…Decomposing Businesses Into Services…

What kinds of services should hyperbusinesses offer through interfaces? This question can be a bit of a stumbling block for businesspeople still somewhat new to the transition to hyperbusiness. Nearly every business can be ‘disaggregated’, broken apart into a set of discrete and independent service offerings. This doesn’t involve a radical change to a business model, rather, it’s a way of rethinking the existing business.

Take, for example, the hotel room where I type these words. I’m in a room at the Mandarin Oriental Bangkok, considered to be one of the finest hotels in the world. Certainly the level of service and attention to detail place this establishment into the very highest ranks of luxury hotels. But what is it, exactly that I am paying for? What services are the hotel providing to me in return for my daily rate?

Here’s a list, which is not meant to be utterly exhaustive, but gives an idea of what a business looks like when decomposed into services:

  • Room rental (50 m2 overlooking the Chao Praya river)
  • Furnishings rental (bed, desk, chairs, carpeting, art, etc.)
  • Bathroom toiletries & linen
  • Electricity
  • Air conditioning (vital in Bangkok’s tropical weather)
  • Water (both bottled and on tap, hot & cold)
  • Tea service (kettle and tea selection)
  • Television and satellite reception
  • Telephone
  • Housekeeping
  • Personal butler
  • Concierge
  • Ferry service (it’s quicker to move by river in Bangkok than by car)
  • Swimming Pool, Gym, Jogging track, Tennis courts
  • Newspaper

I do pay for each of these services, and the hotel certainly knows its cost to deliver each of these services. Even though this bundle of services has been presented as a single, unified service offering, it is really a composite of many services, each of which could be offered individually, or combined together in any appropriate bundle.

In addition to these services, there are a number of services that I can choose to subscribe to, but which are not aggregated into my daily room rate:

  • Minibar
  • Room service
  • Massage & spa treatments
  • Airport limousine service
  • Dining in hotel restaurants
  • Drinks from hotel bars
  • Thai cooking school
  • Day care for the kids
  • Internet connectivity
  • Thai cultural programme

If the Mandarin Oriental Bangkok wanted, it could decompose my bill into a series of individual service offerings, letting me choose which services I wanted, paying only for those, but the packaging of these services into a daily room rate makes it easy for all concerned, particularly the accounting department, which would have to keep track of all of these service subscriptions for each guest — something not very difficult in the age of computers and networks, but nearly impossible just a generation ago.

If someone wanted to create a hotel that offered all of its services like this – entirely ‘a la carte’ pricing, you could imagine some interesting configurations: long-term residents might provide their own furniture, but subscribe to housekeeping services; short-term residents might take the room and furnishings but clean the room themselves to save some pennies, and so on. A few hotel chains – such as Malaysia’s Tune Hotels, where you pay extra for television, air conditioning, fresh bathroom linens, etc. – have already begun to decompose their service offerings like this, a bit like ultra-low-cost airlines, which charge you for every bag, every extra inch of legroom, and every drink. Now that it is possible, service decomposition has become the hallmark of hyperbusiness.

These decompositions are more than theoretical exercises. A well-planned and implemented decomposition activates value latent within an organization. Jeff Bezos, the founder and visionary behind Amazon.com, wrote a detailed memorandum to Amazon’s employees, instructing them to disaggregate the entire business. Every service Amazon provided had to be presented through a service framework – an API. (Bezos closed the memo by warning anyone who didn’t fall in line behind this strategy that they were already fired.)

As Amazon began the process of decomposition, the online retailer’s massive computing infrastructure – used to power its customer-facing retail division – stood out as a potential service offering. Amazon had much more capacity than it needed, in order to manage the huge traffic rush during the Christmas shopping season. Most of the year that capacity lay dormant, underutilized – while still sucking up electricity, cooling, and space within Amazon’s data centers.

Broken out as a disaggregated service, it became possible to offer that immense network of computers and storage to businesses that wanted inexpensive, reliable and scaleable computer services. A customer could subscribe to a single computer’s worth of processing power, but, if the customer’s needs suddenly changed, they could immediately and elastically expand the amount of computer power they rented from Amazon. It can all be managed through interfaces, so the computers themselves could decide to add more capacity when they sensed they were becoming overloaded, or shrink that capacity when they spent too much time idling.

This product – Amazon Web Services – touched off a revolution now known as ‘cloud computing’. Many of the Internet’s biggest business, from Twitter to Instagram to Dropbox, use Amazon Web Services because Amazon has already done all of the capacity building those businesses would otherwise need to do for themselves – with corresponding capital and human resources requirements. Instead of building a data center and staffing it 24/7 with anxious nerds, it’s possible for anyone to simply pay Amazon a rental fee, and have access to the same resilient network of computers which make Amazon’s website one of the most stable on the Web.

The biggest user of Amazon Web Services is the Netflix entertainment service, which streams movies and television shows to a compatible televisions, videogame consoles, computers, tablets, and mobiles. Netflix has proven incredibly popular – it’s estimated that as much as a third of all Internet traffic in the United States after 8 pm local time is Netflix streams!

