How do you grow an online business? Take one small orange…

We have all heard of the amazing success of some online business. One common theme is their ability to apparently do more with less and avoid the large size and cost of the ‘bricks and mortar’ business’.

One stellar success is Wikipedia, the product of Wikimedia. The success story goes something like this: In 2007, Wikimedia was based in a shopping centre with fewer than 10 employess, raised under $3 million annually, and had total assets of over $5 million. Today, Wikimedia has roughly 160 paid employees, raised $25 million from 1.2 million donors, and has total assets of over $49 million. So what did they do right?

Maybe we should be asking, what did they do wrong? Apparently, their first version was called Nupedia and users had to fax copies of their credentials AND pass a seven-stage review to prove they were qualified to contribute. Unsurprisingly, it was a total flop – but provided the lessons required to make Wikipedia the success it is today.

The success of Wikipedia and other online business can be explained by one of the Web 2.0 patterns proposed by O’Reilly of ‘lightweight models and cost-effective scalability’. Although O’Reilly was focused on programming, this can also be applied to business models, development models and technology solutions. The main idea is to do more with less and focus on small low-cost startup, scale in a responsive and cost-effective way, and fail fast and correct quickly.

Since we all know Wikipedia has got it sorted, I’d like to take a closer look at another small startup and see if they are headed in the right direction.

A Small Orange is a small web-hosting business that is getting good recommendations in the web-hosting space but have only 30 employees who serve tens of thousands of customers around the world with 24/7 support.

They started 10 years ago with 2 employees and have grown to be named in the top of the web-hosting options  and have gained a reputation for having over $1 million in revenue, are profitable and didn’t take venture capital. So how do they do it?

A Small Orange has spent the last 10 years working towards the best-practices of the pattern:

• They scale their pricing and revenue models with a small up-front and sliding costs for more reliable servers.
• They outsource their servers and recommend other services (eg HootSuite at http://hootsuite.com/) so customers can manage and track their accounts.
• They scaled their business model with the recent introduction of the ‘affiliates program’ to reward customers for recommendations.
• They market virally, with their chief executive creating quirky and commercial YouTube videos.
• They ‘fail fast and scale fast‘ when they were suffering from poor servers and bad customer reviews in 2008 leading to a server upgrade in 2011 and 2012 and improved customer reviews.

A Small Orange highlights some of the benefits of the pattern with their faster time to market and faster return-on-investment due to the lower initial costs and avoiding the need for venture capital.

But they have also experienced some of the problems. Their low staffing has resulted in some slow customer service and their outsourced servers left them exposed when the servers were not proving adequate.

They could also capitalise on some other ideas like outsourcing some customer support by using ‘crowd sourcing’ to let other customers provide solutions or suggestions to reduce the drain on customer support staff.

Overall, they have proven success from this pattern and look like they are headed for more success in the future.

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An example of this light-weight and scalable pattern being implemented as a business initiative within a large organisation is this example of innovation, crowd-sourcing and the concept of ‘fail fast, fail cheaply’ within AMP, Australia:

http://youtu.be/i7bkuPjJUZI  

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UPDATED 24 May 2013: How does the Tumblr acquisition by Yahoo fit the ‘scalability’ approach?

UPDATED 25 May 2013: Tumblr users are fleeing

What happens when social media meets sales in the ‘long tail’?

How would you run your business if you could rent shop fronts for free, paid nothing for delivery, and had products that cost nothing to make? Let me introduce you to Web 2.0 selling and leveraging the long tail of sales.

This strategy for success was proposed by O’Reilly as one of the key patterns for Web 2.0. The secret is to use the internet to remove the physical costs of selling, so the amount of inventory and range of products is unlimited and the market is global. This means business’ can avoid chasing the popular high-volume sales at the front of the sales curve, and capitalise on the niche products and the longer selling window of the ‘long tail’ – and Amazon is a classic example. The Internet is perfect for capitalising on the benefits of leveraging the long tail, as O’Reilly explains:

Small sites make up the bulk of the internet’s content; narrow niches make up the bulk of internet’s the possible applications. Therefore, leverage customer-self service and algorithmic data management to reach out to the entire web, to the edges and not just the center, to the long tail and not just the head.

A classic example of the virtual shop and unique product sales is iTunes and ringtones which cost nothing to sell or deliver and very little to make. The idea of selling ringtones was seen as ‘the next big thing’ back in 2001  and although they faced some challenges they are still making money in the long tail of sales – even though you can create your own!

Image: JISC Infonet

The benefits that the internet offer to leverage the long tail are unique:

> Producers can reach a wider audience with new micro-markets built off small sites
> Customers have a wider range of products not just the popular but also the unusual and niche
> Business and customers profit from reduced costs of online commence and internet delivery

So how do you get some share of the money? One recent example is a spin-off from the Pinterest concept, by a new startup called Luvocracy. Their concept is to ‘find people you trust and shop what they luv’…where social media meets sales in the new marketplace!

