Picks and shovels
It’s often said that the real money in a gold rush is made by those who sell picks and shovels, with a great example yesterday’s announcement that Dealised, which provides software for group-buying services, has raised $5 million in investor funding.
We’re in a gold rush for group-buying sites, with new services being launched weekly, but many observers don’t understand that group buying sites aren’t really technology businesses.
They are sales-driven directory services that have more in common with the Yellow Pages or a giveaway local newspaper than Google, Facebook or Microsoft.
But technology is important to those businesses because they need to track and publicise their deals, which is what Dealised does.
Offering that functionality as an off-the-shelf service frees up capital and makes life easier for the dozens, if not hundreds, of group-buying services being launched around the world each week.
Reducing barriers to entry is one of the things tech industries are very good at ¬– as the early group buying sites like Groupon and their local counterparts have found – and it’s something all businesses need to keep in mind.
The wave of group-buying start-ups is part of a broader wave of disruptive businesses that are entering all parts of our economy and as we see cloud services remove the cost of buying equipment/software it becomes easier for hungry new entrepreneurs to find opportunities.
An interesting aspect of Dealised’s business model is that it is a spin-off from the Spreets group-buying service, which was sold to Yahoo!7 at the beginning of the year.
Overlooked in most coverage at the time was that the sale only covered the group-buying operations and not the Dealised technology.
That freed up the founders and their investors to focus on developing the Dealised software without the distractions of running a daily deals site with troublesome sales staff and pesky customers.
Most importantly it kept the software platform which is the most scalable part of the business in the hands of the founders, which gave them the opportunity to build something that can be resold to thousands of other businesses.
In the tech industry we’ve seen examples of that in the past, with the best example when Bill Gates and Paul Allen licensed their MS-DOS software to IBM rather than selling it outright, which allowed a massive new industry to develop around IBM compatible computers with Microsoft getting a payment for every computer sold.
We may not see Dealised become the next Microsoft but it’s worth considering some of the lessons because the gold rush and licensing aspects show that we shouldn’t jump for what appears to be the easiest money.
Our industries may not appear to be in a gold rush but reduced barriers to entry are affecting everyone from booksellers to manufacturers and café owners.
Take a look at some of the software your competitors are using, it’s no longer business as usual.
One of Australia’s leading experts on technology and change, Paul Wallbank has written seven books on computers and the Internet, is a regular broadcaster on ABC Radio and built an IT support company from a start up into a national organisation.Paul’s business, Netsmarts, helps businesses understand and find opportunities in technologies like cloud computing, social media and the online tools that are changing our business world. Netsmarts provides consulting services, workshops and training for business and public sector organizations. eBusiness, Seven Steps to Online Success is Paul’s latest book which looks at how you can get your ideas online and making money quickly and effectively using web services like social media and cloud computing. eBusiness is available at all good bookshops or through the publisher.