Episode 21: Intellectual property and internet-based business

Synopsis

Summit TV takes a look at the internet and Web 2.0 and how entrepreneurs are using the next wave to create exciting new brands with Mike Stopforth from Cerebro.

Transcript

Summit TV takes a look at the internet and Web 2.0 and how entrepreneurs are using the next wave to create exciting new brands with Mike Stopforth from Cerebro.

Stephan Lamprecht: The internet has been around for a decade or so and there’s been quite a few ups and downs. With the advent of Web 2.0 more and more internet start-ups from South Africa has seen global success. This is the Intellectual Property Show and Mike Stopforth is at the Summit TV studio talking about the way entrepreneurs are creating fortunes and failures on the internet. Mike, is the internet still going strong?

Mike Stopforth: I guess you could say so. It doesn’t seem to be slowing down at all - in terms of the numbers using it seems to be clocking around one billion worldwide in terms of active internet users. In South Africa with the advent of more affordable broadband connectivity I think more and more people are accessing the internet via their cellphones - so it’s certainly becoming more and more of a business reality over and above just a great technological novelty for ordinary human beings.

Stephan Lamprecht: So it’s moving beyond the hype phase and becoming a practical reality…

Mike Stopforth: I hope so. I think business has recognised that for a long time - they’ve seen the opportunities on the internet, not necessarily being sure of which way to drive those opportunities - but they’ve certainly been cognisant of it. Now it’s a case of saying: “We realise there’s an element of maturity to the web - how do we now leverage that for profitability?”

Stephan Lamprecht: When we talk about Web 2.0 what is Web 2.0?

Stephan Lamprecht: It’s a helpful and an unhelpful term Web 2.0. I think from a helpful perspective it’s necessary to understand that the web has changed - it’s not the same platform that it was at the beginning. It’s evolved from a very static collection of advertising-like brochure pages to a far more dialogue and interaction-oriented interface where people experience software within their browsers. So you have a full experience within your browser - it’s not so much just drawing information or interacting with information, but having a full dialogue with the web. The unhelpful part is that there’s a lot of buzz around it - so many people call it a bit of Bubble 2.0 or Boom 2.0 expecting another dot com crash that we had at the turn of the millennium.

Mike Stopforth: What does your business Cerebro do? How do you fit into the Web 2.0 scenario?

Stephan Lamprecht: Cerebro has seen an opportunity to help businesses understand exactly the trends and technologies that make up Web 2.0, and what that means for ordinary human beings - so how it’s affecting employees and customers - and how that changes business. At the end of the day we really believe that the hype can do no good - hype is only going to confuse people more, and possibly get a lot of money spent in the wrong way - so what we want to do is get past the hype to the real value of Web 2.0. Clearly this is having an impact on the way people interact - if 750,000 people use Facebook something is going on. What is it? What does it really mean, or is it just fun and games?

Mike Stopforth: Do we have real internet start-up successes in South Africa?

Stephan Lamprecht: Once again I think that depends on the definition of start-up success. If you mean sites that get a lot of traffic worldwide then yes I guess we’ve got some start-up successes. We’ve seen a few - but not an overwhelming number of enormous financial successes. I think it pretty much speaks to the trend for most Web 2.0 sites - so we see sites like Facebook or dig.com or youtube.com that are purchased by big media companies for enormous amounts of money. Youtube was bought for $1.65billion by Google, and there’s a valuation of $15billion on Facebook. Nobody really knows what that’s for. In South Africa we have seen money invested in sites like Vinny Lingham’s www.synthasite.com and we’ve seen Naspers Media Group invest in sites like blueworld.co.za that’s almost a local Facebook if you like, and there’s also Mixit the very popular social internet messaging application for cellphones.

Stephan Lamprecht: So do you recognise a maturity coming in this whole approach to developing intellectual property in the internet domain - in terms of in the beginning the focus was on hype, everything was going to be a free for all - now realising but we need to create those valuations, we need to create a tangible asset base. Is that taking place? Is it happening?

Mike Stopforth: There’s a critical mass debate I think here. Most of these internet start-ups - it’s very simple to start a business or start a site on the web today. You have a little bit of an idea - you collaborate with the developer, or you develop it yourself. You get it going, you scale it - and maybe you get a couple of services going - and then you start to get users because you offer some great free service. They can connect with their friends - they can publish or build a blog or publish their photos. That’s all fair and well - but then you get to a point where you’ve got masses of users and it’s very successful, but you can’t scale because you can’t afford to add any more services - and you don’t actually know how to charge people for the thing you’ve been giving them for free for so long. Facebook can’t very well now charge users $1 a month to use Facebook - although they probably could, and some people would still pay - but it’s very difficult to go from the free model to a premium model. So what we have seen in terms of Web 2.0 sites that have been successful is what they’ve called a premium model if you like - it’s a bit of a play on the word premiums - but it begins free with limited functionality and as you mature on the site and you use it more often you get to a place where you need more functionality, and then you pay a price for premium functionality.

Stephan Lamprecht: You talk about this business model for a Web 2.0 business - what I would recognise, and I’d like to get your take on this - is obviously if you think about Facebook and Mixit these are very strong brands that stand out. So there’s an internet business - but the thing that draws the customers is the awareness of that brand. So if you talk about where you create that value then obviously there’s a big spin on the brand - and secondly there needs to be a fundamental business, a revenue model underneath…

Mike Stopforth: I think this is the big problem and I think that’s what I’m speaking to. The brands in themselves are powerful only because of their word of mouth potency. I’ve often said Web 2.0 is a little bit like word of mouth on steroids - because it’s digital it’s so much easier to spread a message. It’s so much easier to connect with people and to make those connections powerful. That’s what makes something like Facebook so powerful - it’s not the software. The software isn’t important - it’s the network that uses the software, it’s the network of human beings that interact with it. The problem is you’ve got these millions and millions of users - in Mixit’s case millions of people. In many cases the business model typically will be advertising - so they will say “we’ve got a bunch of eyes and a bunch of hands now how do we interact with those people? We will sell space to advertisers.” But once again that’s not very scalable is it? So at the end of the day you have to find a way to provide a service that is unique and cutting edge - and reliable enough so that I guess users will decide to pay for premium functionality…

Stephan Lamprecht: That comes back to building the brand and driving the brand value…

Mike Stopforth: Absolutely, and making sure that whatever brand you are building remains cutting edge. It’s so easy to start a competitor on the web. We see classical example at the moment is a website called Twitter. It’s a very simple concept called micropublishing - people publish their life stream if you like…

Stephan Lamprecht: I send an SMS with what I’m busy doing…

Mike Stopforth: What I’m doing right now in 140 characters or less. Twitters starts up - massively popular, millions of users - can’t afford to scale and is now suffering major functionality problems. Every time I go onto Twitter there’s another feature that’s down and it’s very disappointing for me…

Mike Stopforth: As a final question from an open source software point of view - do you see new maturity in terms of open source as a way to develop that level of asset base within the organisation?

Stephan Lamprecht: I think that’s happened already. I think because of the obvious benefit of open source in terms of being software that people can use to build these applications - without having to pay open source, in terms of the ethos of open source - beyond the actual property the ethos and the practice of intellectual property sees collaborations and a swiftness of application build and start-up that we haven’t seen via proprietary means. That’s very exciting so I do see a maturity in that regard - and I do see margins being easier to make provided people can service those open source platforms that they do build from a corporate perspective. Obviously you have to buy the talent that will then service those open source platforms - and that’s where you spend money.

Stephan Lamprecht: There you have it - entrepreneurs and the knowledge economy driving big market successes in the global business of Web 2.0.