Curated shopping at Luvocracy

Luvocracy is a great example of O’Reilly’s leveraging the long tail pattern and meets most of the recommended best practices:

* Use the three forces of the long tail to make the tail longer with an unlimited supply of goods highlighting only those for sale, makes the tail fatter by growing the customer size with the social networking, and drives supply and demand by the recommendations of users and the easy purchase options.

* Use both algorithmic data management behind the scenes to bring product sales to the attention of users and uses an architecture of participation to match supply and demand through their users and their followers networking their finds and purchases which leads to curated shopping – where you buy what others recommend.

* Use low-cost strategies to allow both business’ and users to manage their own accounts and use the low-cost advantages of an online site to reduce business overheads.

Luvocracy seems to have successfully harnessed a lot of the integrated strategies identified by research (Lee, 2010) where retention and co-creation, product reviews, cross-marketing and word-of-mouth all rate highly in the new marketplace.

Although this site is only in beta, there has been some push back on possible issues:

*  Lack of attribution to the original content owner is causing some copyright concerns,

* Offers for others to make copies of the handmade originals when they are out of stock seems to breach the original owners rights,

* Opportunities for both the blogger and the product maker to make money is upsetting product makers and opening a new discussion around marketing channels.

So, do you luv it, or not? Let me know what you think.

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More information about the Long Tail:

Hervas-Drane, Andres, Word of Mouth and Sales Concentration (February 13, 2013). NET Institute Working Paper No. 07-41. Available at SSRN: http://ssrn.com/abstract=1025123 or http://dx.doi.org/10.2139/ssrn.1025123

Lee, T. (2010). Head or tail? an integrative analysis of customer value and product portfolio. International Journal of Business and Management, 5(12), 51-61. Retrieved from http://search.proquest.com/docview/821639654?accountid=13380

What has blogging done for you?

Image: Sean MacEntee

I’m new to blogging and worried that I will make all the mistakes in the book…but I can’t find ‘The Book’. I have found some great sites like ProBlogger  and tips from successful bloggers like Penelope Trunk .

Although there is lots of advice on ‘how to blog’ and ‘how to make money blogging’ they don’t explore what else you get or learn from blogging. So I thought I’d ask you all. What has blogging done for you?

My answer would be about pushing myself. It has pushed me into a public space, pushed me to research and critically consider topics, pushed me to closely listen to others opinions and explain my opinion, and pushed me to do all of this in a professional and respectful way. Being on your best behaviour all the time is exhausting  for me – but character building. So that’s me, but what has blogging done for you?

Is ‘perpetual beta’ a good thing?

Do you remember when software came in a box with discs and instructions that you installed on your PC then parked on your shelf? This is a fading memory with software on the web and continuous updates, but is this ‘perpetual beta’ a good thing?

When you hear about ‘beta versions’ of software you probably think about “a pre-release version of software”, which rings alarm bells about constant changes and buggy code.

But there’s more to it than that with advantages like faster time to market, continuous improvement and high-responsiveness to user needs. This is the ”perpetual beta” pattern  identified by Web 2.0 guru Tim O’Reilly as a key indicator of success for Web 2.0 applications, where:

product is developed in the open, with new features slip-streamed in on a monthly, weekly, or even daily basis

It’s no longer a ‘throw it over the wall’ approach to your customers but a continual conversation with them. This has ups and downs for the business – with ups like reduced costs to release and opportunites for close relationships with your uses balanced against downs like avoiding feature overload, thrashing and poor quality. But, it can be painful and challenging as GateGuru found out through a cycle of poorly received releases. Which highlights the highs and lows for customers – with highs like easy updates and no-cost upgrades but also lows when the product doesn’t work or makes changes you don’t want!

So if you think ‘perpetual beta’ might be a good thing, then read on and see how PDF Expert rates against the best practices of O’Reilly’s pattern. PDF Expert from Readdle is a clever solution which allows you to read, sign and annotate PDFs, fill out PDF forms on the go, and even synchronise with Dropbox, SkyDrive or any WebDAV storage.

PDF Expert ticks a lot of the best practices of the ‘continual beta’ pattern:

PDF Expert from Readdble.com

• They release early and often with their agile development and automatic test, as their release history shows.  The favourable user reviews proves they can get their product out quickly but also make sure it meets acceptable quality standards.
• They engage users as co-developers and real-time testers by reading their user reviews on the product site but also through an open thread to their customers and using their blog to help their users.
• They then implement the feedback and instrument their product to match as their press releases explain and have also gone further to incrementally create new products to both offer their customers new products but also capitalise on their in-house skills.

PDF Expert has also avoided some of the common problem areas:

• They have avoided the feature excess issues some of their competitors faced but unfortunately this has left them with a no-frills label as the conclusion of this review suggests
• They have done better than the unfortunate example above from GateGuru and avoided release thrashing but they have not been so responsive as their frequency of releases is a bit uninspiring but at least they have success and manage their first impressions nicely as some reviews highlight