Offshoring goes both ways.

There has been a lot of debate in the U.S. about the advantages and disadvantages of offshoring. Proponents say that companies should be able to tap the global talent pool and take advantage of lower production costs in other countries. Opponents claim that offshoring takes jobs away from Americans and allows companies to take advantage or even abuse lower paid workers in other countries. Something that doesn’t get talked about as much here in the U.S. is reverse-offshorting (from a U.S. point of view): foreign companies hiring Americans to work for them remotely.

The NY Times published exceprts from an interview with Henning Kagermannm, CEO of SAP, arguably the largest enterprise software producer in the world. SAP is a German company. Kagermannm talks about how they do about a third of their engineering work offshore, i.e. outside Germany. One of the places where they offshore from is Palo Alto, CA (India, China, and Israel are the other three). The other interesting thing he talks about is how they specialize their offshoring activities depending on the talent pool and capabilities at each location:

Q. How does the global division of labor work? For example, what stays in Germany?

A. If it comes to deep application integration, we go to Germany. It’s where we have many people with deep knowledge of finance, manufacturing, human relations — those kinds of things, and knowledge of those functions in specific industries, the domain specific knowledge. That kind of deep knowledge is essential to platform work, designing the basic architecture of the core product.

Q. How about Silicon Valley?

A. In Palo Alto, we leverage the kind of innovation and creativity that is in Silicon Valley. It’s a place where a lot of new companies and technologies pop up and you can more easily integrate those new things into your thinking and your products. A lot of the Internet work has been done there, the technologies that open our products to others.

Q. And India?

A. India is mixed. But we do a lot of implementation of the design work in India. Our intent was to go there for the large talent pool. But we’ve been in Bangalore for seven years and we’ve grown somewhat gradually there. You cannot go in and hire 2,000 in a year and believe they are going to be ready to develop high-quality integrated software applications.

I think that offshoring can have its own problems but overall, it’s a practice that no company that dares call itself global can avoid. The fact that offshoring happens in and by many countries means that the U.S. shouldn’t be pursuing an isolationist policy of discouragin U.S. companies from offshoring. Instead, it should be competing by providing the best talent in the world, enticing foreign companies to offshore their operations here.

Which of course brings us to education and training which is another huge topic for another time.

On crowdsourcing and why people contribute content online.

Wetpaint is a website for user-created wikis. You can search the site on a certain subject and if you find an existing wiki on that subject you can join it. Otherwise you can create your own. The CEO of Wetpaint, Ben Elowitz, was interviewed at Assignment Zero where he talked about Wetpaint as well as crowdsourcing in general. One of the more interesting parts of the interview dealt with the concept of “the wisdom of crowds”:

Q: Do you really think there’s wisdom in crowds? If so, what’s the clearest example you know of? What projects in particular are you impressed by?

A: I’m a big fan of “The Wisdom of Crowds.” I think some of the best examples of the Wisdom of Crowds in action were provided by James Surowiecki in his book. Having been a city dweller for much of my life, I was particularly fascinated by his example of how walking down a busy sidewalk was a picture perfect example of how we navigate together to help each other get where we’re going as quickly as possible. Other examples I find fascinating – I think you need look only to the capital markets to find the best example of where collective knowledge quickly and constantly comes together to create markets for stocks and bonds. From a Wetpaint perspective, my favorite crowdsourcing project is the CSI wiki where fans of the show have built the definitive guide to the series. The amount of creativity and detail that has been quickly assembled could not have happened were it not for the collective efforts of the show’s fan base.

I haven’t read Surowiecki’s book yet but I would like to. At another point in the interview, Ben Elowitz talks about why people contribute for free:

Q: Is there money to be made with crowdsourcing? If so, why will some people work for free so that others can profit?

A:No question – there is money to be made with crowdsourcing. Crowdsourcing is a basic human attribute – by nature we like to work together to produce things of value. This type of behavior has happened offline for millenniums and now it’s taking shape online. The business opportunity comes when entrepreneurs make the human process of collaboration quicker, easier and more rewarding than before.

In terms of why people work for free so others can profit, we have to remember that the value equation on crowdsourcing is not only measured in dollars and cents. As long as the participant feels like they are getting compensation commensurate with their input, the incentive to continue participating is rather high.

I think he missed the chance to elaborate on this. I agree that the value equation isn’t only measured in money. The research project I am currently running with my colleagues at Baruch College looks at exactly that question. If there are no external motivating factors (such as money) then there must be internal or intrinsic motivating factors. These can be reputation, efficacy (the ability to make an impact), attachment to the online community, and so on.

We are in the process of analyzing data we collected from users of participatory websites that should give us an idea on exactly what those motivating factors are. Stay tuned.

Fighting a war with no guns.

A government makes an unpopular move inciting popular unrest and some rioting. The real damage happens when the rioting moves to the ubiquitous network that everyone in the country depends on for virtually all activities. Rogue botnets infiltrate computers around the world which in turn become “zombies,” attacking the websites of newspapers, banks, and even leaving the country’s Parliament without email communication for days. Other countries move in to help identify and stop the attackers and 19-year old man is arrested as the mastermind behing the entire operation.