Amazon also offers a streaming entertainment service – a direct competitor to Netflix – also running atop Amazon Web Services. Here’s an idea at the heart of a hyperbusiness: Amazon is enabling one of its competitors with one of its own service offerings. That’s nothing to be afraid of. In fact, it should be embraced. It is the ultimate validation of a hyperbusiness’ service offering when a competitor chooses to use it.

Amazon may not win in the streaming entertainment business, but they’ll still be making plenty of money, supporting Netflix – and every other company that wants to compete with Netflix without spending tens of millions of dollars on a data center. Amazon Web Services has become the de facto standard for cloud computing, and Amazon has gone from being merely an online retailer to a technology company providing the support for a significant portion of the Internet. That’s the kind of latent value that gets released within a successful service decomposition.

Hyperbusiness Opportunity #4

photo: cgt

One of the most successful APIs in use on the Internet today belongs to Twitter. Despite its overwhelming success – and half a billion users – Twitter has struggled into profitability. The service can be used freely by anyone, for anything imaginable – but that doesn’t create revenue for Twitter. CEO Dick Costolo has decided on a change of direction, restricting the API in an effort to channel Twitter’s users toward Twitter-created tools showing Twitter-approved views — delivered with embedded, unblockable advertising.

It’s a tricky thing to change an API that millions of developers have been using for years. Many of Microsoft’s APIs for its Windows operating system have remained essentially unchanged for almost two decades, precisely because the software giant did not want to force programmers to re-write their programs – and risk losing them to a competing operating system. Most often companies will ‘deprecate’ their APIs, essentially saying, “We’d prefer you didn’t use this, but if you really must, here it is,” keeping them available for years while guiding programmers through a relatively painless transition into the new API – that’s Apple’s strategy.

In order to satisfy its commercial imperatives, Twitter will remove services, not simply obsolete and replace them. Some things a developer can do with Twitter today will not be possible in the near future. Their applications will break, and no amount of rewriting will restore that functionality.

Twitter has become an Internet-on-top-of-the-Internet, a way of making connections through an abstract interface which removes the requirement of knowing where the connection is being made. Although we rarely reflect upon it, the Internet is very much like a landline telephone network – an Internet Protocol (IP) address is attached to a specific computer in a specific place. This is glossed a little for mobile devices, which have temporary IP numbers assigned to them as needed, but the idea remains the same: the number maps onto a computing device.

Twitter changed that; I could be on any computer anywhere, and, via Twitter’s switchboard messaging, could engage in communication with another computer (and user) anywhere, neither side possessing any awareness of the location the other. All you need is the Twitter account ‘handle’ – such as @mpesce, @TheEconomist, or @servalproject – to directly connect to the other party. This is an important service, one for which there is great demand. If Twitter will not provide this service, another organization will rise up to meet that need.

Software developer App.Net recently raised half a million dollars through crowdfunding to provide such a service. When they started their fundraising, Twitter had not announced its change in direction, but their timing was excellent – as soon as the announcement came, contributors flocked to App.Net, knowing they would need a reliable provider, serving up an API providing the abstract connections that has made Twitter so powerful.

Twitter seems perfectly content to cede this ground, choosing short-term profits over long-term utility, casting itself as an application, rather than the plumbing that makes many applications possible. There may be no glory in plumbing, but people will always need it; plumbing opens the path to opportunities inconceivable for an advertising business.

…Accessible Via Interfaces…

The street finds its own uses for things — uses the manufacturer never intended…
– William Gibson

A growing number of frameworks have been put to work to create markets for services and products where none existed before. While it’s necessary to have that framework in place, a framework alone does not guarantee that a market will form. The framework has to be accessible. People need to be able to use it. Often the framework becomes the backbone of an app or a website. Uber, for example, uses its smartphone apps to present two different views into its transportation framework, one suitable for drivers, the other for passengers.

Though apps can create markets, they also limit the potential of that market. An app is a highly specific view into a market which rigidly restricts possibilities. To order up a limousine from Uber, you must launch the app. But the service – a driver, on-demand – is broadly useful. It could be used by people in ways Uber never imagined, ways that have nothing to do with a smartphone app. Uber aggregated drivers and passengers using their apps, but those apps become a cage that limits growth.

One company that understood the limitations of apps is the messaging service Twitter. Twitter began as a service for sending short messages – ‘tweets’ – to everyone interested in your activities. This service provided a framework for communication between Twitter’s hundreds of millions of members. Additionally, Twitter released an ‘Application Programming Interface’ – or API – providing similar functionality to that found on the website. The API specifies a series of commands – ‘send a tweet’, ‘read a tweet’, and so forth – that everyone must use to interact with Twitter, including Twitter itself.

This API makes it possible for anyone to use Twitter for their own purposes. Major news organizations, like the New York Times, publicise their stories on Twitter: as a story goes live, computers at the Times use Twitter’s API to send out an automatically-generated tweet. Many systems now embed Twitter in their architecture – Apple’s own iOS, the operating system for its iPhones and iPads, has Twitter built into its basic components, so any iOS app can send tweets.

