Friday, October 15, 2004

The value of a service network

To follow up on my previous post about information services it is interesting to look at what creates value in a network based offering.

The value comes from four characteristics, producers of the data, consumers of the data, value of the data, and depth of processing.

The value of the users (producer and consumers) is dramatically increased if they are registered users and there is some form of tight coupling between them (think Google versus eBay). The value of the data is around how unique and how hard to reproduce/migrate to another service. Lastly the value of the processing of the data, companies such as SalesForce have built significant expertise in processing data for CRM which is hard to reproduce.

Applying this to a few real world examples. Google has a very low number of registered consumers, so has low value their, while the data it uses is also freely available, each individual piece has low value but they make it up in volume. Their processing of the data has very high value as they have built deep expertise and infrastructure around search. Another example is eBay here they have very strong ties to both consumers and producers which creates significant value. The value of the data is also very high as it is hard to reproduce (and they defend it from scraping etc) the value of the processing is somewhat lower.

I really believe in the service model on information processing but as I have tried to show it does need to be applied to the correct problems to create lasting value. Companies such as Google, eBay, SalesForce are creating lasting value by emphasizing different parts of the model.

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