A new sci fi novel? No. Real events that happened in Estonia the last few weeks after the government removed a statue of a WW II soviet soldier. The NY Times has a great article on the events that took place between April 26th and May 19th in the small Baltic state.

As networked technologies, especially Internet-based ones, become both ubiquitous and central to every day life, our vulnerabilities increase as well. The Internet, as a physical network, is built to withstand all kinds of attacks and survive. It’s redundant and resilient in its design. But the information and services that use the Internet are much more vulnerable. Disrupting key applications such as email, banking, and web access, can cripple an organization as small as a tiny start-up and as large as the U.S. At the country level it could mean disruption of food and water supplies, electricity, and medical services. That could be enough to start physical (not virtual) unrest and violence among the population. In the end, a country can be destroyed from the inside out, without a single bullet being shot.

This may sound extreme and speculative, but with talk of countries like the U.S., Russia, and China developing information warfare programs, the prospect of wars fought at the information level becomes more real everyday.

Finding your niche online.

In e-business, niches can be very profitable.

Let me explain. Walking around New York city you will often find stores that are very specialized. There are stores that sell only knitting supplies, only chess boards and pieces, or only Japanese antiques. The reason why they have stayed in business (even before they started selling online) is because they are in a huge city with millions of people (and more visitors), guarantying a steady number of people who are interested in buying their products. Also, their specializations in specific products provide them with loyal return customers (enthusiasts) who know they’ll find even the most obscure items they need there along with professional knowledge from the staff.

Finding a narrow niche and building a business around it is also a very successful model online. All the benefits provided by specializing in a specific type of product still apply (loyal return customers, expert knowledge, etc.) and you can now sell to virtually everyone in the world who can go online.

The NY Times today has an article about two such websites: NaturallyCurly.com, for everything that has to do with curly hair, and Needled.com, for tattoo enthusiasts. I also like to use two other examples in my class: Cufflinks.com, a site that sells cufflinks, and The Yo Store, a site that sells yo yos.

Such niche sites often take advantage of their core customer base of enthusiasts and provide lots of online community-building features. That way, they promote word-of-mouth advertising which costs them virtually nothing and brings many more enthusiasts to their stores who are willing to buy their products.

And it’s those enthusiasts who will buy the premium products too, like the $100 yoyos or the $3,800 cufflinks.

It’s a small world after all.

Today, I discovered Twittervision and Flickrvision. Neither is a technology that enhances my productivity (quite the opposite), or makes me more efficient, or gives me more flexibility at work. Both are simple but hypnotic mashups of Google maps with Twitter and Flickr respectively. Go to Twittervision and watch in almost-real-time on a map of the world as people send short text message (SMS) updates to Twitter on anything they are doing or thinking about at the time. Go to Flickrvision and watch in almost-real-time on a map of the world as people post their photographs.

They are fascinating sites that may not change the world in time-saving, efficiency-boosting, information-processing ways but they might change the world in a kinder we-are-all-the same-after-all kind of way.

Clothes outsell computers online.

The NY Times reports that for the first time, clothing has sold more online than computer hardware and software. Specifically, in 2006 apparel in general sold $18.3 billion vs. $17.2 billion of computers, peripherals, and software. Given that the online sales of clothing are only 8% of all clothing sales, there’s still a lot of room for growth.

Why do clothes sell well online? One would expect that without the ability to try clothes on and see them up close, people would be hesitant to buy. Here are a few reasons why:

1. Standardization: Companies like the Gap and Land’s End standardize their sizes, fabrics, and styles so that once a customer knows what they like and what fits, they can feel safe buying from a website.
2. Easy returns: Zappos.com is a great example. Shipping is free, both ways. I recently used them to buy a pair of sneakers. I ordered three pairs I like on the site. I got them shipped for free. I tried them on, kept the pair I wanted and shipped the other two back for free. No questions asked.
3. Customization: Online it’s possible to allow customers to customize their products. I’ve talked about NikeID before and to me they are one of the best examples of mass customization. A customer can customize shoes or other products and have them delivered to their door, all for roughly the same cost of buying Nike’s mass produced shoes. Land’s End has been doing the same with custom clothing for years to great success. Another company called Threadless allows users to design t-shirts and submit their designs on the site. Then, the entire Threadless user base can vote on the best design and the company prints and sells the winning designs. They have been incredibly successful by combining apparel retailing with online communities, an unlikely combination.
4. Better interface: Websites have dramatically imrpoved their interface, allowing customers more flexibility in their browsing activities and providing better tools for viewing the products. Gap.com famously shut down its website for a few weeks last year to redesign it using Ajax technologies. The result is a fluid, seamless shopping experience that is more like the one customers have offline. Land’s End uses a technology called My Virtual Model that allows users to design a virtual doll that looks a lot like them and then dress it up with clothes to see how they look before they buy them.
5. Prior experience: Customers have been buying clothes from catalogs for decades. Publishing the catalogs online instead of on paper is pretty much the same. Reasons #1-#4 above are what have attracted even people who have never bought from catalogs to buy clothing online.

Web 2.0 startups in Europe.

