Competing (and being discovered) in a Time of Utility Computing

Unless you are actively seeking a particular solution or invest enough time looking at hosted Web applications like I do (once per quarter over the last nine quarters I’ve looked at nearly every Web hosted application on the major lists), then you’ll undoubtedly miss seeing huge value Web applications like One True Media (OTM).

A friend had a specific business objective in mind and went on the hunt for a solution that would fit his need. He searched in vain and one day I happened to be doing my once-per-quarter surfing of sites and came across OTM and sent him the link.

“It’s absolutely PERFECT!” he exclaimed and ended up choosing and aligning around it. Helping him out with communications and training around his initiative, I’ve spent significantly more time within OTM than I have using its competitors (e.g., Scrapblog, Vuvox, Flektor and Animoto), but I’ve been stunned with OTM’s features, the “fit and finish” of the application, and how it is perfect for consumers interested in putting together mashed-up montages of video, images, music, and text slides. The bonus is inserting that finished creation either within a theme or not and then having the option to embed it in their social network/blog/website or to make a DVD (for a full review of OTM, see the excellent one done by one of the most under-appreciated and best reviewers of technology on the planet, Robin Good, here).

But will OTM survive? Will all of the ones I mentioned above in this category be able to survive as it becomes easier and cheaper to create and deliver hosted Web applications and thus competitors to arrive in this space?

I’m using OTM as a “poster child” for what I see as THE biggest issue of our new, social media/Web application/Internet-centric world: there are so many phenomenally good and valuable offerings out there that it’s almost impossible to be discovered and build critical mass needed to survive — and this problem is only going to get worse as utility computing accelerates making it easier-n-easier for competitors to appear.

Why? Because costs are falling for building Web applications due to utility computing and free (as in beer) software. From Amazon Web Services to the new Google App Engine
— both of which handle both computing and storage that startups pay for on an as-needed basis and quite inexpensively — coupled with the ubiquity and free value of the LAMP stack (Linux, Apache, MySQL, PHP) and the more than 174,000 open source projects, costs are becoming trivial.

Nicholas Carr’s new book, The Big Switch, covers this shift well:

A hundred years ago, companies stopped generating their own power with steam engines and dynamos and plugged into the newly built electric grid. The cheap power pumped out by electric utilities didn’t just change how businesses operate. It set off a chain reaction of economic and social transformations that brought the modern world into existence. Today, a similar revolution is under way. Hooked up to the Internet’s global computing grid, massive information-processing plants have begun pumping data and software code into our homes and businesses. This time, it’s computing that’s turning into a utility.

The shift is already remaking the computer industry, bringing new competitors like Google and Salesforce.com to the fore and threatening stalwarts like Microsoft and Dell. But the effects will reach much further. Cheap, utility-supplied computing will ultimately change society as profoundly as cheap electricity did. We can already see the early effects in the shift of control over media from institutions to individuals, in debates over the value of privacy, in the export of the jobs of knowledge workers, even in the growing concentration of wealth. As information utilities expand, the changes will only broaden, and their pace will only accelerate.

New development tools and methodologies are also driving innovation and efficiency in creating Web applications as well (though that’s another post entirely).

FREE ADDS TO THE CHALLENGES
What I will add on to this ‘cheaper, utility’ problem-for-current-startups and opportunity-for-future-startups is this: most hosted Web applications have “free” as a big part of their model in order to build critical mass and get users to be willing to invest time, energy and effort in learning their solution vs. learning the competitors.

This “investment” by users in learning a solution always creates a barrier-to-entry for competitors since users are aware of the switching costs required if they move to a different solution and are reluctant to do so.

Free also makes it tougher to build a modest, small Web application business (for opposing viewpoints on the whole “free” meme, read this Wired magazine article, “Free! Why $0.00 is the Future of Business” and “Free is Killing Us…” by Silicon Alley Insider).

All of this means that the barriers to entry for the Web are collapsing making the “first mover advantage” in any given market space — or a superior partnering strategy, alignment with a deep-pocketed media company or some other method of gaining major mindshare quickly — is more important than ever before.

I predict we’ll see major consolidation in the Web applications space this year. We’ll also see numerous acquisitions of companies that have incredible value (not all five companies I mentioned in the OTM space will make it) occur by traditional print, media or other established firms looking to break into the social media space.

I also predict that someone will create a new marketing/sales/service model for Web application companies that help seekers discover, adopt and leverage these apps as well as have a marketplace for the creators and developers of these apps to be found and make money (Hmmm, maybe I should….).