The distributed web offers advantages

Most people see the distributed web as a chaotic and uncontrollable space. We see it as a big opportunity. And it is not just us. Bellow is an article by Daniel Waterhouse (sector partner at 3i Venture Capital).

One of the enduring and real elements of the web 2.0 discussion is the new way in which online businesses are reaching their audiences. This has spawned some buzzwords, such as ‘open APIs’ and ‘widgets’, and has added a layer of complexity into building an online business. Those who succeed in harnessing these techniques command a competitive advantage. As an investor I am always looking for teams which react fast to changing market dynamics - effectively utilising the distributed web is one such test of reaction speeds. But what does this all mean?

In the first iteration of the web, it was enough to publish your web site and try to drive people to it, to use your service and buy your goods. Perhaps you closed a few deals to get other sites to carry a version of your service and you certainly spent some money on advertising. All of these channels to get people to your site cost money - unless you stumbled upon the ingredients of word-of-mouth marketing which a few notable sites (e.g. Google) did.

In the past few years, however, several high-profile examples of new ways to get your user in front of your product have emerged, including open APIs and widgets. APIs are application programming interfaces that allow people to interact with your product/service/data/technology.

Opening up part of it to people outside of your organisation may sound like a recipe for losing control. However, when done successfully it can be very powerful. The best example of where this works well is Google Maps. Littered across the web now are Google Maps embedded in other web sites. The site owner has not made a deal with Google but has just utilised the open API it provides. In return, Google receives free marketing for its product on thousands of web sites (and will most likely start embedding adverts into the maps at some point and make money from this free distribution).

Widgetising your product involves allowing the mainstream internet user to embed your product into their personal page (blog, MySpace page, etc). YouTube is a great example - on every page is an ‘embed’ code which users can insert into their pages. YouTube gained huge traction early on via users viewing videos on MySpace pages which contained YouTube embeds. Several other large businesses have been built in this way, where the user interacts with their product on a blog or MySpace page.

This new form of distribution is very cheap and can be incredibly powerful. The downside is the inevitable loss of control and also dependence on the policies of the likes of MySpace which have been known to ban certain embeds. Using these channels effectively will become a core competence of many online businesses, especially as audiences fragment to more niche locations in the ever expanding world wide web. The companies that exploit this most effectively will be successful and we at 3i look forward to talking with them in the future.

The article was published in MicroScope magazine.