This open interface to Twitter created a lot of competition for the best interface to Twitter. In fact, there is no one right interface – different people and different industries have different needs. A profusion of interfaces means that everyone gets exactly the Twitter experience they can best benefit from. Twitter gets more users – half a billion and counting – without having to cater to the needs of each user – the users themselves see to that.

Twitter gets used in many applications its creators never envisaged. When a computer program experiences an error in its operations, it can send a Tweet to alert a human to the problem. Computers can even talk to one another, using Twitter as a sort of post office or central dispatcher. One individual even created a belt to be worn by heavily pregnant women – every time the baby kicks, the belt sends a tweet!

Interfaces greatly amplify the utility of any service. Twitter would still be a tiny messaging service, dwarfed by Facebook and ignored by everyone else, if not for the million and a half applications that use its API. Instead, Twitter has become an essential utility, used by journalists, politicians, and businesses around the world, precisely because of all of those applications. The firm’s success is built atop the efforts of hundreds of thousands of developers who used Twitter’s API to solve their own problems.

Imagine what might happen if Uber created an API to its service, encouraging others to use it in their own businesses. Anyone would be able to provide an on-demand limousine service. A nightclub might offer that service to tipsy patrons through a specially-branded app. A restaurant could add it into their reservations system, as could a hotel, or airline, or car rental company. As the opportunities to use Uber multiplied, Uber’s business would grow dramatically. Uber would become the default solution for transportation.

Interfaces benefit every hyperbusiness framework. Postmates has recently launched a San Francisco-based delivery service, ferrying items (generally restaurant and cafe orders, but it can be pretty much anything) from one point to another in less than an hour. The service is proving successful, but currently is only accessible through a smartphone app. (Sound familiar?) If Postmates offered an API, any business in San Francisco that wants to offer a delivery service could use that API to provide a delivery service for their customers. When that happens – and it surely will – Postmates will suddenly become the most obvious way to deliver something. Everyone will be doing it.

Product-oriented business also benefit from interfaces; in many cases there’s no reason to go through a human to order something. Amazon.com doesn’t have any human order-takers, but they’re now one of the largest retailers in the world. The interface is the new sales channel, whether you’re selling a product or a service. Now that markets are everywhere, aggregating everything, interfaces are the glue between frameworks and the people who want to participate in a market. Interfaces marry demand to opportunity, because an interface creates more possibilities for the market to become pervasively accessible – like Twitter.

This is the first law of hyperbusiness: Create an interface to your framework, or face irrelevance. People gravitate to the best interfaces: one of the reasons MySpace lost out to Facebook was that Facebook created a powerful API that fostered the creation of an ‘ecosystem’ of Facebook Apps. Using that API, companies like Zynga built themselves into huge businesses, within Facebook. MySpace did finally offer an API, but far too late, long after it had lost its commanding lead over Facebook. MySpace provided no space for anyone else, and hyperbusiness moved on.

Hyperbusiness Opportunity #3

The town of Wilcannia, at the edge of Australia’s Outback, has never been big enough to attract the attention of Australia’s supermarket oligopoly. There is a single market in the town center, privately owned, and frequently accused of price-gouging. As the nearest supermarket is 200 km away in Broken Hill, unless Wilcannians favour a four-hour round-trip drive, they have had to make do with what was on offer.

On the 8th of August, ABC News reported that Wilcannia’s grocer had locked its doors – without any warning, or any explanation. Suddenly, townspeople were unable to buy over-the-counter medicines (including insulin, a real worry), to say nothing of fresh produce. No one had any idea when or even if the grocer would reopen, a blow from which Wilcannia could not easily recover.

Australia’s gigantic supermarket chains – Coles and Woolworths – both offer online shopping experiences: select your items, go through checkout, and arrange a convenient delivery time. Unfortunately, neither company’s delivery area covers Wilcannia, but that’s a problem easily solved by aggregating individual purchases into a single delivery (perhaps one delivery every other day) which would easily cover the transportation costs.

The biggest issue overall would be one of access. Wilcannia’s residents are generally not well-to-do, and many don’t have smartphones. The town may not even have 3G mobile broadband. The number of Internet-connected computers would be low. Here, there’s room for a service that used human power to aggregate the order-taking; order-takers could travel from household to household, helping each household place and pay for an order, in return receiving a payment for this work. Between the distributed order-taking and the additional transportation costs, purchases would be a bit more expensive than if made directly in Broken Hill, but when time and petrol are factored in, it would probably be a bit less expensive than an individual trip to Broken Hill – and far less expensive than the now-closed town grocery store.

This is the kind of vertical specialization that can thrive in connected markets. Everyone needs food, making it possible to create a framework to aggregate and fulfil that need. In this case, it doesn’t even require that everyone have a mobile, or the latest mobile, or access to high-speed networking. Human networks can fill in where telecommunications do not yet (and may never) reach.

