Exemplar or exception?

Tag : Child Hat


"Real world" examples of some trend or business model aregreat. Theory is fine up to a point but eventually it's awfullynice to connect up with a concrete example that gives the theorysome real cred.

At the same time, examples can mislead us. Often they turn out tobe anomalies. Maybe a company is some sort of historical quirk, aproduct of a very specific time and place. Or maybe some technologyapproach is valid enough--but only for a very narrow set of needs.One warning sign is seeing the same tired examples trotted out forevery discussion, every news article, and every conference.

I see some of that in all the following cases. I certainly won't goso far as to say that the underlying trends or business models areillusory. But I do think they're more limited or further away thantheir most overenthusiastic proponents suggest.

The Long Tail , as popularized by Wired 's Chris Anderson is a hot meme of the blogging and Web 2.0 crowd.Simply put, the Long Tail states that bestsellers aren't in themajority when you tally up the sales at Amazon or Netflix. Ratherit's the total of the far more numerous other 80 or 90 percent ofcontent. From a business perspective, the significance is that there's money to be made selling what's in the long tail .

However, the number of true long tail businesses gets thin outsideof aggregators of digital media--the companies who have minimalcosts to acquire, inventory, and sell incremental low-volumeproducts. Amazon, in particular, is a highly atypical, if notunique, retailer in terms of scale. In fact, we're starting to see a body of evidence that suggests that the long tail is, if not necessarily wrongheaded exactly,more limited in applicability and degree than some of itsproponents have suggested.

We've also seen pure Open Source much touted as a viable business model. By "pure," Imean a model that doesn't hold any software back for payingcustomers only. The hope is that enough users will elect to pay forsupport and other services to cover a company's cost and profit.Red Hat, a profitable and growing company, is the poster childhere.

But Red Hat is exceptional really. It's emerged as the unquestionedleader among enterprise Linux distributions, one of the mostvisible and core elements of the entire Open Source world. And itsfinancial success is helped, in no small part, because it's sellinga value, ISV application certification against Red Hat EnterpriseLinux, that doesn't have the equivalent in layered softwareproducts. Other pure Open Source plays have also been modestlysuccessful, but we're certainly not talking Oracle or Microsoft levels of success --nor, indeed, Sybase or SAS levels. Even Red Hat pulls in wellunder $1 billion in annual revenues, and may also be starting tohit the limits of low-cost customer acquisition enabled by freedownloads .

Other cases involve long-term trends that almost certainly willhave an increasing impact over time. More software is moving out into the network "cloud, " and--in an at least peripherally-connected shift-- thin clients of various stripes are beginning to move beyond their historical ghettos in call centers and other narrow usecases. However, the oft-cited Salesforce.com and many Citrix casestudies aside, these shifts will be far more gradual andincremental than the enthusiasts would have us believe. Enterpriseswill be slow to adopt Software as a Service for anything theyconsider even vaguely core and the traditional fat client PC modelmay be flawed in a lot of ways, but it is familiar,well-understood, and has huge inertia.

I love examples. They help give me confidence that something has atleast a patina of reality. But, in the singular, they constitute anecdotes and not data . And anecdotes don't really prove anything. In fact, they canmislead by giving the atypical more weight than it deserves.