THE BLURRED LINES OF INTERNET TAXONOMY

The subject of internet taxonomies was raised this week and it is something that I have always been fascinated by.  I think now, more than ever before, companies are starting with a thread of an idea and evolving into something entirely different.  Before the internet, it would have been far more difficult to seamlessly crossover into other markets, but e-commerce has enabled small start-ups to determine their core values, establish themselves, and branch out successfully.  

Of course there have been instances where companies have disastrously failed to expand their empire.  Even the most well-known and resourceful corporations have tread into territory that they perhaps should not have.  Microsoft is still struggling with their foray into mobile phones (operating systems) and despite the money being filtered into marketing for Bing, they are still undoubtedly miles and miles behind Google search. 

Speaking of Google, they are undoubtedly the greatest example of a firm that has not adhered to any specific taxonomy.  The closest category you might place them in is simply “tech firm” because, while they started with a revolutionary algorithm for collecting data on the web, they have expanded into dozens of different markets and continue to do so.  If Google sees a lucrative business opportunity, they are likely to seize it, because they have the talent and the funding to do so.  Google (not unlike Apple) have expanded into mobile phones, television, natural energy, cars, medical technology, and even space travel. 

An Amazon.com factory worker

Google is not alone, far from it in fact.  Amazon.com began as a book retailer.  Now, you can purchase just about anything on the Amazon market.  Zappos.com began with shoes alone.  As was mentioned in this week’s lecture, these expansions are possible because of the platform in which the businesses are built, which defies all classic brick and mortar structures.  Amazon recognized that their operations gave them a strategic advantage (which is why they were able to acquire Zappos, although Zappos introduced new elements such as free return shipping).   Internet taxonomy is fluid.  That means that there are opportunities for these large businesses to diversify themselves.  A company like Google or Amazon can identify their strengths and then build from them. 

Tony Hsieh, CEO of Zappos.com

Often these startups begin with one product and become something entirely different.  This is not uncommon, even pre-internet era.  The classic example is the Post-it Note.  Dr. Spencer Silver, in his attempts to create an effective long lasting, heavy duty adhesive, created a “low-tack”, reusable formula.  It is difficult to imagine a world without Post-it Notes and yet the genesis of the product itself was a fluke. 

Just as important as the product and service is the economic model of the company.  Again, the internet has made it possible for companies to sustain themselves through methods that before would not have ever been considered.  The “Fremium” model has allowed a lot of companies to enter markets with an edge and establish themselves quickly.  Spotify is a great example, a company that has licensed hundreds of millions of songs, allowing users to access the library for free, and driving a strong portion of their revenue from ads that play every few songs.  Like Netflix, the premium service is fairly inexpensive ($9.99/month), and now at least a quarter of the 20 million Spotify users are paid customers.  This model has pushed the valuation past the $3 billion mark. 

In case you haven’t caught on just yet, the excitement of the tech industry doesn’t so much lay in the products or technology itself but the sexy and innovative methods of delivering the product to the market. 

“Silicon Valley”, a current HBO program in its first season brilliantly satirizes this world, where suddenly the geeks have become rock stars.  The central character, Richard, aspired to create new media sharing platform akin to Napster and named the start-up “Pied Piper”.  The idea is not novel by any means, but venture capitalists come knocking as soon as they see that he has managed to engineer a file compression system that is entirely lossless and faster than anything on the market.  Richard suddenly realizes that the product isn’t the music or the media sharing, but the possibilities derived from his superior programming.  

Thomas Middleditch as Richard Hendricks on HBO's "Silicon Valley"

And that is the point.  A brilliant mind can have every intention of taking one path and ignore the fork in the road altogether.  Technology can be boundless and transcendent.  Internet taxonomy therefore is a category in itself, but is otherwise a very foggy subject.  If I lay a piece of wood down in front of you, you might see a table, but I might see a surfboard.