5 Mega Trends for Web Based Businesses

In between consulting with companies on their marketing programs, I am focused on building web based businesses that can run themselves.  Because I set them up in cyber-space, they offer incredible freedom and can be accessed by me or my “virtual assistants” whenever and where ever we are at that time.  It’s truly amazing just how easy it is to set up a business with minimal start up costs and begin producing revenue and profits in just a few weeks.

I recently spent time with the folks at Google in Ann Arbor before taking off to Hawaii for ten days.  During the day we spent a lot of time talking about the trends that enable web based businesses, and which trends will drive the “next big thing”.  I won’t tell you that I had an epiphany on the beach because that is 1) far too cliche, and 2) not true at all because I was busy every day starting at 6 AM walking the beach, scuba diving, snorkeling, playing tourist and in general relaxing while chaperoning my son’s high school band trip.  But, I did let some of the things I discussed with the folks at Google sink in and marinate a bit, all the while not worrying about my online businesses because I could stay connected via my BlackBerry and see how things were going.  Unlike my brother who has a true brick and mortar storefront, my stores are open 24/7 to the entire country and make money regardless of where I am.

So whether you are a 4-hour work week-er thinking about your own entrepreneurial slant on how to start a business on the web, or if you are a venture capitalist considering which deal to invest in next, here are some of the mega-trends which are shaping the future for businesses online:

1) Computing Power continues to get better, cheaper, faster at an exponential rate.

If you subscribe to Moore’s Law, then you made a good bet.  In 1965 Intel co-founder Gordon Moore made a prediction which basically stated that the number of transistors which can be placed on a chip will double every two years.  This trend has held since the 1970’s and is true today.  But the trend is not just limited to computing power – it also applies (to a lesser extent) to network capacity,  storage capacity, “pixels per dollar” for digital cameras and so on.  And at the same time the dollar cost per computer MIPS (millions of instructions per second) has dropped at a similar rate.  So you get the best of both worlds – faster and more capable computing power at a lower cost.

The tangible result is that anyone can have instant access to virtually unlimited computer processing capabilities, storage and network bandwidth without having to invest a dime in any of it.  You can use a simple solution from GoDaddy, Host Gator or any number of providers who are out there providing hosting services with tons of free add-on’s like e-mail, security, application software, etc to launch your business. Amazon.com has launched it’s own version of infrastructure services called Amazon Web Services to leverage their investment in computing power, storage and network bandwidth.  The inexpensive computational power that is available now lets companies like Zillow.com compute property value estimates on over 70 million properties using proprietary and third party data, and then puts that power in to the hands of users via the web for free.  Farecast.com does a similar thing, using massive computational power to forecast when you should buy your next airline ticket based on historical data and airline yield management practices, for free.  I can remember selling one gigabyte disc drive storage systems for $100,000 just 15 years ago – now I get 2 GB thumb drives for free as trade show give aways.  

So as the cost of computing becomes a non-issue, you can open your mind to new ways of presenting data, making it available to your users, and providing amazing graphical and video treatments.

2) The “Long Tail” is for real

Chris Anderson first coined this phrase to describe niche business strategy of selling a large number of unique items, each in relatively small quantities.  The same concept applies in search engine marketing and optimization with companies optimizing for multi-word and obscure searches which tend to have higher  potential for driving sales than more generic terms at the “head” of the tail (see chart).  His book The Long Tail: Why the Future of Business is Selling Less of More is a classic among those building their businesses online.

The Long Tail concept is one of the driving forces behind Amazon.com, Netflix.com, eBay, and others.  And its something you have to stay on top of because the tail will change with current events, news, changing consumer preferences and so on.  According to Google,  20% of  new searches are for terms that are new from 3 months prior.  You can see the rise and fall of interest in terms, and the events that drove interest, on Google Trends.  

So with the ubiquity of search engines as the way that people now choose to use the web, the ability to drive sales and profits from obscure products or search terms becomes very real.   There may indeed be a market for your left handed orange oven mitt.  

3) The “Wisdom of Crowds” is for real

The “Wisdom of Crowds” is a book written by James Surowiecki in 2004 which basically states that collective minds make better decisions than individuals, or even experts.  While you can argue that “group think” is not necessarily a good thing, the concept applies well for online businesses and has important implications for how you present yourself online.