StartUp2.0 is a competition of European web 2.0 startups. Tomorrow, May 10th, they will be voting on a list of the top 15 web 2.0 startups. You can see the list at Read/WriteWeb (which is in itself a very interesting blog).

The list of startups is not much different than those here in the U.S. (there’s lots of social networking and video in what they do) except for one difference. There seems to be more focus on geolocated services. This is partly because mobile providers in Europe have been providing excellent location-based services for a while whereas here in the US it’s still trying to get off the ground. And that’s despite the fact that GPS is a system created and owned by the US Department of Defense.

Not quite a replicator yet. And the dangers of predicting the future.

I just read an article in the NY Times about 3-D printers. They are basically machines that take digital three-dimensional plans for anything and then create a physical, solid object out of them. I didn’t know these things actually existed, but apparently they have been used in the industry for years, though they are very expensive. The article talks about efforts by one company, Desktop Factory, to bring the cost of a 3-D printer low enough that it can be bought for the home.

Granted, the solid objects created are made of a single material, nylon powder, and look like dull, grey toy parts. But let me project a little into the future. As these printers get better and better, and why shouldn’t they, the could end up solving one of the major hangups of online retailing: the lack of instant gratification. Unlike digital products, which can be acquired immediately online, physical products have to by shipped, which takes time. Sometimes, a customer wants that new basket ball right away and will choose to go to a physical store to get it, instead of ordering it online. But what if the customer could simply “print” the basket ball at home? Maybe something like this (from Wired, Issue 14:12, December 2006):

I also know the danger of making future predictions, like this one from the NY Times article:

“In the future, everyone will have a printer like this at home,” said Hod Lipson, a professor at Cornell University, who has led a project that published a design for a 3-D printer that can be made with about $2,000 in parts.

Sentences that start with “In the future, everyone will…” are dangerous. Between 1966-1967 the following predictions were supposedly made in The Wall Street Journal:

By the year 2000:

• Man will land on Mars
• Cities will thrive under huge climate controlled domes
• Travelers will fly from New York to Tokyo in under 2 hours
• Commuters will strap rockets on their backs and jet to work, or at least commute in small two-seater flying automobiles
• There will be 200,000 computers in the United States

Need I say more?

The power of the online mob wins at Digg.

A user revolt has just happened at Digg (you can read about it at Techcrunch, BoingBoing, the NY Times, and TextYT). Digg, for those who don’t know, is a social content site where users can post links to articles and websites and other users can comment on them and vote them up (digg them) or down (bury them). Stories with most diggs float up to the top of the list and the front page of Digg.

After someone posted the decryption key for HD DVDs, Digg got a request threat from the company that owns the rights to HD DVD to take the article down. Digg caved in and did that.

Well, the Digg community was furious. Soon, the entire front page of Digg was full of stories and article posted by users with the same decryption key. Digg kept taking them down and suspending users. But eventually, the mob won. Digg co-founder Kevin Rose posted the following:

Today was an insane day. And as the founder of Digg, I just wanted to post my thoughts…

In building and shaping the site I’ve always tried to stay as hands on as possible. We’ve always given site moderation (digging/burying) power to the community. Occasionally we step in to remove stories that violate our terms of use (eg. linking to pornography, illegal downloads, racial hate sites, etc.). So today was a difficult day for us. We had to decide whether to remove stories containing a single code based on a cease and desist declaration. We had to make a call, and in our desire to avoid a scenario where Digg would be interrupted or shut down, we decided to comply and remove the stories with the code.

But now, after seeing hundreds of stories and reading thousands of comments, you’ve made it clear. You’d rather see Digg go down fighting than bow down to a bigger company. We hear you, and effective immediately we won’t delete stories or comments containing the code and will deal with whatever the consequences might be.

If we lose, then what the hell, at least we died trying.

This is fascinating stuff. This isn’t just collective intelligence at work. This is collective activism at work and it seems to have worked. Of course, some might wonder what would happen when the mob is wrong or has the wrong intentions. Some might say that this was the case here, where intellectual property rights were being challenged.

I’m not going to try to judge this is good or bad. I am just going to point out how powerful this can be.

In a lot of science fiction writing, a classic nightmare scenario is that where networked artificial intelligence built by humans becomes so powerful that it takes over the world. Maybe the scifi writers got it wrong. Maybe what we should really be worried about is networked human intelligence (or lack thereof), or the power of the online mob. Unless of course, you are like me, and you believe that humanity as a whole can be good and smart and can have the right intentions, and that it’s only a minority of people who are evil and it’s when they get a lot of power that all hell breaks loose.

Go2Web2.0: The Complete Web 2.0 Directory.

If you feel as lost as I sometimes do in the sea of tiny Web 2.0 companies that seem to provide more and more specialized services, this is the site for you. Go2Web2.0 is a fantastic directory of Web 2.0 companies with a cool interface that allows you to visually scan dozens of companies and search them by tags. It is in itself an example of Web 2.0 technology, using Ajax and tagging very effectively.

Check it out. There are some great examples of innovation and ingenuity in there. Plus a lot of sites that are truly useful.