November 2002 – Emergic

Smart Cards Success in Hong Kong

Octopus is easily the world’s most successful experiment to date in stored-value, electronic cash cards. Instead of pulling out bills and coins in subways, buses, fast-food restaurants and convenience stores, customers wave purses and wallets past devices that deduct dollars from their cards inside.

Octopus cards are the real thing when it comes to cash cards. They are equivalent to cash. You put value into them, spend it down and then replenish the money if you want to keep using it.

They’re like cash in another crucial way. If the user prefers, they are entirely anonymous — that is, not linked to any bank account or other personal information.

And they are a massive hit. More than 9 million have been issued, beyond saturation in a city of 6 million. (Many residents carry more than one, and tourists often buy them as well.) They’re used in about 7.5 million transactions each day, most of which are mass transit fares.

The mass transit companies here created the card. They collectively own Octopus Cards, with the subway system owning a majority, says Eric Tai, Octopus’ chief executive officer.

The reason just about everyone here uses the card is that just about everyone uses Hong Kong’s elaborate, excellent mass transit system. That was the key to success, Tai says — making the cards something that people would use regularly, even compulsively, without a second thought.

Think with your Gut

Writes Thomas Stewart in Business 2.0 (link via Abhay Bhagat):

Fred Smith brushed aside the C he received on the college economics paper in which he outlined his idea for an overnight delivery service. His gut told him it would work anyway. (Besides, the Federal Express (FDX) CEO later explained, “a C was a very good grade for me.”) Howard Schultz had his eureka moment in Milan, Italy, when he realized that the leisurely caffeine-and-conversation caffe model would work in the United States too. Market research might have warned him that Americans would never pay $3 for a cup of coffee. But Schultz didn’t need research. He just knew he could turn Starbucks (SBUX) into a bigger business, and he began, literally, shaking with excitement.

Businesspeople retell these parables to refresh their faith in sturdy virtues like risk-taking and creativity. But to researchers who study how managers think, the tales carry an obvious moral: The most brilliant decisions tend to come from the gut. While that observation is not new, it is now backed by a growing body of research from economics, neurology, cognitive psychology, and other fields. What the science suggests is that intuition — or instinct, or hunch, or “learning without awareness,” or whatever you want to call it — is a real form of knowledge. It may be nonrational, ineffable, and not always easy to get in touch with, but it can process more information on a more sophisticated level than most of us ever dreamed. Psychologists now say that far from being the opposite of effective decision-making, intuition is inseparable from it. Without it we couldn’t decide anything at all.

The practical implications of all this are profound. People who make decisions for a living are coming to realize that in complex or chaotic situations — a battlefield, a trading floor, or today’s brutally competitive business environment — intuition usually beats rational analysis. And as science looks closer, it is coming to see that intuition is not a gift but a skill. And, like any skill, it’s something you can learn.

I would agree – the “gut feel” or intuition is what a lot of entrepreneurs rely on for decisions. Many times, one does not have all the facts on hand necessary to make a decision on an analytical basis. That is where a call has to be made – a call from the gut.

I have made many such calls – when I started with the development of an image processing product in the early 1990s (didn’t work), with IndiaWorld in 1994 (worked) and now with Emergic (still too early to say). But the gut in at least the last two cases has been complemented with a lot of reading and thinking. (And in the case of Emergic, a lot of blogging!)

Automation is where IT is headed

Fortune discusses where tech is headed with Marc Andressen who offers a cogent analysis of what is happening. In a nutshell: “Corporate IT is becoming commoditized, and companies are desperate to continue slashing costs. Automation is the answer.”

Andressen’s thinking (which also supports his own company Opsware):

Linux and Windows are winning–everything else is losing.

You can replace a $300,000 Unix server with ten $3,000 Dell servers for a ten-times savings right off the bat–and they’ll outperform.”

Storage hardware has gotten so cheap–close to $1/gigabyte–that fully redundant storage for a big multinational company can now cost only around $300,000.

Bandwidth costs have plunged. Andreessen says that whereas Netscape paid about $1,600/megabit in late 1999, today the price is down to a mere $50.

The reason we’re seeing such dramatic across-the-board commoditization now is because of what he calls a “maniac” focus on cost-cutting among customers.

It costs a heck of a lot more to operate all this stuff than to acquire it – 6 to 8 times more over time. That’s why IT staff constitutes, on average, something like 40% of the overall corporate IT budget. Getting rid of all those expensive people is a top corporate priority, because it would be the best way to cut costs.

