Business 2.0 has a good review of what differentiated online exchanges:

There's one thing the Internet does very, very well: It can bring together widely dispersed buyers and sellers to create active, efficient markets where none existed before. Think of eBay, FreeMarkets, LendingTree, and Match.com. They're trading businesses with none of the usual trader's risks -- no merchandise, no storefront, minimal sales force, and nothing to do but take a cut of each transaction that occurs on their sites. No wonder many B2B believers proclaimed online exchanges the Internet's long-awaited killer app.

They were wrong. Many online exchanges have turned out to be major embarrassments. Covisint, created by the Big Three automakers to establish a central marketplace for auto parts, has churned through $250 million in capital, but it's still struggling. Verticalnet, which facilitated online trading in business equipment and supplies, lost $280 million before it sold off its marketplaces earlier this year. Chemdex, Fleetscape.com, Industrialvortex.com, and

What does eBay have that Chemdex didn't? Call it good marketecture -- a structure that combines the right business plan, good timing, top technology, and the trust of both buyers and sellers.

Have been travelling this week, hence updates may be a little less. But one of the side benefits of travelling is that it gives me time to think and reflect more deeply on what we are doing.

I think there is a definite opportunity to build a "software factory" which leverages the used PC base. Just as Microsoft focuses the latest hardware for its software, we can think of creating software for hardware which is 1-2 generations (3-7 years) old. The benefit of this is that the hardware costs almost go down to zero, making their use possible in areas which were previously out of reach because of the cost -- emerging markets, for example.

The world is going to see a huge supply of old PCs which is going to be available. What will be required is to streamline this into a "market" so it becomes possible to buy one easily. Also, one needs to standardise performance into layers so that they fall into 2-3 segments and can be used for different purposes (one as a Thin Client, one as a Firewall, one as a Home Router).

The Software Factory thus is built on the following ideas:
- software should work great on old hardware (PCs and other hardware)
- it is built usin Linux and open source
- the software components are modular and integratable (like Lego)
- it is "emergent": the whole is greater than the sum of the parts
- it leverages the latest standards (web services, RosettaNet, RSS, J2EE...)
- others (independent software vendors) can build on it

The Software Factory will sell to the "bottom of the pyramid" -- emerging everything (markets, enterprises, consumers...). These are the untapped markets.

Dragon Multinationals

In his book "Dragon Multinational: A New Model for Growth", John Mathews describes “dragon multinationals” as companies that start with disadvantages as latecomers, but devise clever strategies of linkage and leverage to take advantage of the worldwide web of interfirm connections that characterize the global economy. They thereby accelerate their global coverage to become formidable competitors. Mathews, in his book, describes the success of companies like Acer, Ispat, Hong Leong and Li Fung. These dragon multinationals are from the “Periphery”, as opposed to the “Triad” of North America, Europe and Japan.

Companies like India’s Infosys, Satyam, TCS and Wipro are already at the heart of the world’s IT value chains. They are, in a sense, dragon multinationals. They’ve achieved great international success inspite of an almost non-existent domestic market. India today has crossed USD 10 billion in software exports, and expects to maintain a 20% growth in the near-term. Today, India’s software services companies are up there with the best in the world.

On the other scale, a company that has matched the best in the world and won is China’s Legend. It is not really a dragon multinational in the sense that it is still focused on the Chinese market, but expect Legend to go international in the years to come. Writes David Sheff in Wired (August 2002) on how Legend lived up to its name:

By 1993, AST, Compaq, IBM, and HP had nearly two-thirds of what was becoming a fast-growing PC market in China. Early adopters were impressed by international brands and assumed (correctly) that Chinese technology was inferior. Foreign manufacturers were happy to have the business but paid much more attention to the booming US and European sectors. That gave Legend an opening. As the quality of its technology improved, Legend undercut the competition with low prices and better service. At the same time, Liu exploited the guanxi system to win government contracts, which at one point made up 50 percent of Legend's business (and now constitute 20 percent).

Legend turned its first profit in 1993, went public in Hong Kong in 1994, and pushed ahead of Compaq to become the number-one PC seller in China in 1997. "It was astonishing, since no one - Chinese or foreign - thought a Chinese company could beat the respected international brands," says Edward Tian, CEO of China Netcom, a Legend customer. "Legend is heroic because it gave confidence to Chinese people that our technology could be as good as any in the world."

Each nation has its success stories. They are the inspirations for the next generation. They have sown the seeds of entrepreneurship in many. Armed with their masses of people creating the domestic markets and the workforce, its low-cost infrastructure, a capitalist fervour for wealth creation, along with technological innovations, the Eastern dragons and tigers are not just catching up, but have an amazing opportunity to leapfrog. If they succeed in doing so, they will be able to set the standards for the next generation of technology. The game is well set. Different Eastern nations and enterprises have differing strengths. If they are able to combine their strengths and their markets, the East could, for the first time in many centuries, pose a strong threat to the economic and technological dominance of the West.

Additional Reading: