Whatever happened to virtual companies?

This article was heard on the radio program "The Computer Report," which is broadcast live on WCAP in Lowell, Mass., and is syndicated on WBNW in Boston and WPLM in Plymouth, Mass, and is also available as RealAudio at www.thereport.com

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Back in September 1996, I held a series of chat sessions about virtual work and virtual companies. At that point, some companies were already letting regular employees work from home for lower overhead costs, greater flexibility and the ability to draw on a broader skill base. The Internet was just speeding up that process, making it easier for people to work together at a distance.

The next logical step was contract workers and virtual teams. In this case, workers often provide their own equipment and work at home. They work for one employer at a time, but do not receive benefits from that employer. Sometimes they work through an intermediary company that finds them jobs with one company after another, provides them with benefits, and takes care of tax collection and governmental paperwork.

At that time, virtual work service companies were just starting to appear -- companies devoted to making it easier for other companies to work in virtual mode. This includes companies like Kinkos that provide office equipment at their sites for use by customers who are on the road or don't yet need such facilities all the time.

Back then, we expected to see the rise of Internet-based tempo agencies. And in fact, those have appeared in the form of numerous Web sites devoted to all kinds of job-matching, including short-term assignments. Some provide a modicum of support for the people they find work for, such as enabling them to purchase group insurance.

We also expected the rise of Internet-based consultants. In this model, the individual worker is his/her own employer and contracts his/her services to various clients. While the contract worker has one employer at a time and works through an intermediary company, the consultant typically has more than one client at a time and operates as a "company" (as far as governments are concerned) and has to continually market/sell to get new assignments.

Consultants tend to have special knowledge/skills/experience that make them unique in some way. It would be hard to plug someone else in to finish the job. That uniqueness is the value-added which enables them to charge far more for their services than a contract worker. And that additional revenue is needed to cover the extra burden of taxes and paperwork, and to fund marketing/sales efforts, including generating proposals for jobs that don't materialize, and to bridge slow periods, when little work is available. Internet capabilities make it easier for consultants to handle more clients more quickly and effectively, while reducing the need for travel and making it easier to market to and serve remote clients.

Given that approach, it seemed that the old formula of linking one worker to one employer at a time need not continue to apply. Different classes of workers (not just top-notch professionals) might find it desirable and profitable to work for more than one employer at a time, in a mode similar to consultants. New kinds of agencies might be able to offer the services of such individuals on a time-shared or project-goal defined basis, rather than exclusively. Companies that employed workers in that mode would truly be virtual companies.

While logical, this model raises a number of issues. How do you manage employees in this environment? What constitutes conflict of interest when one worker serves several companies simultaneously? What's the applicability of laws designed to protect the rights of workers? If one country protects such people and another does not, issues of cross-border competition come into play. While virtual companies of that kind seem to promise the ultimate in flexibility for both employer and employee, they also entail considerable complexity; and perhaps the unpredictability and the management cost outweighs the benefit. Today, that model seems to be a deadend.

Meanwhile, in the summer of 1997, we held some chats about value-added services from ISPs and others: an alternative business model for commercial Web sites. As Internet-related technology and business practices matured, it seemed natural that some companies would specialize in providing services such as Web hosting, and pre-packaged online stores and online community applications. Then companies wanting to do business on the Internet wouldn't have to build it all from scratch or run it all on their own systems, but rather would choose the building block services they needed.

That trend has grown rapidly. Today there are service companies for half a dozen different specialties of Internet marketing, and branded auction services, as well as numerous specialties that relate to the infrastructure of the Internet, and that are largely invisible to the end user.

This development can be seen as a natural extension of the out-sourcing movement. Companies seek to identify their core strengths and focus on those, while turning to service companies to take care of their other needs. The more such services are available, the smaller the core team and the smaller the capital outlay needed to run an Internet business.

So what we see today is more like virtual rope than virtual companies. The businesses of separate companies are interwoven in complex ways. Each operates independently, but they stick together for the long haul, each taking care of one narrow area of expertise. In some cases, that expertise might resemble what was handled by a department in a traditional company, only now the same group provides that service to more than one company at the same time. As the common needs of Internet companies have matured and the solutions have been systematized more such services have appeared.

Creating a new company today means hiring a small team and partnering for everything else. There's enormous flexibility at the beginning, but the interwoven elements are likely to remain stable for a long time -- so long as the individual companies perform as expected and stay in business. The stability increases predictability and reduces management cost and risk. Over time, as Internet business and technology evolves still further, various partners may outsource to other service companies work that they used to do directly, but the customer only sees and cares about the results. So the threads become thinner and more numerous and more complexly interwoven, and yet the rope becomes ever more stable and strong.

This is a very different kind of outcome than we imagined four years ago, one that focuses on long-term relationships among companies, rather than fluctuating and flexible relationships between virtual employees and virtual companies.

At the same time, all these companies periodically need the services of consultants, even for basic business brainstorming, because their narrow focus and small staff size might otherwise leave them vulnerable to tunnel vision -- failing to see opportunities and risks that are very real, but just out of sight. It's an interesting new world of business, and a great world in which to be an Internet business consultant.

The transcripts of the old chat sessions about virtual work and virtual companies are at www.samizdat.com/chat9.html and /chat10.html. Those about value-added services are at /chat50.html, /chat51.html, and /chat52.html
For information about current chat sessions and other transcripts, see www.samizdat.com/chat.html

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