Deepak’s post on Information as a Service got me thinking. The discussion about Twitter’s business model (or lack of it) and the standoff between facebook and Robert Scoble made me dig deeper. These events and the nature of business in the Web 2.0 era raises a very important question, which I would like to call as the great Web 2.0 dilemma. I just want to raise the question here and get the thought process going. This is going to be very important for startups because they are going to be deeply affected by this dilemma than the big companies.

Deepak’s post, and many other posts in the tech blogosphere, called upon the big companies like Google and Microsoft to open up the data they mine from their online services so that third parties can build a business out of them. The proposal is similar to what Amazon has done for its computing resources. It is an excellent idea but it raises two very important issues. One is about the privacy aspects of the data and the other is about the computing resource usage. I am not going to write about the privacy aspect in this post and my discussion here is going to center around the resource usage.

Before I touch the main premise of Deepak’s post, I want to pose my questions within the domain of Web 2.0 startups. Sharing of data using API is considered as a common sense approach in the Web 2.0 era. In fact, people frown upon those Web 2.0 companies that doesn’t offer an API for their service. Companies like Twitter are very liberal in opening up their APIs. Twitter is yet to figure out a business model. It is one of the very few companies with very open APIs. There is a huge ecosystem around the twitter platform in the form of third party services. The depth and breadth of these services are simply amazing and it has extended the functionality of twitter beyond what the Twitter team would have imagined. Some of the products /web services built around twitter platform are already making a lot of money whereas twitter is yet to make anything. Most of these services use the computing resources of twitter to make their money. It is like someone using electricity from your house to set up a shop just outside your house. Twitter will not mind this till they achieve the necessary threshold of scale. There will come a time, in the lifecycle of every startup, when such an use of resources by third parties, will begin to have a toll on the startup’s financial health. At the same time, they have to allow third party access to the APIs, to leverage value to their business and also to stay competitive. How can a startup, like Twitter, manage such a situation? What is the ideal environment to have a symbiotic relationship like this? A company like Twitter cannot offer its resources for free to third parties, if the intention of third parties is to make money out of it. Then it is not business, it is plain altruism. At the same time, any attempts to make money exclusively out of this relationship will mess up the equilibrium in the ecosystem. It is very important to achieve a fine balance in this delicate ecosystem. This is the biggest dilemma facing the Web 2.0 companies and Twitter is a very good example for this dilemma. People do argue that they can figure out a business model once they manage to scale. They may be able to do it. But, the nuances in the process of figuring out a business model is going to pose a big dilemma to the startups. All the startups that open up their service through open APIs will face this dilemma sooner than later in their startup life. Please note that I am not considering companies with closed data systems here. I am only discussing about the dilemma of those Web 2.0 companies that believe in opening up their data to outside world without any unnecessary restrictions. I would like to know your opinion on this dilemma and how you would solve the problem, if you are a founder of such a startup.

Let us now consider the case of big companies offering information as a service. This dilemma extends further in the case of big companies, if they try to monetize information as a service. The big companies are not dependent on the third party services to get value to their business. They have the information data and building any service, like those offered by small players in a Twitter-like ecosystem, is just a cakewalk for big companies. But, there is still enormous potential for monetization when the information is offered as a service. Such efforts to monetize user’s data will also rub off user’s in a wrong way. This also adds to the Web 2.0 dilemma described in the previous paragraph.

As we move from the desktop world to a world of web services, we are faced with tactical and ethical issues. On one hand, the data should be shared among the networks but, on the other hand, no company can remain altruistic and offer the use of their computing resources for free. How do we manage these two extreme necessities of a business and come up with an ethical solution? I don’t have a clear answer for this at this point of time. I would like to hear from anyone who has a solution.

In the Facebook-Scoble fiasco, I am entirely against Facebook for locking up user’s data and not allowing the users to take it out in any form. However, if facebook is worried about Plaxo using its computing resources for doing what I consider as the right thing (data portability), we have to understand their worry too. The dilemma I raised above shows up in the Facebook’s fiasco with Scoble. On one hand, facebook is losing out because some third party is using its computing resources for free. On the other hand, Scoble’s data is being held to ransom by Facebook and he has no way to take it out. I know the answer for the second part and I believe that Facebook should allow user’s to take their data with them. But, I don’t know the answer to the first part where a third party service is using Facebook’s resources without compensating them. In the case of facebook, one can always say that facebook didn’t allow the usage of computing resources and it is illegal. However, in the case of companies like Twitter, users are allowed to use the Open APIs to take out their data. How can a company be compensated for the usage of their computing resources by other businesses? If we can sort out this dilemma in an ethical manner, we can solve a big chunk of problems facing the Web 2.0 businesses today.