There is also a growing backlog of applications that companies want to implement, even as they are desperate to cut IT costs and staff.

Automation is the answer.

The thinking issimilar to IBM’s on-demand computing and HP’s notion of adaptive infrastructure.

Adds Fortune:

Historically every corporate application had its own hardware and infrastructure resources–dedicated servers, storage, and database. That’s one reason the utilization rate for servers in most companies is only about 20%. Typically, SAP has its own infrastructure (probably multiple ones), and so does Siebel, supply chain, home-grown applications, etc.

That, says Andreessen, is increasingly becoming unnecessary. Now these commoditized components can become merely a set of generic resources to be used for any application at any time. This applies to servers, storage, databases, application servers, firewalls, data routers, and other parts of the corporate computing architecture.

What we need to do is apply thins thinking in the context of SMEs.

Business Process Collaboration

Writes Information Week:

BPML, the Business Process Markup Language, lets users model a company’s business processes from top to bottom.

Using BPML, a company can define every action in a complex business process–anything from sending a price bid to executing a purchase and shipping goods. If every company used the language to define their processes, the processes would become interchangeable. Two companies that want to team on an order, a project, or a transaction could interact at the process level, not so much trading data as working together to perform different parts of common procedures. Tools based on BPML will do to processes what spreadsheets did to data: let companies treat their processes like easily definable objects that can be changed or linked to other processes with a simple point and click.

Web Services Myths

IBM’s Web Sutor (director of Web Services) wrties about the 5 myths (which he says are all Facts):

1. Web services is brand new.

2. Web services has so many shortcomings, such as security, that it will prove to be a disruptive element in an organization’s IT efforts.

3. Interoperability will never happen. We’ve all got to have the same operating system to make Web services work best.

4. Getting Web services means getting rid of all your current software and developing new programming languages to handle the Tower of Babel you’re going to face.

5. Web services is the endgame–the goal we’re aiming toward.

Google’s Adwords

Google’s Next Runaway Success, from Business 2.0:

The secret of AdWords Select’s success is the so-called network effect, the tendency of Internet services to become exponentially more valuable as more people sign up. Until now, no online advertising service provided the ad-to-eyeball chemistry to spark a network effect. Earlier search engines, like Infoseek, where I once worked, got close. But they charged for every advertisement that appeared, which proved too expensive, especially given that clickthrough numbers were low. AdWords Select blows past those problems like a Ferrari dusting a Yugo.
For starters, the program is pure self-service online: The advertiser opens an account with a credit card, writes up the ad, and then chooses the words that will trigger the advertisement. Absent a human sales force, AdWords Select can scale to the galaxy if it needs to, which is a good thing, since most of its advertisers are from the innumerable legions of small and medium-size companies.

But AdWords Select’s real genius is the unheard-of value it provides to advertisers. They pay for actual clicks on their advertisements, not each appearance of the ad. The price of an ad, as well as its position on the page (top, middle, or bottom), depends in part on how often the ad is clicked by users. In effect, the better the ad, the less it can cost and the higher on the page it appears. Yes, that’s right. Google wants to make sure that advertising is relevant to searchers, so it rewards advertisers who draw clicks by giving them better positioning. Average clickthrough is about 2 percent, the company claims, five times that of comparable online ads. Google also suspends stinkers that pull in less than a 0.5 percent clickthrough, on the theory that they waste the advertiser’s money — and the customer’s time. Google sends a polite e-mail suggesting that you log in to change your ad or keywords.

What Google lost in easy revenue, it gained in explosive growth. Best of all, it’s working for the right reason: Both advertisers and Web surfers like it.

Continue reading Google’s Adwords

Wayback Machine

A fascinating interview with Brewster Kahle in the New Scientist. From the introduction: “Imagine if your very first Web pages or some furious, ill-written late-night postings came back to haunt you years later. Well, now they can. The Wayback Machine gives you access to the Internet Archive, which has taken an almost-complete snapshot of the World Wide Web every 60 days since 1996 — that’s about 2 billion pages. This archive is now a vast record, storing pages others have censored, deleted or simply forgotten to maintain.” The person behind it is Brewster Kahle, who had also founded Alexa. He talks of his motivation:

Websites are like shifting sands. The average life of a Web page is 100 days. After that either it’s changed or it disappears. So our intellectual society is built on sand. You can’t hold people accountable if, say, the promises posted on the Web by politicians are not available after the election. And key academic papers can become unavailable if a researcher leaves a university and their website is deleted. We’ve found that many websites of publicly funded projects disappear within a year. So as taxpayers we are investing in research projects, but we’re not investing in a Web library that organises them and gives future generations access. Our Wayback Machine is the first attempt to do this.

