Saturday, July 09, 2005

Crush My Head Like an Acorn

Sean McGrath has suggested that the Reed's Proposition may be closer than Metcalfe's Law in describing a theoretical upper limit value function on a Servcie Network.

For those of you who haven't had the pleasure of meeting Sean, his physical presence reminds me of the "boulder thrower" on Braveheart:

I firmly believe that Sean could crush my head like an acorn with his bare hands. Hence, I'll be careful to disagree with him.

Acorns and noggins aside, as usual Sean makes a great point. Metcalfe's law is an over-simplification of a complex formula. In my humble opinion, so is Reed's.

My goal is simple - I want the enterprise to begin looking at their services as a network and determining the value function that works for them. Today, virtually no formulas are applied.

It is true that some services will provide more value than others. And some business processes are fundamentally more important to competitive advantage than others. Services that support key processes will provide greater value. We will also see that 'service gaps' will destroy the value of 'process networks', suggesting that some services only have value when bundled with other complementary services in the same value chain.

Value chains are created around: customers, suppliers, products, employees, etc. We create networks that link these entities using various levels of constraints. Those links which require minimal constraints are usually deployed first and are the most free-flowing and collaborative in nature. From a computing perspective these entities will be joined via well known networks including WWW and RSS. The value of low-constraint, high collaboration networks is well known.

As we increase the level of constraints and diminish the ease of creating self-forming networks due to semantic mismatches, protocol impedance or the mandate to fulfill non-functional requirements, we find ourselves creating services with a lower ROI. This isn't because the "R" (return) has changed; it is because the "I" (investment) has changed.

Enterprise Service Networks will not produce an adequate ROI if they are not able to reduce the 'service drag', lowering the investment. That is, it is the burden of the enterprise to employ 'service oriented infrastructure' that facilitates rapid service creation and composition by removing the aforementioned obstacles. In essence, the value function must look forward in time, forecasting a future value of the network, less the 'drag' related to adding clients and services. This is what I call the AOL Argument; fundamentally the Web created a more fertile environment for adding content to a network than did AOL.

Corporations use valuations that are forward looking vehicles (DCF, EVA, etc.) I would argue that the value of the network is less of a snapshot in time but rather a forward looking forecast based on the potential growth of the network as it directly relates to the value chain of an organization. I view the Metcalfe/Reed concepts as an easy way to introduce I.T. personnel to network valuations. However, due to their inability to capture forward looking results and correlate node-to-value concepts, they both remain inadequate at best.

Please don't crush my head like an acorn ;-)

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