Businesses, like ogres, have layers
Once again I find myself writing about a tricky subject. In advance: apologies if the construction is shaky, this blogging thing is less easy than it sounds.
In the past few years, I've observed what I like to call the shift of power. I have previously described how it's as if young entrepreneurs were left just enough room to dabble in non-crucial areas: purely online services, stuff that doesn't touch the essential people need to live.
Without falling into conspiracy theories, I think this scheme also applies outside of entrepreneurship. I recently got caught parked in a private area (mea culpa), which prompted me to read the law. Apparently, a law passed in 2004 in Lausanne that:
- Raises the maximum amount for such fines from CHF 30 and CHF 60 to CHF 500 and CHF 1000, respectively
- Shifted the responsibility from 'juges de paix' to the 'police commissions'
(The law can be read here, in French)
In short, it makes the procedure more efficient and more dissuasive. In parallel, the city of Lausanne along with many of its neighbors adopted a car parking strategy similar to th following:
- The number of parking spots should be reduced
- All white parking spots (free) should be turned into blue parking spots (90 minutes max)
- Police forces should recruit additional workers to enforce parking laws
- The money from parking fines should be reinvested in development of public transport, and advertising of 'soft transportation' means (walking, biking, public transport)
On the surface, I agree with these decisions: blue spots mean you can almost always find a parking spot in the center of the city, which is good. I'm also all for developing more efficient transportation means: if a metro system costs less and pollutes less to carry N people than cars, then all good and fancy.
Loops vs arcs
But there is a problem with that. First, if you are rich, none of that impacts you at all. Parking fines are not adjusted to your revenue (as opposed to speeding fine, but that's another story). You can also rent a private parking spot (in an underground garage, or on the street) for a monthly CHF 140 to CHF 400, depending on which part of the city you live.
So, rich people aren't bothered at all, but with normal revenues, it makes the decision to have a car more delicate. Combine gas prices, insurances, plus a private parking spot (or a budget for fines - some people actually do that), and you have a non-negligible slice of your salary going away.
Enter business opportunity: since cars are still useful to some people some of the time, in such an environment, running a car rental business is very attractive. As a matter of fact, car rental companies have been advertising very agressively around train stations and the such. That's not a coincidence.
Rental is the equivalent of 'the cloud' in real life: for casual use, it's cost-efficient, and also has undeniable advantages (availability for rental, scalability for cloud), but you lose ownership of your stuff: you can't physically rely on it, you can't tune it manually, if it's down (rental service ran out of cars, EC2 outage)
(For context, read Loops and arcs from Lostgarden)
The culture of buying is a culture of arcs: you go till the end of an arc (end of life of a product), and then you start on another arc (typically, buy a new one). The culture of renting is a culture of loops: you have to keep paying each day/month/etc. to benefit from a service.
Obviously, some buys are rental in disguise: buying drugs is, in a way, renting a sensation. A true buy in that case would be growing your own plants (where relevant). Food doesn't really count, since it's a natural cycle: nobody can survive without food, but some can survive without drugs.
As an entrepreneur, you should ask yourself: how deep do I go? A Facebook app is interesting, because you can leverage a whole platform. But you give up a whole lot of control. Similarly, if you're all on borrowed territory (renting almost everything, making most of your bread by consuming various APIs, etc.), you're really expandable. And more importantly, you're probably not changing the world.
Dwolla, the micropayment system, recently released an API for real-time transactions, free for banks and credit unions. They're trying to dig a few layers down: to matter more, because they would own part of the infrastructure. However, as most of the cynical commenters point out, it seems unlikely that "the banks" will let them do that. There is indeed a reason that the current system is slow, reversible, and closed.
I mentioned locked markets in Be Wrong. Maybe you can build some nice services on top of the architecture provided by giants of the oil industry, telecom industry, etc. but how would you short all of these and present your clients with a full alternative, where it's not just "do the old thing smarter", but clearly "do something new, more efficient?"
For some markets, I don't think significant progress will be made without large-scale tragic events: an economic crisis more severe than usual, popular outcry in western (rich) countries, natural disaster, running out of essential resources (oil...). In the meantime, comfort, network effects, and ownership of the information channels will help the big actors stay in place for many years to come still.
At any rate, identifying yourself clearly in a bigger landscape than just your competitors and your clients is crucial to your business. For one, it helps you identifies the threats ahead of time (example: mobile app made redundant by an OS update), and also helps you focus on your core business.
And if there is one thing you need in a start-up, it's focus.