I’ve noticed two innovations in retail since I left New Zealand a year and a half ago. First is bank branches in shopping malls that are open 7 days a week. These are full-service branches, where you can get a mortgage or investments even on a Sunday.

Second is self-service checkouts in supermarkets. They are not using fancy RFID technology, just regular barcode scanners. Scan yourself, and pay by cash or card at a machine. An attendant hangs around to try to discourage cheating. It seems pretty convenient if you only want to buy a few items and the queues are long. My wife commented that this would never work in Japan — customers would be offended at the idea of scanning their own goods.

Recent Twitter outages have caused much consternation. These seem to be symptoms of recent rapid growth. With a platform business like Twitter that does not charge its users, it gets no marginal revenue but incurs marginal costs as its user base grows, which leads to cashflow problems.

Obviously the strategy is to raise revenue from other sources such as advertising or making some other use of Twitter data. The problem is that it’s hard to increase these revenues in direct sync with the user base. Scaling problems become more acute in this type of business model where an additional users brings additional costs immediately, but brings marginal revenue later.

Interestingly, some Twitter users are so upset by the outages that they are organising a ‘charity’ drive to raise money for the company to help it buy servers. Another new revenue model?

Just as The Economist predicted, social networks are starting to open up their services to outsiders, to provide something like a “social operating system” for the wider web. Competition between social networks is driving this. The leader this time was MySpace, which announced a data availability initiative (couldn’t they come up with a more sexy name?) that allows third-party sites to interact with MySpace data in some ways. Following close behind was Facebook, which has announced a similar initiative.

The interesting thing about these initiatives is that they are likely to reduce traffic to the main Facebook/MySpace sites, as people will be able to perform some social networking tasks on third-party sites. The big question is what this means for the social networking business model. If this trend continues, it starts to make the ad-supported model look shaky, unless the social networks can somehow push ads out to third-party sites as well. However, there may be other revenue opportunities, such as identify verification.

Paul Buchheit makes a very interesting observation about Facebook: it knows who you are. In online commerce, it’s difficult to know someone’s true identity because identities can easily be faked. This creates asymmetric information problems and impedes transactions. Auction sites like eBay use reputation systems to try to solve the problem, but what if you don’t have a reputation in the first place?

One way for an honest person to get around this problem is to do something expensive that would be unprofitable for a conman. So banks have expensive buildings to signal that they’re not going to run away with your money. If they were, it wouldn’t be profitable to build the expensive building in the first place.

Paul’s idea is that you can use Facebook to signal your identity by building up a credible network of friends. Building friends is costly, especially ‘high quality’ friends who have entered a lot of data into their profiles and have confirmed details of their relationship with you. Dishonest people could build fake networks, but it may not be profitable for them to do so compared to honest people.

So one way that Facebook can make money is by verifying people’s identities. I imagine they could calculate something like an “identity score” for each person, which measures how likely that person is who they say they are. People with more friends are more likely to be genuine, and the quality of links between friends could be taken into account too (e.g. how often two friends share things on Facebook). This could be calculated recursively, taking account of the quality of your friends, and your friends’ friends, and so on. Facebook can then sell these kind of metrics (with their users’ permission of course) to trading sites like eBay. I think it it’s a great idea.

Below is an interesting talk by David Heinemeier Hansson of 37signals about his philosophy for making money online. In case you don’t have time to watch it, here’s a summary:

• Go for the millions, not the billions, and sell subscriptions rather than giving stuff away for free.
• Target small and medium sized businesses, not large businesses or consumers.
• Focus on a simple problem that these businesses have, and execute well.
• 2,000 customers x $40/month x 12 months = ~$1,000,000 per year.