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:
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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
Bronwyn Shimmin-Clarke 
Hey there Browynsc 🙂
Great post. I agree, Wikipedia has been utilising the best practices of lightweight modeling and cost effective scalability to their advantage and I don’t think there is a day when I don’t go on Wikipedia because it has such great information about various topics I find interesting or need help understanding.
I’ve never heard of A Small Orange but it sounds like an interesting service. It’s a shame they have such low staffing because it sounds like they scale their pricing and revenue models well. Does A Small Orange have any competitor services as far as you know?
Kind regards, Laura 🙂
Thanks for your comments, Laura. I thought Wikipedia would get people’s attention, but the point was they used to be a nobody once.
A Small Orange was identifed by a blogger as one of the top 5 hosting options (http://lifehacker.com/5911651/five-best-web-hosting-companies).
I think their competitor services would be the other 4 in the list….along with the hundreds of other hosting platforms. It is hard to beat the competition when it costs so little to start-up!
I guess that is why they aimed for differentiation on service which means customers get to trust them and stay with them.
Well laid out & easy to read post. I have never heard of this company. Just out of interest what is a specific example of how they could crowd source? How would they set this up? Perhaps you have a method that would work in different industries, not just web hosting.
Thanks Matt. Davis asked some similar questions below, so I’m going to answer them together.
On the question of organisation size: I realise that A Small Orange is a web hosting company and not the same as Wikipedia – but they might be happy if they achieve only a fraction of Wikipedia’s $49 million! I think the goal is to understand the underlying strategy or pattern and then apply to your own business whatever the size.
As an example for crowd sourcing, I am thinking of customer support which is a big cost to any organisation. A lot of times, the problems that occur are much the same…’I can’t make this work’, ‘I can’t find xxx’, and it could be useful for a customer to put a question to a forum where other customers can provide some answers or suggestions. This does 2 things: 1. it may (or not) solve the problem without the organisation solving it AND 2) it may give the organisation some insight into what customers are doing with and thinking of their product.
I agree that customers could get a kick-back (like Davis suggested below) – maybe a ‘super user’ badge and a discount…a bit like the rated reviews on sites like Trip Advisor in my other post here (http://preview.tinyurl.com/lysfjmm). But remember that people are posting / sharing information all over the place and not getting any kick-backs for that.
As an example, I keep landing on this site when I put a question into Google and it shows that people will advise / share anything really..like should I fill in our backyard pool? And here is everyone’s advice! http://forums.whirlpool.net.au/archive/1645744
Don’t you love social media?
Hi bronwynsc
It is a great job as usual and I realy intrested to know more about the pattern and Wikipedia. Lightweight Models And Cost Effective Scalability is essential rule to help online startups to success.
Wikipedia is a great free Internet encyclopaedia and I can not Imagine my self as university student without it. I think one of the strength of Wikipedia is the content management system that named “MediaWiki”, where there is no need to worry when you add or improve information in the content. Therefor we can see much of the contributors to Wikipedia are ready to provide assistance and advice and correction on contributions in any time.
I also used Wikipedia to demonstrate the final trend in the real world in my last post and I have wondered when I know that, Wikipedia is non-profit organisation. Did you know that before?
Thanks, Danah. Wikipedia is a classic success for the lightweight and scalable. I did realise that Wikipedia was non-profit. They still need funds, as I said in my article they request funding. But at least their model is clean and uncomplicated – give money if you want, add or use content if you want. All very open. Not like some of the sites that gain value from content or advertising.
I think A Small Orange could be a similar success story to Wikipedia. What do you think?
Hi Bronwyn, my first thought is that, being a Web Hosting company, A Small Orange might not be able make an impact on the scale that Wikipedia has. I only say this because the number of people that can benefit from their services is limited in comparison. However, they may find some interesting Web 2.0 opportunities in crowd sourcing and software delivery and be in a suitable position to capitalise upon them in the future.
You mentioned crowd sourced support as an option, which I liked, I just feel like this kind of user participation would require more incentive from A Small Orange. Do they currently have any features that encourage community building?
Really enjoyed the post. Cost effective scaling has certainly proved to be one of Wikipedia’s strengths.
Great questions – and similar to ones Matt asked above.
I’m going to answer them together – so can you check out my reply to Matt above?