We have discussed some of these ideas on venturewoods before, but I thought I would get more specific thoughts. We are seeing more and more businesses around the theme to offer a $100 a year service to a million users. Few ideas that have got discussed here include:
1. Online DVD rentals
2. Online photo printing
3. Online tutoring (export oriented – ok more like 100k x $1000 here)
What are the views around feasibility and scale on some of these? Will these land up being more like 100k x $ 30 plans in the online context? Given that 5-10 startups are starting out at the same time, will the market fragmentation be too high?
Any other ideas that might fall in this conceptual framework?
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High entry barriers, unfair advantage etc. – are they relevant anymore, at least in Web 2.0 context where collective intelligence, user collaboration, open source rule the roost…?
Is it not a fixation which we should shed in favour of uniqueness / scalability thro user participation while looking at a proposed Venture…? Or am I missing something, here…?
It’s interesting to see how each Web 2.0 facet involves disagreeing with the consensus. While everyone was emphasizing keeping data private, Flickr/Napster et al. make it public. It’s not just disagreeing to be disagreeable, it’s disagreeing where you can build something out of the differences. Flickr builds communities, Napster built breadth of collection.
Another way to look at it is that the successful companies all give up something expensive but considered critical to get something valuable for free that was once expensive. For example, Wikipedia gives up central editorial control in return for speed and breadth. Napster gave up on the idea of “the catalog” (all the songs the vendor was selling) and got breadth. Amazon gave up on the idea of having a physical storefront but got to serve the entire world. Google gave up on the big customers (initially) and got the 80% whose needs weren’t being met.
Looking at these examples, none of them had any entry barrier / unfair advantage. They all stood out in the middle of clutter…didn’t they…? Just that the clutter gave way eventually.
I think Web 2.0 doesn’t have a hard boundary, but rather, a gravitational core. The service should automatically get better when more people use it. There’s an implicit architecture of participation, a built-in ethic of cooperation, in which the service acts primarily as an intelligent broker, connecting the edges to each other and harnessing the power of the users themselves.
If we could visualize something around these norms and back it up with some skilled execution, we are bang on.
curious_mind (i love the name!)
I dont think I am thinking of it as “build to flip” or “good company on its own” — I am only referring to what is the revenue scale the business could get to. Primarily, this question is a question on whether the market exists for something like this. But I also believe that you cant build large businesses in these spaces without having a differentiator over time — so the right businesses will figure that out. In some cases, the brand itself may land up being a differentiator. There might be alliances with offline players and the network might be a barrier.
To the specific ideas mentioned here:
Online DVD rentals: Too fragmented. Needs too much offline work, with expensive/unreliable postal networks. Current competition = DVD rental shops renting at Rs. 30 per DVD per day, too difficult to match or beat, even at 100 Rs. a month for 2 DVDs. Long term competition is a home video model directly streamed via Cable, which I think Reliance is looking at (Pay per view types).
Turnaround: Get out of pure DVD rentals and into content sales and rentals, like recorded TV serials and cricket match highlights. Have to buy or lease copyrights for this. Sell experience: A box of popcorn or ice cream or pepsis or pizzas bundled with each sale. Rent out DVD players as well as DVDs – for the middle-class sections.
Online photo printing: Positives are easy shipping, price points are usually affordable for around 30 photos minimum. Great for remote use, NRIs can send their photos to folks home without exorbitant prices. Negatives: Tough to break local model at Rs. 3 per copy. Uploads are a pain – at 7 MP, photos are 2+ MB each, meaning 60 MB upload for 30 photos. Not easy for masses. Pain in the neck when you already have the photos online elsewhere, say in Flickr or something.
Turnaround: Offer “photo pickup” as well as drop, so you can pick up photos from peoples homes in say a PC card or something. Can be read through a handheld device or old laptop. Offer fancy albums and packaging – very popular in India, very little choices at offline stores. Mugs and T-Shirts are another option, also allow high end choices like printing on cakes (yes, it’s possible!) and sending flowers and/or chocolate packs with a collage. Very interesting: Target groups with group-specific options. Like cookery groups with distribution options for photos of dishes + recipes etc., Trekking groups with trail details (okay, difficult to get in India but I know where so it can’t be that difficult) and so on. Huge, huge market for the concept in general, but please don’t just stay online.
Online tutoring: Too little money; offline coaching is very price competitive.Too little bandwidth for online coaching real time. Can sell content – the content market is nascent in India for coaching, specifically on video coaching etc. Testing and certification is difficult to pull through, with facilities to stop cheating and impersonation. Language training (local languages and English) has a solid potential.
Turnaround: Create content into CDs and DVDs, and provide this facility to schools/colleges as well. Provide syndicated testing facilities. Hook up with Cybercafes to offset home bandwidth issues.
I’m not very interested in the online tutoring business, but am definitely keen to see how the first two (DVD rentals, Printing) develop.
Another way to think of these businesses is to compare them with their ‘analog’ equivalents. Two key issues will be whether or not there is a real consumer value proposition (if not then STOP or flip while you can) and how to build the barriers to entry over time. Then these are essentially FMCG type businesses, large volume, low price per product and eventually brands/scale as major barriers to entry. That experience would suggest that it takes a while to get profitable but then the really strong brands earn outsized returns.
I started off writing a comment here, and figured it belongs in a concept I’m working on. I’ve listed thoughts at my blog and introduced ?Money – my thoughts on the micro-payment sites.
http://tropicalmanager.blogspot.com/2006/11/micro-payments-money.html