This co-operative model could work for any community in rural Australia which wants the benefits of big-city markets within the comfort and community of a small town, bringing jobs to those areas, providing needed competition to monopoly vendors. It would take a bit of groundwork to bring such a system to Wilcannia, but once perfected there, it could quickly be replicated across the nation. It’s the appification of the supermarket.

…Into Vertical Specializations…

Fly into an airport in Australia or the United States, and you’ll see a number of well-dressed men loitering near the luggage carousels. Some of them will approach you, offering you a ride to wherever you need to go. Given that this isn’t strictly legal, most often they wait for you to approach them and open negotiations. After you’ve agreed a price, they lead you out to the parking lot, where a newish black limousine (generally a Lincoln Town Car) awaits. You pop in, and head out. Although neither the airport authorities nor taxi drivers care for this practice, it is widespread. Wherever passengers congregate, you will find drivers.

Informal and only quasi-legal, this transaction carries some risks. The driver might not be insured – what if there’s an accident? Pick the wrong driver, and problems could follow. These fears (which very rarely eventuate) have become the ammunition in a terror campaign by taxi companies as they fight to keep these ‘unlicensed’ drivers away from a reliable and profitable stream of passengers. Yet these limousine drivers do work for legitimate agencies; it’s quite easy to make a call and book a pickup. Once there’s a booking, the transaction has become wholly legal, and no taxi company can do a thing to block it.

The booking serves as a legal fig-leaf. You could be staring at a driver – conveniently holding a sign with a phone number printed on it – call the number on your mobile, and get the driver’s services, right there on the spot. That would be perfectly legal, even though the real-world differences between making the call and a personal approach are barely more than semantic.

Toward the end of 2010, a group of San Francisco-based entrepreneurs recognized the potential of an on-the-fly connection between limousine drivers and passengers. Rather than establishing a centralized switchboard and dispatching center, they developed two applications for Apple’s iPhone. One app uses the handset’s onboard GPS capability to automatically locate a passenger, transmitting those coordinates to any drivers who have marked themselves as available to carry passengers. Limousine drivers run another app, allowing them to review and accept pickup requests.

With little more than two smartphone apps, this firm – Uber – has created a powerful new competitor in taxi markets across North America. Limousine drivers use Uber to add jobs to their schedule, filling their downtime and doubling their income. Some drivers cannily run the passenger app as well, so they can see all the other limousines around them, avoiding areas oversupplied by available cars. Passengers, no longer at the mercy of undependable taxi companies, have flocked to the service, even though Uber charges a 40% premium over an equivalent taxi fare.

Uber did all this without building a fleet of vehicles. Capitalization requirements were minimal. Uber takes an existing resource – limousine drivers – and deploys that resource with the efficiencies available because everyone is directly connected. Aggregating connected drivers creates a virtual fleet. Aggregating passengers creates market demand. Marrying the two creates a new market, and a business model that has no expensive infrastructure, no overhead, and very low scaling costs. Bringing Uber to another city is almost as simple as distributing the two smartphone apps to drivers and passengers.

Working within a transportation framework, Uber found it easy to aggregate drivers and passengers into a marketplace; Zaarly and AirTasker, which aggregate generic labour for generic tasks, have found it much tougher going – because they lack Uber’s specificity. This doesn’t meant that either company will fail, simply that they need to be all things to all people. This has bad and good aspects. It can be bad, because trying to create so many markets means that the same approach must be taken with all of them. The AirTasker app could get you someone willing to drive you around town – but it’s not well suited for it. It’s not well-suited for anything in particular, and that’s its essential weakness.

Yet going wide creates unique opportunities. Careful analysis of the kinds of labour sought can lead to insights which can form the frameworks for new vertical specializations. If a lot of people want their dry cleaning dropped off or picked up, that means there’s room for a service to fulfil that need – a service that both Zaarly and AirTasker could easily offer. It would be as simple as writing a custom app.

If these hyperbusinesses develop the correct listening and analysis skills, they will become ‘app factories’, spinning out a continuing series of apps, each with its own framework creating its own market. Every task that is sufficiently common that it can benefit from this type of app-based-aggregation will find a home in its own market.

This process is not limited to labour aggregation. It extends across the entire business ecosystem. Just as employers and labourers can aggregate and create a market, the same can now happen with buyers and sellers. eBay became a success because it provided connected market aggregation, but eBay suffers from the same breadth-over-depth issues as Zaarly and AirTasker, and has not taken the opportunity to create vertical specializations. That’s the reason eBay has lost the craft crowd to Etsy, a business that could have been theirs, had they been watching their users. Horizontal hyperbusinesses are difficult and often unrewarding, unless they’re regularly harvested for vertical opportunities.

eBay could be ten thousand verticals, each with its own app, its own marketplace, its own highly loyal buyers and sellers. Instead – by its own actions – it will be progressively locked out of every vertical, as competitors leap into the gap created by the auction site’s diffidence. The future is vertical, because markets are everywhere, buyers and sellers are everywhere, and they all want a framework that enables them to connect and do business.

Everything we buy and sell in large quantities – cars, light bulbs, even things like electricity and petrol – will spin into its own vertical specialization, as the thousands-to-billions who want to trade find a framework that allows them to form a market. The economy as a whole is becoming an ‘app economy’.

Hyperbusiness Opportunity #2

I have a housecleaner who visits every fortnight. Due to the variability in our schedules, I send her a text message with a proposed time, which often leads to a bit of negotiation and consultation of our respective schedules before we come to agreement on the specifics of a visit. Although I’ve made it sound a bit complicated, it’s practically frictionless, and possible only because both of us carry our mobiles all the time.

With aggregated labour available on demand, there’s no real reason for me to negotiate with my housecleaner. I should simply be able to put a request into a pool of available labour – housecleaning being the kind of ‘guided category’ perfect for an Airtasker – working my way through the cleaners bidding for my work job. If I were truly lazy or too busy, I could let the app handle the whole thing, giving it a price range, a window of time, and a rating for the cleaner. (I do want a highly-rated cleaner, someone I can trust will do a good job, and will take great care with my possessions.) In that situation, my mobile would simply inform me with a notification that a housecleaning had been scheduled for such and such a time, with such and such a person.

This solves my problem nicely, but does it leave my housecleaner high and dry? Having established a relationship with her, and being very satisfied with her cleaning, I’d preferentially use her services. She could be advertising her availability on Airtasker, specifically looking for me (and her other clients) so she can sweep in and make the first bid – if it works for her. This might lead to even more work for her, as she could aggressively fill her schedule with cleaning jobs that were relatively close together, limiting the travel time between each job – in fact, the app could probably do that for her.

In the end, you have housecleaning-as-a-service, appified, available at the poke of a finger. More and more of the services we use – domestic and commercial – will come to us through such apps. Hyperbusiness is the appification of business.

…Aggregating Everything (Including Labour)…

Several years ago, when I lived in Los Angeles’ Hollywood Hills, I had a house deep in the bowels of Laurel Canyon. Set into the canyon wall at the bottom of Lookout Mountain, my driveway lay twenty meters and many steps below the house itself. Shopping day always meant hauling bags of groceries up the steps in relay fashion – from car to door, from door to kitchen – a good bit of exercise.

When I purchased a new refrigerator those steps became more problematic. The business which sold me the appliance happily got a workman to bring my new refrigerator up those steps, but, as I was not handing over my old refrigerator for recycling and resale, they left that one alone. I had two big refrigerators in my tiny kitchen, and needed to get the old icebox into my garage, but couldn’t move it myself, lacking both the equipment and the finesse to transport it without sending it crashing down the steps and into my driveway.

I decided to advertise my need on Craigslist, the web-based classified advertisements that since the mid-1990s have been connecting people in need to those who can fill those needs. About a day after I posted my request, I received an email from a Hollywood ‘best boy’ with a pickup truck, dolly, and the requisite training to guide my refrigerator into the garage. We agreed on a time, and I paid him fifty dollars for his trouble. Problem solved.

Before CraigsList, I could have put a classified ad in the local newspaper – the Los Angeles Times – but that would have taken so long it’s likely I would have just found another way around the problem. Only when it became easy to connect someone with a need to someone capable of fulfilling that need did this market appear. The need was always there, but it had been too difficult to bring the parties together. Craigslist created a common meeting point, aggregating people with needs, and people to meet those needs. Fostering that simple relationship had been practically impossible before the web. In retrospect, it appears completely obvious.

Now that markets are everywhere, everyone has the capacity to make a deal, but capacity is in itself insufficient for business. People need both capacity and a reason – they have to share some common interest, and they need some way to connect around that shared interest. Craigslist city-based websites and manifold categories provide that framework; the rest happens naturally, as people seek each other out.

At its core, every hyperbusiness defines a framework which creates a marketplace — often where none existed before. Craigslist creates the kinds of markets that upscale urban Americans need – reflecting its San Francisco origins. Every market has its own needs, and each requires a specific framework.

In Kenya, a vast number of people survive as casual labourers, going from one short-term job to another, always keeping their eyes open for the next opportunity. Although many employers need casual labour, that labour – especially when it requires some skills – has never been easy to find. To solve this problem, NGO Mobile4Good created Kazi560. ‘Kazi’ means work in Kiswahili, and 560 is the SMS short code for the mobile-based service. A labourer looking for work registers with Kazi560, advertising their interest in specific categories of jobs, such as cooking or nursing. Employers advertise their labour needs on Kazi560, and the service then sends a text message to labourers who have indicated their interest in fulfilling that need. If the labourer chooses to respond to the text message, they’re given the information necessary to apply for the job.

More than two-thirds of Kenyans own mobiles, so Kazi560 can effectively reach the majority of the nation’s labourers. Connecting employer to labourer around the framework of job categories, Kazi560 has created a fast, frictionless marketplace for temporary labour in Kenya where none had existed before. Aggregated, these labourers become attractive to employers, who turn to Kazi560 to fulfil their short-term labour needs. Kenyan businesses can now plan around the availability of short-term labour – something they couldn’t do before Kazi560, because the labourers were not connected to employers. It’s a true win-win: labourers get jobs, and businesses get the labour they need when they need it.

Two startups – one in America, the other in Australia – show how the pervasive market produced by the mobile can aggregate demand and supply. Zaarly and Airtasker have both released smartphone apps that allow anyone to post requests for labour – someone to pick up the dry cleaning, paint a fence, clean a garden, etc. That request goes out to every person in the locale who has advertised their availability to do some work. A negotiation follows, as the prospective employer gets a number of inquiries, vets candidates, and agrees to a price. All of this activity happens through these apps, so it transpires quickly – anywhere from minutes to a few hours.

Both Zaarly and Airtasker have transformed the mobile into an employment platform – providing labour or a job, depending on the intention of the individual. These tools could even be used in both modes simultaneously, allowing an labourer to bid on a job, then ‘subcontract’ parts of the task to other labourers. Everyone walking around with a smartphone is now a potential employer or employee – all they need is the right reason to connect.

Airtasker has stated the biggest problem confronting new users is decision paralysis: with so much potential, people get bewildered with choices. They’ve decided to produce some guided categories – simple errands and the like – that allow users to experience the value of their service, and help them to become accustomed to this new and very powerful market in aggregated labour. Soon, people won’t need any guidance to use the always-available pool of connected labor. We’ll think of it as an on-tap resource, like electricity.

Hyperbusiness Opportunity #1

On a recent trip to Singapore with my friend Nicola, I poked through an iPhone app named ‘ieat Hawker’, named after the famed ‘hawker’ food halls that dot the city-state. Nicola wanted to sample Char Kway Teow – a delicious Chinese fried noodle dish – at one of the hawker centers. I went through the list provided by my app, diligently checking its location on the map with our location. Each of them involved a hefty trek in a taxi or on the subway – and we were too hot, humid and hungry to embark on that kind of quest.

In a moment of exasperation, Nicola asked me, “Why can’t I tell my phone that I want some good Char Kway Teow – and then have it tell me when I’m near a hawker who can cook some up for me?” And indeed, location-based apps like Foursquare should work this way – you should be able to advertise your interest in something, and let the app find it for you. Instead, the apps work the other way around – they advertise to you all sorts of things that you’re never interested in, which is why none of them have been very successful for businesses.

Now that the market is everywhere, hyperbusinesses listen to what the market wants. Every individual can now advertise their needs in a way that allows the hyperbusiness to offer just what any individual needs, just when they need it.

The model of advertising that grew up in the era of mass media (even all the way to Google) has been turned inside-out by the presence of the pervasive market. Now we each advertise our needs as consumers, and businesses offer to fulfil those needs. This is just what Marico does when it sends its daily text message to coconut pickers. It’s vastly more efficient than a shotgun approach – or even targeted advertising, because rather than trying to gin up demand, a business is always satisfying an advertised need.

Markets Are Everywhere…

photo: v1ctor

Coconuts can be good business. In the southern Indian state of Kerala, families have planted coconut trees for countless generations, always keeping a close watch on them — as coconuts fall from ten meters high, they become dangerous projectiles. At some point someone decides something must be done, and someone gets dispatched to find the coconut picker. A village might have a few coconut pickers – wiry men with good balance who can scale the heights, snip the branch, and catch the coconut before it falls – but pickers can be very hard to reach. A good coconut picker will be up in the trees most of the day. Since he depends on customers coming to him, he has to hope his customers hear through the village grapevine who’s tree he’s climbing that day.

One day, in one village somewhere in Kerala, one of the coconut pickers bought a mobile. This wasn’t particularly unusual – India has nearly a billion mobile subscriptions – but it led to something completely unexpected. Now that his customers could reach him all the time – mobile reception is particularly good at the top of a coconut palm – he got a lot more work. Within a few days all of the other coconut pickers in the village were going wanting for work, because it was just too easy to make a call to the picker with a mobile, and too hard to search through the village looking for any of his competitors.

In a case of adapt-or-starve, within a few days all of the other coconut pickers in that village had their own mobiles. Now villagers could reach any of the pickers at any time, arrange a mutually convenient time for the picking, perhaps even engage in a little friendly negotiation – when your competitors are no more than a few digits away, your customers are more likely to shop around.

Now that almost everyone, everywhere has a mobile, everyone, everywhere is able to trade anywhere, at any time. The market has always been a place and time where people came together to do business. The mobile has made taken the market and amplified it, made it pervasive and ubiquitous. You don’t have to install a market app onto your smartphone, because we are the market makers. Teach a man to fish, and you’ve fed him for the rest of his life. Sell someone a mobile, and you’ve turned them into an entrepreneur.

Once a whole nation has mobiles, and everyone can do business, all sorts of businesses become possible.

