Getting sued, laying off most of your workforce, losing your third chief executive and then being bought out doesn't sound like the history of a successful company that could teach Internet businesses a key lesson. But Napster's problems make it one of the best examples of the value of "network effects" and how you can make your users build your service for you.
The Internet and the open source movement have made huge changes to businesses in recent years, but the jury is still out on how those changes add up to a new way of doing business. Speaking at BEA's recent eWorld conference, Tim O'Reilly, chief executive of computer book publisher O'Reilly & Associates, suggested that the licensing question that exercises many open source advocates -- and the companies that see open source as a way of saving money by switching away from Microsoft -- is actually irrelevant.
The most popular Linux applications aren't databases or office tools, he points out: They're services such as Google, Amazon and PayPal, which run on servers running open source tools such as Linux, FreeBSD, Apache, MySQL, PHP and Perl. Just saving money on software licenses is not what makes them successful. Also, they don't need to let anyone see the source code because they don't distribute them.
"These are all fiercely proprietary companies, so something is wrong with the idea that once we have open source software, there will be no intellectual property," says O'Reilly. "We have people like Jim Allchin [of Microsoft] saying that open source is an intellectual property destroyer. It's just not true. Here you have these companies with huge amounts of intellectual property but it's sitting somewhere else in the business."
When tools and services get more valuable as more people use them, that's known as the network effect. Telephones, fax machines and email are the most obvious examples, but network effects drive many successful businesses. New users pick Microsoft Office because it is what most employers want you to know, and the more people who use the Office file formats, the easier it is to share documents. Thus, network effects don't just bring you new customers, they make what you sell more valuable to old and new customers alike.
O'Reilly thinks that is the key for open source and internet businesses.
"What really matters is the architecture of systems: open source is ultimately about systems that create and manage and magnify network effects," he said.
That means if you design the system right, you won't need to do the hard work yourself: your users and partners will do it for you.
Not because you are paying them (like Yahoo's editors) or out of the goodness of their hearts (like the volunteers who compile the Open Directory or the Wikipedia), but as a side effect of what they're doing for their own self-interested reasons.
Napster and other file-swapping services didn't spend time building a complex network for their users: they gave users the tools and the incentive to do it. They are not the only services to take advantage of their users. EBay's customers don't just provide the products and content on the auction site, they police each other by giving feedback. Google's search tools help users find information on the web, but the PageRank algorithm exploits the millions of links that individual web developers create to pages they think are interesting.
Amazon uses customers' searching and spending habits to suggest relevant products: When you search, you don't get the newest or cheapest books unless you specifically ask for them, you get the ones that are most popular in terms of reviews and sales. Look for information on Microsoft's support site and, as well as official resources, you will find links to relevant discussions in public newsgroups, so you can see if someone has already found a solution.
These are ideas any company can use on its site or in a service, so you need to make sure you own the user-generated data and metadata that give your service the network effect.
DAMAGE REPORT: Global central banks are assessing war-driven inflation risks as the law of unintended consequences careens around the world, spiking oil prices Central banks from Washington to London and from Jakarta to Taipei are about to make their first assessments of economic damage after more than two weeks of conflict between the US and Iran. Decisions this week encompassing every member of the G7 and eight of the world’s 10 most-traded currency jurisdictions are likely to confirm to investors that the specter of a new inflation shock is already worrying enough to prompt heightened caution. The US Federal Reserve is widely expected to do exactly what everyone anticipated weeks ahead of its March 17-18 policy gathering: hold rates steady. The narrative surrounding that
Taiwan Semiconductor Manufacturing Co’s (TSMC, 台積電) share of the global foundry market rose to almost 70 percent last year amid booming demand for artificial intelligence (AI), market information advisory firm TrendForce Corp (集邦科技) said on Thursday. The contract chipmaker posted US$122.54 billion in revenue, up 36.1 percent from a year earlier, accounting for 69.9 percent of the global market, TrendForce said. Its share was up from 64.4 percent in 2024, it said. TSMC’s closest rival, Samsung Electronics, was a distant second, posting US$12.63 billion in sales, down 3.9 percent from a year earlier, for a 7.2 percent share of the global market. In the
At a massive shipyard in North Vancouver, Canadian workers grind metal beams for a powerful new icebreaker crucial to cementing the country’s presence in the increasingly contested arctic. Icebreakers are specialized, expensive vessels able to navigate in the frozen far north. And “this is the crown jewel,” said Eddie Schehr, vice president of production at the Seaspan shipyard. For Canadian Prime Minister Mark Carney, who heads to Norway next Friday to observe arctic defense drills involving troops from 14 NATO states, Canada’s extreme north has emerged as a strategic priority. “Canada is and forever will be an Arctic nation,” he said ahead of
Chinese entrepreneur Frank Gao used to spend long hours running his social media accounts but now outsources the chore to artificial intelligence (AI) agent tool OpenClaw, which is taking China by storm despite official warnings over cybersecurity. OpenClaw, created in November by an Austrian coder, differs from bots such as ChatGPT because it can execute real-life tasks such as sending e-mails, organizing files or even booking flight tickets. “Since January, I’ve spent hours on the lobster every day,” Gao said in an interview, referring to OpenClaw’s red crustacean mascot. “We’re family.” After downloading OpenClaw, users connect it to artificial intelligence models of their
RSS