How Small Change Became Big Money

About six years ago when my late mother was in her seventies she told me how amazing she found the choice that people had in the modern workplace.  'We just used to get any job we could and hold on to it for as long as possible', mum remarked, 'but you’ll see some interesting changes'.  'In new technology?' I suggested.  'Oh no, in people’s lives', she said.  I was reminded of this conversation recently when a super-talented designer friend of mine described how he had taken an idea for a new iPhone application to someone he knew at a major London advertising agency – who snapped it up for a MegaBrand client.  This turned out to be a bad move.  Many months of pain followed as my buddy defended his idea from the agency strategists, brand police and finance folk.  Including a demand for a multi-thousand pound insurance policy in case the app damaged the iPhone of a hypothetical customer in an unknown corner of the world.  At the end of the process (the app in question never made it online) my friend reflected that he should have cut out the agency and just put his idea straight up onto Apple's AppStore.  That he explained would have meant, ‘less pain and more money’.  And he’s not alone in this view.  There are currently 41056 apps available in the iTunes AppStore - many the work of individuals.  Between them they've been downloaded one billion times in just nine months.  Some estimate that the average revenue from a top 100 application could run to $12k per month.  While others are thought to make a lot more.  There’s no doubt it’s an extremely competitive, quite chaotic marketplace but considering it’s not even a year old that's pretty amazing.  Other direct routes for individuals to go to market include the Facebook Platform that allows people to create products and services and distribute them to the social net’s 200 million users.  SAI recently noted that Facebook developers, many of which are solo agents, will collectively make about $500m this year – possibly more than Facebook itself!  And then there’s...

...Second Life within which people are (still) creating successful businesses. 

Much has been said about the economics of these new networked marketplaces where individuals can play with the big boys.  In his book Here Comes Everybody, Clay Shirky borrows the thinking of economist Ronald Coase to succinctly describe what’s happening as the result of, ‘new social tools…lowering the cost of co-ordinating group action’.  But perhaps more interesting is the effects it is having on the lives and careers of everyday people.  Yes that’s everyday people, not just the geeks who populate the AppStore or Zuckerberg’s world.

Once the online trading choice for regular folk was confined to eBay.  Now there are plenty more places to pursue an online career.  Just look at Etsy – the stylish online craft market.  The ‘Quit Your Day Job’ stories on the company’s blog is a wonderful record of the way in which the networked world is providing new opportunities for people to radically change their career path.  And once again, it’s booming.  This type of flea market business or 'microtrading' has always been thought of as small change.  But now it's big money.  $100 million worth of goods were sold on Etsy in 2008.  (Remember most of those things people have made in their kitchens, sheds or garages).  Which explains the emergence of other craft markets including Folksy and Dawanda.

Of course for every person who manages to create an income or career from a networked enterprise, there are many who fail.  But as Etsy shows, networked economics (or cockroach economics as Paul Graham says) means very low start-up and running costs.  So while failure might cost a lot in terms of time, the capital costs may be tiny, so failure needn’t result in financial disaster.

Of course, none of this means the end of large enterprises or big business.  Etsy is generating $1m a month, while on the Facebook platform there are at least a half dozen other companies in the $10 million to $50 million range.  Not exactly the FTSE-100 but very respectable for such new markets.  And as the share-and-compare economy grows and transaction costs plummet, new opportunities will undoubtedly appear.  Who would have predicted a market for elopement announcements for instance?  No doubt we will see plenty of traditional corporates moving into these new marketplaces as the revenues grow, most likely through acquisition.  As Fred Wilson notes one of the disruptive outcomes of the networked economy seems to be that successful companies are smaller in terms of revenue but much more profitable, making them very attractive acquisition targets.

Once upon a time an independent operator selling handmade goods – digital or otherwise - out of their bedroom or shed would either have been thought of as an oddball or just not had access to a marketplace of any size.  However, as trust in corporate world continues to falter, the demand for flexible living grows, and the share-and-compare economy drives word-of-mouth, networked careers make a lot more sense.  Increasingly, a lot of people feel like Etsy trader Alissa: ‘Coming home at 5:30 after having my brain and creative spirit chewed on by corporate trolls all day did nothing for my productivity!’.

I wonder if these were the changes my mum was referring to?

Comments

[Aaron Savage]

You know something James, I don’t think it has ever been more appropriate for a person with an idea to stand on their own and send it to market without the comfort of a big organisation behind them. Barriers to entry that existed in the past just are not there anymore and all too often that big comfortable parent is woefully out of touch with what is happening around them. I feel very sorry for your friend but can sympathise completely. I wasted over a year with agencies before I finally came to the conclusion that I knew more about things than they did and it was a waste of time trying to convince them. Sod all this Trotskyite change from within bollox. This is a time for the ‘Marxist Marketeer’. Viva la revolution, my friend.

I look back now at the past few years and see only wasted time whereas charting my own course has left me with a better quality of life and less stress. Actually it isn't completely wasted and its all a journey to prepare you for the time when you stand alone. I just wish I had learned more faster and had the guts to do it sooner.

[James Cherkoff]

I love that Aaron. You have to do the hard bits to appreciate the good bits eh?