In present-day India there’s a shortage of coconut pickers – the job lacks prestige, and a new generation of better-educated Keralans prefer to find their opportunities closer to the ground. But the demand for coconuts has continued to grow. Marico, an Indian manufacturer of health and beauty products, struggled to source a supply of coconuts – either they had to deal with unreliable middlemen, or establish relationships with hundreds of thousands of individual pickers. Neither alternative gave the company any sense of security regarding its supply chain.

Marico asked coconut pickers to register their mobile numbers with them; in return, each morning Marico sends those pickers a text message with the price it’s willing to pay for coconuts, and the pickers decide for themselves whether it’s in their financial interest to fulfill Marico’s order. Working directly with the pickers, Marico modulates the supply of coconuts harvested to meet its demand with small variations price it offers pickers. No middlemen, no supply chain headaches, and no infrastructure – Marico treats each picker as an entrepreneur, and everything else just happens, almost magically.

This capacity for self-organization is one of the benefits of pervasive markets. Marico advertises its need to the people capable of meeting that need, and the web of communication and connections does the rest. It’s an ‘invisible hand’, of sorts, hard to distort or disrupt, and easy to duplicate. Marico’s competitors for coconuts will need to make sure they get the numbers of those pickers, so they can make their own offer – on some days, a competitor would want to wait until after Marico’s sent their offer out, so they could better it. On other days, you might see price wars breaking out, as the competitors overbid each other into a market bubble, or price collapses, as competitors underbid one another in a search for the bottom. After such a collapse, you might even see a network of pickers band together in a syndicate, setting their prices and establishing long-term production contracts with coconut-consuming businesses. All of this is now possible – even easy – because markets are everywhere, even in the tops of trees.

Facebook: Trillion Dollar Baby

This morning, the market capitalization of Facebook dipped to USD $55 billion, down about 40% from its opening day highs. This has caused many to wonder if Facebook has been a victim of its own hype. Some analysts claim that Facebook will be gone in just a few years, following in the footsteps of the social media companies it overwhelmed, like Friendster and MySpace. Money invested today, it’s commonly agreed, is money wasted, thrown down a hole full of excitement but lacking all substance.

Poppycock.

One does not expect vision from business analysts or technology pundits, but this is ridiculous, even for them. The short-sighted nature of these observations tells us that no one, anywhere, has grasped the true value of social networks and social graphs. Social graphs detail human relations: the bonds of blood, friendship, school, profession, and shared interest. Beneath the specifics of every connection in any graph we will always find a deeper and more meaningful bond: trust. Our social graph details who we trust, and who trusts us.

Trust is the foundation for all commerce. We will not trade with an individual or organization considered untrustworthy, and will preferentially trade with those businesses where we have the deepest relationships – the strongest bonds of trust. Trust between strangers is not instantaneous. It is earned and remembered. Once established, that trust becomes the foundation for a range of activities, everything from romance to finance.

Facebook has a network of nine hundred million social graphs; with an average of thirty-five connections in each graph, there are over thirty billion trust relationships within their service. These trust relationships are continually reinforced by sharing: pokes, posts, timelines, photos and videos. Within the context of these trust relationships, it should be just as easy to share money as to share anything else.

This is the cornerstone insight, the subtle but profound shift in how Facebook operates (and thinks of itself) which will see it transformed from an underperforming advertising business into a behemoth of financial services. This is the transition that turns Facebook into a trillion dollar company.

This is, admittedly, a very big claim: can Facebook grow to 20x its current valuation? Inevitably, either Facebook will fill the role outlined in the next paragraphs, or some competitor will. There are too many opportunities open to Facebook, as it becomes a global force in the 21st century economy.

ONE: FACEBANK

Facebook will take a billion dollars from offering and buy a medium-sized bank. Why? Because the purchase of a bank instantly gives Facebook all of the licenses needed to operate in financial markets. Facebook will give each of its members an account, so this ‘Facebank’ will immediately have over nine hundred million members, making it the largest retail bank on Earth.

The possibilities for ‘social banking’ remain mostly unexplored. Although finance is most often thought of as intensely private (no one except your partner knows how much money you have in your accounts), finance has always been highly social and participatory. A social bank allows people to pool financial resources to achieve specific goals.

For example, families could gather resources to save to send a newlywed couple on their honeymoon, help them with the downpayment on a house, or send their child to university. All of these activities are technically possible today, but each are so friction-filled that in a practical sense they rarely ever happen. At the most recent LAUNCH conference, startup TrustEgg pitched a three-step web form which allowed a parent to set up a trust fund for their children, a process that normally takes a fair bit of work (and the expense of a lawyer) reduced to a frictionless and accessible operation.

That’s the kind of service that a Facebank will be able to offer to its billion members, plus an almost unfathomable range of other sorts financial services: families making loans to one another, or submitting remittances internationally; friends offering loans to friends, and even more sophisticated ‘microfinance’ transactions, where a large group of connected individuals each provide a small amount to help someone in need; groups pooling funds to go on a holiday, make a big purchase, etc. None of this happens now – or happens only informally, outside the financial system – because there is no structure in place which brings trust relationships and financial tools into the same environment. Facebank does this uniquely well.

