Next Generation Internet Applications

A colleague of mine, Michael Hackney, pointed me to an interesting company, DreamFactory and their Cloudware offering. DreamFactory leverages the Amazon infrastructure for their storage and billing infrastructure and Webex for their realtime. This allows them to focus exclusively on the application side and they leverage SalesForce AppExchange as an alternative delivery mechanism. I have to say, this is quite an innovative approach and a disruptive business model. Basically, they hardly own any infrastructure and focus exclusively on value-add. This allows them to be dirt cheap for their entry offering - @12.95 for a starting point + usage fees:

• For their professional offering:
  • Storage: $1.50 per GB/month
  • Data Transfer In: $1.00 per GB/month
  • Data Transfer Out: $1.70 per GB/month

which is basically what Amazon charges for their infrastructure plus a small markup.

Their business model is set up to be low cost and profitable from day one and cover cost as usage increases. For the Amazon of the world, it solidifies their position as the infrastructure that runs the web.

Service-Oriented Information Infrastructure

Mark Lewis had an interesting write up a few days ago on Service Oriented Information Infrastructure (SOII) and I could not agree more with him. Actually, I believe that in many ways this trend has already started. Look at Amazon Simple Storage Services and how sites like SmugMug and YouOs use this infrastructure to essentially run their web sites. You are talking 60,000 customers utilizing 12 GB of storage and 80 GB of bandwidth per month for YouOS and 10 terabytes of new images each month for SmugMug. That's serious infrastructure there. In the case of SmugMug, the company estimates saving $1/2 million a month in storage expenditure!

So, I definitely agree, SOII is the way of the future for the storage industry, looking at Amazon S3 strategy is actually enlightening.


This actually strongly highlights the need for standards in that space. But, then imagine the possibilities: based on the value of their information, customers could either leverage an Amazon S3 services or internal storage for key business records. This also means that application providers need to anticipate such need and layer their product architecture accordingly.

This is starting to happen, Koral, a startup in the content management space is built from the ground up to support storage as a web service and has done a reference implementation using Amazon S3. It will take a while for this type of technology to be adopted in the enterprise, but given the profound impact it will have on established players' product architecture, this clearly has the potential to be a disruptive innovation.

The Value of Co-Creation

I have been reading Wikinomics by Don Tapscott and Anthony Williams. Overall, it is a good book. One of the arguments the authors make is that corporations need highly permeable boundaries to foster innovation in their organizations and be successful. In the software industry, we have seen how IBM and others have leveraged the open source movement to co-create and drive innovation in the industry. IBM for instance estimates that it saves in R&D around $1 billion a year by investing in the Linux community. And in its hardware business alone, IBM sold $2 billion worth of Linux based hardware in 2006. Those make strong arguments for the value of co-creation, right? Well, wait to hear how P&G leverages co-creation. In the late 1990's, P&G realized that out of a $1.5 billion R&D budget, generating a lot of patents, less than 10% of the produced patents resulted in products. So P&G's CEO, A. G. Lafley, set out a pretty aggressive goal: that 50% of P&G new products and service ideas come from outside the company by 2010. We aren't talking about outsourcing here, but true co-creation. Identify most promising ideas out there that help P&G innovate and incorporate them into P&G R&D.

The result is big time dividend as mentioned in P&G's New Innovation Model in March 2006, by Larry Huston and Nabil Sakkab on HBS Working Knowledge.

More than 35 percent of our new products in market have elements that originated from outside P&G, up from about 15 percent in 2000. And 45 percent of the initiatives in our product development portfolio have key elements that were discovered externally. Through connect and develop—along with improvements in other aspects of innovation related to product cost, design, and marketing—our R&D productivity has increased by nearly 60 percent. Our innovation success rate has more than doubled, while the cost of innovation has fallen. R&D investment as a percentage of sales is down from 4.8 percent in 2000 to 3.4 percent today. And, in the last two years, we've launched more than 100 new products for which some aspect of execution came from outside the company. Five years after the company's stock collapse in 2000, we have doubled our share price and have a portfolio of twenty-two billion-dollar brands.

That's pretty amazing and should be a call for action for any executive out there. Co-creation works in a big way!

Market Dynamics For Idea Validation

Here is an interesting idea. Use market dynamics to weed the good ideas from the bad ones. I just happened to read an interesting article from today's New York Times ("Here's an Idea: Let Everyone Have Ideas" by William C. Taylor) that outlines just that. I personally find the idea quite appealing. The premises go as follows:

• Allow anyone in your company to have Initial Public Offerings (IPOs) for their ideas.
• Have every employee allowed to trade $10,000 of those idea stocks.
• Let the market dynamics decide.

This is not a completely novel idea but Rite-Solutions has a product (The Innovation Engine) that does just that. A modern take on the suggestion box...