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Building SMEs Into Thought Leaders

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Back in the day, value creation was very different from what it is today. Large organizations (think IBM, P&G, General Motors) were needed to build something of value. Lots of engineers, lots of quality-assurance (QA) people were involved. That weighty size and scale formed the traditional corporate hierarchy.

Do you remember when large-scale companies were considered mini-governments because of their global influence? So do I.

Unlike that hierarchy and power model, the Web enables some thing entirely different. The Web creates a model of talent and ideas and self-organization. People seek out others with similar interests. Collaboration on a scale previously impossible now occurs on an ongoing basis. Mass sharing ideas on a global basis is easy using BaseCamp, wikis, and other software that makes your physical location in the world immaterial.

There are two fundamental "value chain" shifts in the last few years. And perhaps it's so early that few have caught on to the full implications of it. But let me try to name it and identify what it means to companies today.

  1. Manufacturing costs reduced

    Open source and a worldwide talent pool have brought in efficiencies in software creation. You no longer needed a team of software developers and QA team to produce. Monolithic applications required a certain amount of engineering resources to code, QA resources to test, etc.

    Now, with lots of little developers each tackling a piece of an overall solution, development—and especially innovation—can occur much more rapidly. No one has to live near you, work near you—heck, even know you—to join together to create something.

    And, in the hardware domain, even injection molding is now readily available to the "common man"; concepts can be built quickly and contract manufacturers can deploy things with Chinese-based production. Being able to lower the cost of production and the access to tools lower the cost of entry into any market and create many alternatives.

  2. Investment costs reduced

    Production costs have changed. With the AJAX architecture and then the ability to "mash-up" technologies online through sites like programmable Web.com, the Web has changed the fundamental production model from "make it all" to "make some piece" of the highest value. This has meant that very small teams of 5-6 people can enter a new market and make money from their specific vertical application or knowledge.

    This allows not only more creativity to enter the production system but also a different way to create a "product."

    Layer on top of that the software as a service (SaaS) model, and any company can enter a market without needing to invest upfront dollars to buy applications, storage, etc. This has lowered the cost of entry to any market and created many alternatives or substitutes.

But what do those two disruptions mean?

It means that there is a new type of David vs. Goliath model in play.

Small beats large at innovation

Small companies with greater flexibility and imagination are taking advantage of this change in economics far better than large ones. Big companies like Dell or Adobe are trying to figure out how to rationalize it with their existing systems and investment models, while smaller companies are simply creating.

This ability to work, communicate, and play with others is the underlying aspect of Internet community. Whether related to playing games (e.g., Second Life, World of Warcraft), work (e.g., Zimbra's ZCS Web Client, Jive Integrated Server), social networking and search (e.g., Six Apart's Vox, Google), connection to others is a must. 37signals is an example, and its Backpack is a digital to-do list focused on productivity and organization across a team.

Comparing small companies with large ones, it's interesting to see how smaller companies have the creativity to develop market spaces, while larger ones lurk until the market is well established, then enter and try to swallow up everything.

As you might expect, Microsoft has picked up on the trend, offering Office Live Collaboration Beta. The features page is corporate and lifeless, missing the flexibility and creativity required for collaboration. In fact, only one of six paragraphs of copy dedicated to the product is directly related to sharing, interactivity, and interplay—the other five, in typical Microsoft corporate/tech speak, tout rather generic items such as online business apps, data access, storage space, data protection, and customer support.

Zimbra, a David to Microsoft's Goliath, provides extreme collaboration capabilities for many operating systems, including Ubuntu, VMware, rPath and Mandriva. Its test approach was different, too, involving users worldwide. Vendors like Zimbra know customers prefer personalization and customization—and the benefits they provide empower users instead of usurping their power.

But sometimes big works too

Google, with unparalleled financial strength, continues to astound with a myriad audacious offerings. It has the luxury of entering sectors with no clear monetization strategy—cause being a disproportionate market share followed by the desired effect: money. The company's ability to couple search with the Web, images, video, maps, and the ubiquitous Google "more" is amazing. Gmail's integration with Skype provides a prompt when an email is opened with a phone number in it, asking whether you want to make a call. And you receive added ability to IM if your friend is online. Google is desirable for the functionality and intelligent integration of offerings.

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ABOUT THE AUTHOR

Nilofer Merchant is the CEO of Rubicon Consulting (www.rubiconconsulting.com), a strategy and marketing consultancy based in Silicon Valley that solves complex business challenges for high-tech companies.