Facebank will have the additional side effect of acting as a strong driver for Facebook membership, because Facebook members will enjoy an access to capital and financial flows that will be inaccessible – or prohibitively friction-filled – to anyone not using the service. Family members already belong to Facebook to effortlessly share pictures and stories; when people can share money just as easily, Facebook becomes impossibly alluring.

Does this get Facebook to a trillion dollars? On its own, perhaps not. The largest bank in the world with the broadest range of services – many of them created by members for members, in a huge upswing in financial innovation, as creating new financial services becomes no more complicated than creating a Facebook app – will be worth perhaps three hundred billion on its own. Facebook/Facebank will grow to encompass at least two billion members (three billion if India joins in). Valuing each of these member clients at a hundred dollars seems almost too low, an understating of the potential for social banking.

But we’ve only just gotten started.

TWO: FACEBAY

Trust is the bedrock of commerce; the strength of eBay springs from its ability to translate the ratings from its tens of millions of users (both buyers and sellers) into trust metrics (zero to five stars) which allow individuals who do not know one another to transact business with a reasonable expectation that they will not be defrauded. It took eBay some time to build that trust network – and they have done surprisingly little with it, even though it is their most valuable asset.

Facebook starts off with a bigger trust network already in place; this means there is no barrier to offering eBay like services, a ‘Facebay’ that turns Facebook into a global swap meet. Every Facebook profile could easily have within it list of things that a member wants to sell (or even just offload, gratis). This would be searchable by anyone on Facebook, creating a connected marketplace of buyers and sellers, supported by the trust provided by the social graph. Friends will trade with friends, family members with family members, interest groups with interest groups. All of that trading will feel safe and secure from the launch of Facebay, and the commerce framework provided by Facebank means that transactions can all be completed within the service.

Again, the network effect of Facebook’s huge size comes into play here. With a billion people or more trading everything, everywhere, Facebay becomes a legitimate alternative not just to eBay (which will be consigned to specialty markets beyond the reach of Facebay) but to nearly all online stores of any description. Every business that wants to reach a billion customers will present themselves through Facebay. Facebay quickly becomes the leading retail outlet globally, outpacing Amazon (which lacks a social framework), WalMart, Tesco, and everyone else.

With two or three billion individuals, each with their own storefronts within their profiles, the commercial potential of Facebay is difficult to overstate. Once again, at least several hundred billion dollars, and perhaps as much as a trillion, as the full dimensions of a truly global retail enterprise reveal themselves. It is possible (with just a dystopian squint) that Facebook could become both banker and retailer to the majority of the people on the planet. That would make Facebook a multi-trillion dollar business.

THREE: FACESTARTER

Finally, Facebook has the potential to become the investing platform of the 21st century. With the emergence of ‘crowdfunding’ platforms such as Kickstarter, and the recent passage of the USA’s JOBS act – making it possible for large numbers of individuals to pool resources to fund startup ventures – it has never been easier to find the capitalization required to start a business.

There has been an expectation that the startups to be crowdfunded will be primarily in the technology sector, but it seems more likely 80% of the businesses will instead be small, local, and non-technical – pizza parlors, not smartphone apps. Since the connections within an individual’s social graph tend to have a local flavor, every resident of a community already has the connections within that community necessary to secure funding for their business. While that connection has always existed, it has never been explicit, nor contained in a framework that allows for a frictionless connection between business and investor. These connections are becoming increasingly easy to create – witness the success of AngelList in lowering the barrier to startup funding – and, with ‘Facestarter’ crowdfunding business investment via Facebook will become almost effortless.

Although Facestarter may be the least profitable of the new enterprises to be explored by Facebook, it is undoubtedly the most important, because Facestarter is where Facebook will be able to have the greatest positive impact on the lives of its members and their communities. Most businesses are small businesses, and most people are employed in small businesses. The easier it becomes to form a small business – because capital is available on demand, from the Facebook community and its connections – the more rapidly communities suffering through The Great Recession will be able to recover. Facestarter could be the ingredient that ignites the boom that will follow the present economic difficulties.

As these businesses form, they will naturally turn to Facebank for all of their banking needs, and in this way Facebank moves seamlessly from retail banking into commercial banking, capturing all but the biggest accounts and the biggest businesses. Facebook becomes a commercial infrastructure, connected to every part of the global economy, at every point. This is why Facebook is worth a trillion dollars, or even more, and why today’s valuation will seem, in retrospect, a laughable misunderstanding of the true value of the social graph.

It must be admitted that all of this is provisional. Facebook has not purchased a bank, and they might choose to remain an advertising-driven business, trying to hang on as CPMs plummet. But they now have the time and the capital to engage in a long, deep think about what business they’re really in. That business is trust, and all else flows from that. If Facebook doesn’t see this, and act upon it, a competitor will.

DISCLAIMER: I own no shares in any company, do not trade in any share markets, do not give financial advice, and don’t even have a Facebook account.