Also see: an O’Reilly article (Jan 2002) on how the Wayback Machine works.

Unstructured Data

From an article entitled Turning Unstructured Data into Gold in CRM News:

The WWW changed everything. Information previously available only through complex search query languages offered by expensive commercial content providers like Dialog, Lexis-Nexis and Computer Select became readily available — for free — through sites like Hoover’s, according to Guy Creese of Aberdeen Group. Employees began to press companies for the same kind of easy access to internal data through corporate intranets.

“We should thank two companies: Google and Autonomy,” said Creese. Each of those firms changed the way we think about searching unstructured data, he asserted. Google popularized and improved search techniques, and Autonomy made effective information categorization possible.

It was not long before enterprises realized that one of the most profitable ways to put unstructured data to work was in support of customer service — be it self-service , e-mail or telephone support. Companies can realize enormous cost savings by allowing fast access to crucial information, said Nidal Haddad of Deloitte Consulting.

Creese said that the traditional demarcation between structured data — stored in databases — and unstructured data is beginning to blur. Thus, the search tools used to access information must be able to accommodate both.

TECH TALK: Disruptive Bridges: Disruptive Innovations

In an article in the Fall 2002 edition of MIT Sloan Management Review entitled The Great Leap: Driving Innovation from the Base of the Pyramid, Stuart Hart and Clay Christensen write:

Disruptive Innovations allow many more people to begin doing for themselves that could only be done either with the help of skilled intermediaries or by the wealthy before the disruptions (examples include the tabletop copier and online trading). In the past, major waves of growth have been created by innovations that have had an impact only on the bottom of developed markets. Disruptive innovations at the base of the pyramid home to billions of the aspiring poor have much greater potential than those that begin and end in developed markets.

Developing countries are ideal target markets for disruptive technologies for at least two reasons. First, business models that are forged in low-income markets travel well: that is, they can be profitably applied in more places than models defined in high-income markets.

In addition to having more adaptable business models, disruptive innovators also compete against nonconsumption that is, they offer a product or service to people who would otherwise be left out entirely or poorly served by existing products and who are therefore quite happy to have a simpler, more modest version of what is available in high-end markets.

Hart and Christensen give the example of Chinas Galanz:

In 1992, only 2% of all households in China owned a microwave-oven. Many families did not have kitchens large enough to accommodate the available models, which had been designed to fit into homes in the West. Galanz, a Chinese company, introduced a simple, energy-efficient product at a price affordable by Chinas middle-class and small enough to fit in their kitchens. As sales steadily climbed, Galanz stimulated demand by using its ever-declining cost per unit to reduce the products price. Galanzs domestic market share rose from 2% in 1993 to 76% of a much larger market in 2000. Armed with a business model that could earn attractive profits at low price points, Galanz moved upmarket to manufacture large machines that had more features. It began to disrupt the microwave-oven markets in developed markets: By 2002, its global market share was 35%.

The developing countries need the equivalent of many Galanz-like innovations to bridge their digital divides. Think of these divides as separating todays technology markets from tomorrows. The next 500 million users lie on the other side of the divide. What is needed to open up these new markets is the construction of digital bridges with disruptive innovations as their foundation. Lets call them Disruptive Bridges.

Next Week: Disruptive Bridges (continued)

Continue reading TECH TALK: Disruptive Bridges: Disruptive Innovations

Making Software Mainstream

Will Open Source Ever Become Mainstream? is the topic for a discussion thread on Slashdot initiated by this comment from Prabhu Ramachandran: “I am a graduate student at the University of California at Berkeley and as part of a course project I am trying to gather comments on the following question: Will the Open Source and Free Software communities develop software that will find widespread adoption amongst the mainstream, or is such software, by its nature, suitable only for sophisticated users? As part of my literature survey I found an academic perspective that seemed to indicate that open source projects do not reach the mainstream because the developers tend to listen only to their smartest customers. There also seems to be a lack of detailed documentation and an easy-to-use interface which normally attract the not-so-sophisticated users.”

There is a very interesting point here: Microsoft talks to and listens to its most-ignorant users (who comprose the mainstream), while open-source seems to be listening to its smartest customers (who make up the early adopters).

This is a very crucial point to remember as we seek to create solutions to target the next 500 million computer users. People like us (so-called power users) should not be the influencers of what goes into the solution.