Pattern eight: Lightweight models & cost effective scalability

Web 2.0 in this pattern

Web 2.0 application do not just mean the technology improvement and changes, it also means the software model and strategy reform. Traditional famous software development companies like Microsoft and Apple, they get thousand of staff work for them, meanwhile they may suffer higher cost for product production. Web 2.0 compaies like Facebook and Twitter; they have lower cost and lightweight model and effective scalability. As O’Reilly(2005) mentioned, “While high value B2B connections (like those between Amazon and retail partners like ToysRUs) use the SOAP stack, Amazon reports that 95% of the usage is of the lightweight REST service.” The benefits of this web 2.0 model are faster development, low risk and cost and good ROI.  To fulfill this goal:

  •  Scale with demand

Firms must have a clear vision to the demand of customer and themselves to decide scale of firm and software.

  •  Syndicate models

Web 2.0 application allow customer to plug in software into individual website and share the data by XML or using SOAP. This would be a key point for success model.

  • Outsource

Outsource is suitable for Web 2.0 application and firms, because they may not expert in all area of software from first line to data center. So Outsource is the best choice for keeping product quality and low cost, especially in globalized firm.

  • Revenue models

Every firm is aimed to gain revenue. There are some typical revenue models: Sponsorship advertising, subscriptions, transaction commissions, premium services and product licensing.

Some cons of the pattern

Exponential growth: Some successful web 2.0 firm may experience a exponential growth. Therefore, it is a big challenge for unprepared firm.

  • Low barriers to entry: low barriers to entry are the trap for some unprepared or inexperienced Web 2.0 application firm.
  • Advertising dependence: advertising should not be the only revenue model for lightweight model and small web 2.0 application.

Evaluating Web 2.0 application

Groupon (www.groupon.com) is a group shopping services website, which provide a new shopping business model with customer and supplier and totally different from traditional heavyweight B2C website. As Cohen(2009) motioned,  “The company offers one “Groupon” per day in each of the markets it serves. The Groupon works as an assurance contract using The Point’s platform: if a certain number of people sign up for the offer, then the deal becomes available to all” Customers do not need to search product anymore and just one product here every day for a unbelievable prices waiting to buy. Scale is very clear as well as the page. Meanwhile Groupon could embed into any devices and JavaScript page to share their product information. The team on-line is just for the software part and for the supplier negotiation part, they could outsource this business to some more professional sell company or agent.  Groupon’s revenues are mainly from the transaction commission and advertisement fee from supplier and customer. Groupon has a clear business model and lightweight application model with good scalability, comparing with other B2C web like EBay, EBay has a more complex business model as real-world shop to sell and buy goods, for Group on, simple business model could reduce risk and keep revenue consistently. In the future, Groupon could extend their business model and use data exchange with Facebook or Twitter to post goods.

 

Right now the group on has involved the SoLoMo concept based on their previous business relationship, it is real good to transfer from the each day deal to SoLoMo, good scalability

O’Reilly, T. 2005. What is web 2.0 http://oreilly.com/pub/a/web2/archive/what-is-web-20.html?page=4

Cohen, D. 2009. “Virtual “tipping point” leverages group deals”. Reuters.

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Pattern seven: Leveraging the long tail

Web 2.0 in this pattern

“The term Long Tail has gained popularity in recent times as describing the retailing strategy of selling a large number of unique items with relatively small quantities sold of each – usually in addition to selling fewer popular items in large quantities. The Long Tail was popularized by Chris Anderson in an October 2004 Wired magazine article, in which he mentioned Amazon.com,  Apple and  Netflix as examples of businesses applying this strategy.” Mentioned by Quinion(2005) and Anderson(2004). Traditional business focuses just on big and popular domain, big client and highest revenue area. In today’s Web 2.0 application, this situation is totally changed. Because low cost and fast speed business model could be done by this platform, accumulation of small client and narrow niches could make huge profile and income to our company. This is called long tail phenomena. The main reason that could support long tail is the infinite shelf on Web 2.0, focusing on small market and low cost for goods distribution and advertisement. Benefits of this point would be seizing new small market, more browser and more choices for customer. To do this:

  • Forces of the long tail

Web 2.0 firm needs to make a strong long tail though production, distribution and demand.

  • Data management

Data management is an important part of long tail, because focusing on small customer and unique requirement, data would be larger and more complex than some big customers. Meanwhile a great amount of demand from small customers or suppliers needs to be researched on data domain.

  • Customer management

Because long tail includes a large number of customers that have different background and demand, so an effective architecture to manage customer and filter illegal and inappropriate contents is necessary. Firms could check content, customer classification to detect risks.

  • Leverage on-line product and inventory cost

Long tail web 2.0 application need to pay more attention to do aggregation and integration of online product and keep the lowest inventory cost. (Inventory cost refers to sleeping product in this net)

 Some cons of the pattern

  • Wrong long tail: long tail need low cost of production and distribution, otherwise it is hard to succeed.
  • Smaller tail: Do not ignore smaller tail, it could reinforce the value in the right way.

 Evaluating Web 2.0 application

Taobao(www.taobao.com) is the largest B2C web 2.0 website in china. This website is totally a long tail product. Alibaba is a world largest B2B company, which has realized that  the small market of long tail could give them great amount of revenue. So they built Taobao , which includes thousands of Chinese even world small suppliers or trade firms to post their product and to do negotiation. Taobao has strong data management system and customer management system. Meanwhile product is managed by many shops. Sellers could gain reputation through good service and product feedback. Illegal and pretended information will be deleted before or after customer complaint. Comparing with other B2C website, Taobao focus more on location customers’ service and smaller sellers, that is the reason why it could defeated Ebay in China, as Alibaba’s CEO Jack Ma memorably said: “eBay may be a shark in the ocean, but I am a crocodile in the Yangtze River. If we fight in the ocean, we lose—but if we fight in the river, we win.”.(How Taobao beats eBay in China. 2010)  In the future, Taobao should extend their traditional B2C model to a more flexible model, for example group shopping or government procurement.

Quinion, M. 2005. “Turns of Phrase: Long Tail”. World Wide Words.

Anderson, C. 2004. “The Long Tail” Wired.

How Taobao beats eBay in China. 2010

http://www.thomascrampton.com/china/taobao-china-ecommerce/

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