"I'll use it if you will" Saturday, January 27, 2007
Online and offline there are two types of business
- Crowd dependent: The service only has value if many people use it.
- Self standing: If it works for me, that's fine.
Conversely, services such as calendars (airset, google), spreadsheets (google) and docs (zoho, think free) or something as simple as a ticket agency/online store can be useful to an individual or a small group regardless of the total customer base.
This is a significant distinction because the likelihood of success for a venture varies enormously between the two.
Crowd dependent businesses are hugely dependent on early adopters joining in "anticipation" of it eventually becoming useful. Hopefully, a virtuous circle is created in which sufficient people join that it reaches a tipping point. Depending upon the crowd size required, this may demand enormous marketing spend to drive customers in quickly. Of course, once you achieve the tipping point, this provides you with enormous competitive advantage over other new entrants - essentially it creates a barrier to entry. Customers are also locked in to your business to some degree since they derive benefits from being part of the crowd.
A self-standing service can afford to grow more slow (funding permitting) and can immediately deliver value to its customers. However, it's far easier for customers to switch to a new service. Whilst they may have invested time in using your business
Hence in evaluating a business opportunity as an investor you intuitively think along the lines of
| | Investment required | Success probability | Potential value |
| Crowd dependent | High | Low | Very High |
| Self standing | Low | Medium | Low-Medium |
This isn't gospel and obviously the nature of the opportunity will affect this rough guide.
Labels: entrepreneur
posted by John Wilson @ 9:14 AM Permanent Link
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2 Comments:
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At 7:42 PM,
Adam said...
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The table doesn't quite come out, but I get the gist. If something is crowd-dependent, it's tough to do, takes more investment, but has a much higher potential value.
I guess the holy grail would be one that is both--like del.icio.us, though their user base still may not be more than early adopters. -
At 4:41 PM,
John Wilson said...
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Sorry about the table - now fixed.
Breaking out of the early adopters is the big challenge as everyone knows but is rarely achieved. The bigger winners are those that go mainstream like youtube, bebo, myspace.
