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When I was in college I spent too many hours playing football and discussing the meaning of life at the coffee house and too little time attending lectures. So when exams came, the saviour was the “guide book”. These slim volumes told you in minutes what the bright young recently-returned-from-Oxford lecturer would have taken hours. You could get familiar with just enough key words to wing, with luck, the mid-term exam.
This article is a small attempt to repay the kindness of many an anonymous writer of guide books and is aimed at all those in the world of Indian business who have been too preoccupied with other things in the past 10 years to pay attention to the evolution of Internet business models. If I succeed, I hope to get a call from Navneet Publishers to contribute one more guide to their already vast collection that till this day rescues many an Indian student at exam time.
If the venerable chairman of the board of your company calls you and demands to know in under a dozen words what is so different about Internet businesses you should reply, “Sir, these are businesses with network effects.” This should get you a nod of approval and raise your stock in his eyes enough for him to remember you at the next appraisal meeting.
But in case the old man is one of those who rules by putting people on the defensive and throw at you a question such as, “What are network effects, my boy?” you should reply: “Imagine a world with only one fax machine, sir,” you should say.
Look carefully at his face. Is he beguiled enough to imagine a world with just one fax machine? If he is, go on as follows: “Whoever had this one machine would have no use for it because there would be no other fax machine to send faxes to.”
If the old man is still with you, continue: “Now, imagine there is a second fax machine in the world. Immediately the first fax machine has a use--you can use it to send faxes to the second one. You will observe, sir, that as the number of fax machines in the world increases, the usefulness of each machine also increases and so does the value of the network that connects them.”
If the crafty old man decides to challenge you further and asks, “But is this not true of air conditioners, for example?” your answer should be: “No sir, it is not. If the number of air conditioners in the world increases, the utility I derive from my own air conditioner will not increase. If anything, if there are too many of them it may even result in power shortages that may prevent me from using my own air conditioner.”
By now, you should have made such an impression on the old man that he should start wondering whether he ought to call you home for a drink to meet his lissome recently-returned-from-Boston-University daughter who has been pestering him at dinner-time saying, ”Daddy, why don’t you diversify into the Internet. It’s a hot thing.”
And don’t worry. By the time he invites you home, I hope to have heard from the visionaries at Navneet Publishers and my book should be out. In it, apart from “network effects”, you will also get quick one-minute insights into things like “Increasing Returns”, “Early Mover Advantage”, “Ajax”, “Avatar” and, even “Web 2.0”
The author is Ajit Balakrishnan, CEO, Rediff.com
