This kind of market dynamic works only if competition is fueled and basic web services are not supplied in a monopolistic market shape. The best insurance for this is sustaining open source project that have an important economic role and not only an ethical value.