The medium is the business

With new startups delivering distributed infrastructure, and old models failing, dot-com promises are finally coming true

Sitting at Demo08 in Palm Desert, Calif., was quite a change from my normal northern New England digs where the meteorologist calls 20 degrees Fahrenheit a warming trend. In contrast, Palm Desert’s temperature is usually in the mid 60s to mid 70s during the winter months.

The contrast in weather made it crystal clear to me that there’s a change in the air as well when it comes to technology direction. You would have to have been sleepwalking throughout the entire two days at Demo08 to have missed it as startups demoed their new ideas and services hoping to attract VC money.

It’s apparent that a major shift in business models is taking place due to the Internet and Web 2.0 applications and services.

Demo08 gives an inkling of the future: distributed infrastructure

Two companies at the conference exemplified this shift more than any others: Toktumi and Ribbit. (See the slideshow to learn more.) Both companies are offering small to medium-size businesses a complete package of telecommunications services without partnering in any way with the traditional giant carriers.

I spoke with an old friend I always meet at Demo, John Jordan, executive director at Penn State’s Center for Digital Transformation, about this. Jordan describes the change as the move to a “distributed infrastructure.”

“Everything will be on the desktop, not in a centralized location,” says Jordan. In other words, Toktumi and Ribbit have no need to own and manage a 10-story building that houses a 10-story telecom switch or a vast support system of technicians, linemen, operators, and other customer service workers.

Thanks to the distributed nature of IP networks and the Internet, the need for a new business to run such a massive, expensive telecommunications infrastructure is fast disappearing.

Lest you think I am a bit naive, I understand that somehow companies will have to tithe to the giant network providers who help make this happen or else their backbone or the Internet wouldn’t exist.

But it won’t exist the same way as in the past, even if the new way is still sorting itself out.

Not only that, but Toktumi and Ribbit can actually assign you a telephone number and offer your company the same features, and more, than what most of the traditional telecoms provide. (And for less money: At the moment, Toktumi can charge something like $12.95 per month and 2 cents per minute for calls.)

For example, by using VoIP technology, Ribbit and Tokumi offer everything from instant-on telephone conferences to a Web 2.0 version of caller ID where the caller ID service streams down far more than the name of the caller. It also provides information both from behind the firewall or gathered from databases across the Web all kinds of information about the person you are talking to as you talk to them.

But if this new way of doing business was just about VoIP, the story wouldn’t be complete. VoIP is only the beginning.

Business models are being turned on their heads

The deeper story is that online is changing from a medium that you adapt existing offerings to into a medium in its own right.

For example, in a conversation with Pat McGovern, the founder and chairman of InfoWorld’s parent company IDG, he told me that the likelihood that he would ever start a print publication before first testing the waters with an online pub is slim to none.

Obviously, the Internet has already set traditional publishing on its ear, so let’s look at why McGovern might have said that.

For a print publication to exist requires nothing short of the infrastructure of the U.S. Postal Service. The USPS charges a publisher about $1 per issue to mail. So if your magazine has a weekly circulation of 250,000 readers, which is not considered huge by any stretch, we are talking about an investment of more than $1 million a month just to distribute the publication to readers.

Printing costs — requiring another huge infrastructure from timber cutting to pulp mills to printing plants to distribution systems — adds another $1 or so per copy.

Let’s look at InfoWorld again, which discontinued its print edition 10 months ago. Now that InfoWorld is online and no longer a print publication, not only does it deliver more information (more pages) to the desktop than it ever did to the physical mailbox, it does so to more readers than it ever did as a print pub.

In the old world, the additional cost of paper and postage makes an increase in magazine pages or size of circulation a major cost consideration. Not online.

Two shifts are occurring: one old, one new

I understand that what I am saying is not something that hasn’t been talked about before. But the Internet bubble burst changed the discussion around this topic.

First, the old disintermediation model was discredited and tossed out, after a flurry of startups that failed. I believe disintermediation is back, as Ribbit and Toktumi demonstrate. In its second coming, the Internet will in fact disintermediate many traditional businesses.

Second, we’re seeing a wave of businesses that are purely about what the online medium can do, not ports of existing businesses. IDG’s new Industry Standard is such an example, despite its use of an old print vehicle’s name, it’s a new business.

Telecommunications and publishing are probably at the bleeding edge of this change. But all you need do is think about other businesses that require huge infrastructures and support systems, whose centralized physical entities can be replaced by bits over the air.

To paraphrase Bob Dylan, in high tech you don’t need a high-priced consultant to tell you which way the wind blows.