The web has opened up ample opportunity for individuals to express their opinion, and to comment on other’s opinion.  User reviews on Overstock.com are far more powerful than any product description could ever be.  User comments on RateNerd.com give direct and immediate feedback on their experiences with bank offers and promotions, and let them suggest other unadvertised bank deals.  Wikipedia.com Yedda.com and Yahoo Answers provide a forum for people to share information, and for the community to vote on that information.  Google’s Page Rank algorithm is powered largely by the number of sites linking to another site – in essence tabulating votes and assuming that like minded sites that link to each other know something.

There is great power in being adopted by the crowd.  Whether its creating that elusive viral video on YouTube, or having a huge traffic spike after being “stumbled” by an influential user on StumbleUpon, the crowd effect can be a real driver for your business.  And of course it cuts both ways – negative reviews can kill you.  At the same time, it’s important to let the crowd make up its mind – in the Overstock.com example, it is critical that they allow both good and bad product reviews to be posted.  If they only allowed for positive reviews, it would quickly be dismissed as “fake”.  By allowing new users to read both good and bad reviews, they are perceived as “real” and will earn a higher degree of trust.

4) Open Your Mind to Open Source Computing Platforms

Back in the good old days of high margin computer software development, proprietary systems were the way to go.  These “closed” systems meant that you had to completely buy into a specific company’s flavor of computing (IBM, Microsoft, even Apple in the early days) with training, hardware, tools, data bases, etc.  The advent of “open source” computing makes the underlying computer code available to anyone, thus reducing costs, speeding innovation and development, and increasing the number of folks who can work on the software platform.

At the risk of going down a geeky discussion of application development protocols etc, let me sum it up this way: open source computing platforms have a similar impact on software development as Moore’s Law does on computing power.  It makes your software better, cheaper, faster.  

So for anyone looking to build a business online, this means reduced costs and increased speed to market with your new site.  I can have a free, search engine optimized content management system up  and running my blog or content site in literally five minutes by using WordPress.   I can put my entire company or network of virtual assistants on an enterprise class document management system with full collaboration capabilities using Google Apps in just minutes, for free.  And for both of these platforms, there are plenty of free or low cost add on’s that allow me to integrate additional functionality into the site (ad serving, Twitter integration, analytics, newsletter sign-ups, and so on).   Apple is now in the game, and its iPhone App Store has made the iPhone the most popular cellular phone ever – and Apple had to spend zero on the development of these applications.  They just made the platform available and smart developers (following the wisdom of crowds and the long tail) made software that people want at their expense, hoping for future profits.

5) Look to the Cloud

The network power that enables these first four mega-trends is something called “Cloud Computing”.  Cloud computing refers to software and data that exists in cyber-space as opposed to on your server or PC.  With all your data and applications stored in “the cloud” you can access it from anywhere, and someone else is responsible for securing, hosting, and maintaining your software/data infrastructure.  This, again, means better-cheaper-faster and more scalable infrastructure for you to run your business.

By having my business run in the cloud, I eliminate the need for a physical server room with raised floors, endless wires, IT staff, boxes of cables and software manuals, etc.  I also don’t have to worry about security and software updates because someone else does it for me.  Think about the power of using an application like SalesForce.com to manage your network of sales people and your customer management system with no investment in systems or IT staff, all for a low monthly fee.  Best of all, it’s infinitely scalable – thus allowing you to ramp resources up or down as your business needs them.

 

Put it all together and what have you got?

By putting the five trends together, you have an emerging picture of building a business online with infinite amounts of cheap computing power that allows customers to collaborate and find the products and services that fit their individual needs.   You can pull together big ideas for merging massive amounts of data, graphics, video, satellite images etc and delivering those results in real time to a user’s desktop or mobile device.  And you have the ability to do it from anywhere in the world, 24/7.  The implication and opportunity for marketers and entrepreneurs is enormous.

3 Responses to “5 Mega Trends for Web Based Businesses”

1. Sarah Fauth on April 21st, 2009:

   It’s going to be a spell before we experience any CMS cloud offering from the likes of Oracle. Acquia have lately launched Drupal Gardens which is a cloud based function which feels very promising. There are a host of grounds why we are not traveling onto the cloud more quickly, the fundamental reason is organisational change where budgets and contracts are established and presented years for 3, 4 even 5 years. Come replacement time some nodes are demanding CMS in the cloud but then have to interpret some other issues such as integrating with CRM & some other back office systems. I imagine it will take place eventually.

2. Affiliate on April 21st, 2009:

   Super helpful! Thanks for the great list of resources so I can start working on this for my site. Appreciate it much!

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