When your online app provider gets taken out - The perills of online apps

If accurate, the news picked up by Techcrunch that Google has "hired" the 2 people that created irows (Google spreadsheet competitor & IMHO the better of the two) in order to close it down, provides an interesting reminder about the potential perills of using online service providers.

Firstly, looking at the situation when your online app provider is "acquired" as in this case, there could be a number of ways things could play out

- the site could shut without notice thereby locking up customer data; unlikely here as this would create tremendous ill feeling & bad PR, but would encourage customers to only use big service providers like Google, who are likely to stick around.

- the site customers & data could be migrated to a Google badged service, as happened with Writely; Google didn't have a competing product to Writely so there was no real migration required (Youtube & Google video will be the interesting one since it will be Google Video catalogue that will have to migrate). Problem is the degree of compatibility between the services since irows has more functionality - either a) the extra is lost or b) work is required on Google spreadsheet to bring it up to scratch. I think the c) option of dropping Google spreadsheets in favour of irows is less likely.

- the customers could be left to fend for themselves with a small notice period; This seems the least likely in this situation here because of the bad PR. Nonetheless, whilst an acquirer might lose some of the customer base, in electing this option it avoids the customer migration costs and will be likely to pick up many of the customers anyway if it genuinely is the main competitor. Moreover, customers are forced to incur the migration costs/effort and have to "accept" what's on offer, even if it is inferior.

Guess what - all of these apply equally well beween the online & physical worlds. Its just basic business M&A issues.

Where I think the major difference kicks in though is as follows; in the offline world its almost unheard of to provide a "commercial" service for free, with no clear expectations of revenues but just a hope that you'll be acquired for big bucks. Conversely physical businesses always have a specific aim to generate revenues, albeit with some losses in the early days covered by initial funding.

Thus, supplier longevity which is already a matter most physical businesses would consider, should doubly matter in an online environment.

That's not to say that physical businesses don't also go bust, as has just been the case in the UK with Farepak Foods and Gifts Ltd, the Christmas hamper firm through which people "saved" for Xmas with several hundred thousand families having lost their accumulated savings. (Oddly, this "Hamper" market has never come under regulatory oversight, despite it being a "savings club", because it was always argued by the companies that it was a prepayment scheme for goods. As a young accountant, I was sent to review such a business called "Family Hampers" which was part of the GUS group, simply because I had financial services expertise!)

But that example had nothing to do with the core commercial strategy - in the case of Farepak it's alleged that the cash was simply being syphoned off to provide "free" cash for other related companies, which then couldn't repay it.

We saw an online business startup last week who were almost insulted when we questioned their strategy of not charging introducing charging for up to 2 years, despite the service providing demonstrable value which we didn't think people would object to paying for. For them, it was a straight "invest loads of cash upfront; we'll endeavour to do a land grab and down the road we'll either be bought for stellar price or, if not, we will introduce charging".

The consequence of this, however, is that you have to question the likely longevity of such businesses. Sure, I've had recounted to me how Google didn't have a revenue model at the outset and that this only materialised later in the form of adwords. But how close did they come to closing? So if your supplier's longevity is in doubt, do you have a strategy to mitigate against the sudden withdrawal of that service?

For me, with an increasing dependence on online apps, it is becoming a more pressing issue - I can't exactly call round to the premises and ask for a copy of my data on a disc if they close down. So leaving aside concerns about the supplier preserving the confidentiality of my data (another big concern), I've had to seriously consider the importance of the data I am storing based on the impact of it not being "lost" and take steps accordingly.

For example
- Flickr & Zooomr etc: They close and I lose my online photo album. No big deal as the primary copy is stored locally
- Blip.tv: I lose my online videos. Again primary copy stored locally anyway.
- Google docs: Reasonably reliable provider I hope but would be a problem if I lost them. Online version is the primary copy - hmmm. Occasional downloads then is my only option
- RSS reader: Originally didn't think this was a big deal, but similar to online bookmarks, you just know you'll never locate all of them again. Primary copy is online. So now I both regular take an export of the opml files & also have 2 RSS services with that data
- Airset Calendar: Constant synchronisation with Outlook which acts as the backup
- Skype/IM contacts: Maintain offline copy of the address details
- Slidedecks: Primary copy tends to be offline

This just re-enforces one of the themes from Web2.0 conferences that I heard referred to in despatches - the increasing consideration to online apps being usable offline but still within the browser. iscrybe has this feature and Google is introducing it for email apparently.

More importantly, though, the key thing is that the lessons and practices of the physical world shouldn't be discarded because we've moved online.

posted by John Wilson @ 8:30 AM Permanent Link newsvine reddit


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