From Conceptual Trends Current Topics:

“This is interesting. A fairly detailed taxonomy of the existing business models for web sites. The breakdown is here. Using their taxonomy the researches than examined one Top 100 web app list for 2008 and found that:

34% use Advertising, 12% a Variable Subscription model, and 8% each for Virtual Products (typically digital downloads), Related Products (typically a large software company offering a free product to attract you to their platform) and Pay-Per-Use.

The graphic pie-chart display of those results look like this.
(I.T.A = Advertising”

Via Conceptual Trends and Current Topics.

“Particularly in hard times, it’s crucial to make the right assumptions in strategic planning. Despite claims that the current recession is “unprecedented,” it seems to be following many of the same patterns the four previous ones did—patterns that may offer insights into the performance of sectors in the coming months and years. All four recessions, like the current one, began with falling sales and EBITA in the consumer discretionary sector and three with similar declines in IT. Consumer staples didn’t suffer significantly in the last three or health care in the last two. The energy sector was among the latest to be hit in three of the recessions, though it was among the latest to recover in all four of them. The exhibit shows the sequence of decline and recovery in these and other sectors.”

From McKinsey Chart Focus

My fellow blogger and Communications Director at DNS Europe, Steve Hurford,  has put together a great position statement on the future of Cloud Computing and its relationship to Grids. Here is an excerpt:

Grids are the building blocks of future clouds

Without knowing today exactly what the future of cloud computing will look like, customers are faced with the decision of what choices to make that give real commercial benefits today and greatest flexibility for tomorrow. As we see it, future clouds will be formed from and accessible by those customers which adopt grid hosting infrastructures, develop multi-tennant applications and offer services that are not tethered by specific location, operating system, physical resources or other geographical constraints. Not only will they be able to integrate with future clouds but they will be best placed to take advantage of other cloud-enabled services and to offer their own services to other cloud contributors.

Clouds should not and will not be “owned”

The term cloud computing is today being used by many providers who, in fact, are actually offering Grid Hosting. Taking Google and Amazon as examples, they have opened up their own infrastructure for customers to deploy their own applications on their “clouds” and use their compute resources for a measured service fee. More correctly, these infrastructures should be called “grids” and the services called “Utility Computing”. Where these offerings substantially differ from our believe of what Cloud Computing will become is in their attempt to own the cloud. Ultimately we believe that this is a futile effort due to the pace of change of market requirements and their restricted service platform development capabilities. Provided that they eventually adopt the principles of open platform integration, they will however become very serious components of the future of cloud computing.

From grids to clouds

Under perhaps the simplest model for differentiating grids and clouds, grids are essentially building blocks, or discrete physical resources that will one day make up, or enable, clouds. One of the key drivers for businesses must therefore be to invest in a technology which facilitates the easiest transition from one to the other. A technology which will enable real cost savings today with open opportunities for tomorrow. A technology which provides a birthing ground for new application and service architectures which will one day fly the nest and reach full maturity in “the cloud”.

From: http://www.dnseurope.net/cloud_computing.html

We are always keen to hear from anyone that has some ideas about all this, so please feel free to contact Steve with your feedback via the contact form here or on the DNS Europe website.

The financial crisis may spell doom for many start-ups. From  Wired.com:

Angel investor Ron Conway (above) thinks it could be at least two years before “the storm” ends, in which case any company with fewer than 6 months worth of cash, needs to either sell out, get a bridge loan, or “prepare for an orderly shutdown.”

“Don’t put your team through the agony of arriving to work one day and saying, ‘Guess what? We ran out of cash.’ You need to face reality. It’s not easy, but it’s basic,” said Conway, speaking on the panel.

I think the guys on The ZA Tech Show made agood point that the crisis could spark off an orgy of buy-outs and mergers. Many tech companies are looking very vulnerable now, with some, like Yahoo, so badly affected by stock price falls that they might want to beg Microsoft to come and buy them after all.

It was only a matter of time before pre-war apocalyptic poetry started being quoted in Financial Crisis reporting, but I am happy to see it is by Paul Krugman, and in a very interesting article that all of us interested in emerging markets need to heed.

From The Widening Gyre – NYTimes.com:

Economic data rarely inspire poetic thoughts. But as I was contemplating the latest set of numbers, I realized that I had William Butler Yeats running through my head: “Turning and turning in the widening gyre / The falcon cannot hear the falconer; / Things fall apart; the center cannot hold.”

The widening gyre, in this case, would be the feedback loops (so much for poetry) causing the financial crisis to spin ever further out of control. The hapless falconer would, I guess, be Henry Paulson, the Treasury secretary.

And the gyre continues to widen in new and scary ways. Even as Mr. Paulson and his counterparts in other countries moved to rescue the banks, fresh disasters mounted on other fronts.

Some of these disasters were more or less anticipated. Economists have wondered for some time why hedge funds weren’t suffering more amid the financial carnage. They need wonder no longer: investors are pulling their money out of these funds, forcing fund managers to raise cash with fire sales of stocks and other assets.

The really shocking thing, however, is the way the crisis is spreading to emerging markets — countries like Russia, Korea and Brazil.

These countries were at the core of the last global financial crisis, in the late 1990s (which seemed like a big deal at the time, but was a day at the beach compared with what we’re going through now). They responded to that experience by building up huge war chests of dollars and euros, which were supposed to protect them in the event of any future emergency. And not long ago everyone was talking about “decoupling,” the supposed ability of emerging market economies to keep growing even if the United States fell into recession. “Decoupling is no myth,” The Economist assured its readers back in March. “Indeed, it may yet save the world economy.”

That was then. Now the emerging markets are in big trouble. In fact, says Stephen Jen, the chief currency economist at Morgan Stanley, the “hard landing” in emerging markets may become the “second epicenter” of the global crisis. (U.S. financial markets were the first.)

What happened? In the 1990s, emerging market governments were vulnerable because they had made a habit of borrowing abroad; when the inflow of dollars dried up, they were pushed to the brink. Since then they have been careful to borrow mainly in domestic markets, while building up lots of dollar reserves. But all their caution was undone by the private sector’s obliviousness to risk.

In Russia, for example, banks and corporations rushed to borrow abroad, because dollar interest rates were lower than ruble rates. So while the Russian government was accumulating an impressive hoard of foreign exchange, Russian corporations and banks were running up equally impressive foreign debts. Now their credit lines have been cut off, and they’re in desperate straits.

Needless to say, the existing troubles in the banking system, plus the new troubles at hedge funds and in emerging markets, are all mutually reinforcing. Bad news begets bad news, and the circle of pain just keeps getting wider.

An indignant John Kay lays into the banks in the FT, accusing them of Innocent Fraud:

How could banks have persuaded themselves, their shareholders and the public that they were making so much money when in reality they were losing it?

The history of financial deception and self-deception is as old as humanity, but a few themes recur. A Ponzi scheme offers a high return using the funds of newcomers to make payments to earlier subscribers, and collapses when the supply of suckers runs out. The New Economy was the greatest of Ponzi schemes.It has been different this time. But not so different…

…Ponzi schemes, Taleb distributions and martingales, revenue recognition and mark-to-market accounting: these are the means by which successive generations of financial hotshots perpetrate what John Kenneth Galbraith described as innocent fraud. This is the process that systematically benefits one group at the expense of another but generally falls short of outright criminality.

But to benefit from the innocent fraud, you must be organiser rather than participant. In the New Economy, banks collected commissions on transactions but limited their own direct involvement. The participation of banks in the recent round of follies brought humiliation. Is the deception of others more or less venal when one has also deceived oneself? That question must be left for moral philosophers – and historians of our era – to answer. – [ FT.com - John Kay - Banks got burned by their own ‘innocent fraud’ ]

Joe and Parse 2 has a brilliant post entitled “11 Things I Learned While Trying to Figure Out the Financial Crisis“.

I particularly like his last two:

1. Cognitive errors. Megan McCardle of The Atlantic has compiled a useful list of cognitive errors that seem to have played a role in the crisis – both in creating the conditions that led to it and in compounding it…
2. The Black Swan. Nassim Nicholas Taleb is my kind of economist. The basis of his philosophy is that, “The world we live in is vastly different from the world we think we live in.” He advocates “tinkering” as our best mean to change the world – and his theory of the markets take into account many of the previous points. While he was running his own hedge fund in the 1990s, he turned his own knowledge of his lack of knowledge – and others’ lack of knowledge – into enormous profits. It came at the expense of losing a little money 364 days of the year – but making enormous profits in that one remaining day. He would bet on market volatility – which he understood financial firms repeatedly underestimated. Taleb’s key insight is that we know very little of the world itself – and will be more often fundamentally wrong than right…

At the “Tinkering” link above, he explains Taleb’s idea by quoting from Brain Appleyard in The Times:

Taleb believes in tinkering – it was to be the title of his next book. Trial and error will save us from ourselves because they capture benign black swans. Look at the three big inventions of our time: lasers, computers and the internet. They were all produced by tinkering and none of them ended up doing what their inventors intended them to do. All were black swans. The big hope for the world is that, as we tinker, we have a capacity for choosing the best outcomes.

“We have the ability to identify our mistakes eventually better than average; that’s what saves us.” We choose the iPod over the Walkman. Medicine improved exponentially when the tinkering barber surgeons took over from the high theorists. They just went with what worked, irrespective of why it worked. Our sense of the good tinker is not infallible, but it might be just enough to turn away from the apocalypse that now threatens Extremistan.

If some of the words in the excerpt seem a bit odd, it is because Taleb is creating an entire new glossary for his ideas.

The brilliant Nassim Nicholas Taleb has a glossary to accompany his critical thinking masterpieces The Black Swan and Fooled By Randomness. Here are some samples:

Academic libertarian: someone (like myself) who considers that knowledge is subjected to strict rules, but not institutional authority as the interests of organized knowledge is self-perpetuation, not necessarily truth (as with governments). Some academic circles can suffer from an acute expert problem (q.v.) producing cosmetic but fake knowledge, particularly in narrative disciplines (q.v.), an can be a main source of Black Swans.

Bildungsphilister: a philistine with cosmetic, non-genuine culture, prone to be an imitator –Nietzsche meant the dogma-prone newspaper reader and opera lover with cosmetic exposure to culture and shallow depth. I extend it to the buzzword-using researcher in non-experimental fields, who lacks in imagination, curiosity, erudition and culture and is closely-centered on his ideas, on his “discipline”, not questioning the cultural map around him. This prevents him from seeing the conflicts between his ideas and the texture of the world.

Confirmation error –or Platonic confirmation: you look for instances that confirm your beliefs, your construction (or model) –and find them.

Empty suit problem (or “expert problem”): some members of professions have no differential abilities from the rest of the population, but, for some reason, and against their empirical record, are believed to be experts: clinical psychologists, academic economists, risk “experts”, statisticians, political analysts, financial “experts”, military analysts, CEOs. etc. They dress up their expertise in beautiful language, jargon, mathematics, and often wear expensive suits.

Epilogism: a theory free method of looking at history with minimal generalization and with consciousness of the side effect of making causal claims. The idea is not to go too much outside the observations, minimize claims about the unseen.

Epistemic arrogance: take a measure of the difference between what someone actually knows and how much he thinks he knows. An excess will imply arrogance, a deficit humility. An epistemocrat is someone of epistemic humility, one who holds his own knowledge in greatest suspicion.

Epistemic opacity: randomness is the result of incomplete information at some level. It is functionally indistinguishable from “true” or “physical” randomness.

Fallacy of silent evidence: looking at history, we do not see the full story, only the rosier parts of the process.

Fooled by Randomness: general confusion between luck and determinism, leading to a variety of superstitions, with practical consequences such as the belief that earnings in some profession are generated by skills when there is a significant component of luck in them.

Future blindness: our natural inability to take into account the properties of the future –like autism which prevents one from taking into account the existence of the minds of others.

Locke’s madman: someone who makes impeccable and rigorous reasoning from faulty premises –Samuelson, Robert Merton the minor,Gerard Debreu –thus producing phony models of uncertainty that make us vulnerable to Black Swans.

Mediocristan: province dominated by the mediocre, with few extreme successes or failures. No single observation can meaningfully affect the aggregate. The bell curve is grounded in Mediocristan. There is a qualitative difference between Gaussians and scalable laws, much like gas and water.

Narrative fallacy: our need to fit a story or pattern to a series of connected or disconnected facts. The statistical application is data mining.

Randomness as incomplete information: Is random, simply what I cannot guess because my knowledge about the causes is incomplete, not necessarily because the process has truly unpredictable properties.

Reverse Engineering Problem: It is easier to predict how an ince cube would melt into a puddle than, looking at a puddle, to guess the shape of the ice cube that may have caused it. This makes narrative disciplines and accounts (such as histories) suspicious.

Scandal of prediction: the poor prediction record in some forecasting entities (particularly narrative disciplines) mixed with verbose commentary and lack of awareness of their own dire past record.

MORE

From Paul Krugman writing in the New York Times:

Has Gordon Brown, the British prime minister, saved the world financial system?

O.K., the question is premature — we still don’t know the exact shape of the planned financial rescues in Europe or for that matter the United States, let alone whether they’ll really work. What we do know, however, is that Mr. Brown and Alistair Darling, the chancellor of the Exchequer (equivalent to our Treasury secretary), have defined the character of the worldwide rescue effort, with other wealthy nations playing catch-up.

This is an unexpected turn of events. The British government is, after all, very much a junior partner when it comes to world economic affairs. It’s true that London is one of the world’s great financial centers, but the British economy is far smaller than the U.S. economy, and the Bank of England doesn’t have anything like the influence either of the Federal Reserve or of the European Central Bank. So you don’t expect to see Britain playing a leadership role.

But the Brown government has shown itself willing to think clearly about the financial crisis, and act quickly on its conclusions. And this combination of clarity and decisiveness hasn’t been matched by any other Western government, least of all our own.

In a thoughtful post entitled “Thoughts on the Financial Crisis“, Tim O’Reilly quotes a Rilke poem:

I can tell by the way the trees beat, after
so many dull days, on my worried windowpanes
that a storm is coming…What we choose to fight is so tiny!
What fights us is so great!
If only we would let ourselves be dominated
as things do by some immense storm,
we would become strong too, and not need names.

He explained the quote like this:

There are a lot of people bloviating about the financial crisis. It’s outside of our area of expertise, so there didn’t seem to be a lot of urgency to add to the hot air. Even professional economists and financial experts disagree on where this is going. I’ve been reading a lot, and sharing the best links via my twitter feed, but frankly, I’m feeling that we’re in the middle of a wave that no one completely understands.Meanwhile, I did in fact spend my NY Web Expo talk on the idea that “I sense a storm coming” (Rilke quote), and the idea that companies and individuals need robust strategies (ones that can work even in uncertain times), with one robust strategy being to “work on stuff that matters.”

In a letter to his own employees where he elaborates on this, he passes on some great advice that we can all heeded:

Many of you have no doubt been alarmed by the developments of the last couple of weeks in financial markets……robust strategies are ones you’d adopt in good times and in bad…we probably end up with more robust strategies if we assume the worst rather than the best.

We could be in for a long, rough time in the economy. I’m not going to say otherwise.

But I also want to point out that rough times are often the best times for creativity, opportunity and change.

…And if you look at history, you see that this has always and everywhere been true. It’s not an accident that economist Joseph Schumpeter talked about the “creative destruction” inherent in capitalism. Great problems are also great opportunities for those who know how to solve them. And looking ahead, I can see great opportunities.

The energy crisis (both global warming and the oil price shock) is helping people to focus on how technology can transform the energy sector. The financial crisis has demonstrated just how out-of-whack an unregulated, proprietary, black-box approach can get. This will lead to
an emphasis on regulation, but I hope, above all, on transparency. This is of course analogous to what happened with open source software. Meanwhile, the mobile revolution will continue, regardless of the state of the economy. If it can prosper in Africa, it can prosper even in an
American downturn. And all the stuff we’re exploring with Make: new materials, new approaches to manufacturing, and the “open source” approach applied to hardware, will take us in unexpected directions.  And all of these areas can benefit from what we do best: capturing and
spreading the knowledge of innovators.

We don’t know yet how problems in the overall economy will affect our business. But what we can do now are the things we ought to be doing anyway:

• Work on stuff that matters: Assuming that the world does go to hell in a handbasket, what would we still want to be working on? What will people need to know? (Chances are good that they need to know these things in a world where we all continue to muddle along as well.)
• Exert visionary leadership in our markets. In tough times, people look for inspiration and vision. The big ideas we care about will still matter, perhaps even more when people are looking for a way forward. (Remember how Web 2.0 gave hope and a story line to an
  industry struggling its way out of the dotcom bust.)
• Be prudent in what we spend money on. Get rid of the “nice to do” things, and focus on the “must do” things to accelerate them.
  These are all things we should be doing every day anyway. Sometimes, though, a crisis can provide an unexpected gift, a reminder that nobody promised us tomorrow, so we need to make what we do today count.