Umair Haque / Bubblegeneration
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Design principles for 21st century companies, markets, and economies. Foreword by Gary Hamel. Coming January 4th. Pre-order at Amazon.


 
Tuesday, November 08, 2005


The Attention Economy


Across consumer markets, attention is becoming the scarcest - and so most strategically vital - resource in the value chain. Attention scarcity is fundamentally reshaping the economics of most industries it touches; beginning with the media industry.

Let's take a step back to examine why and how. In a mass media world, distribution was the scarcest resource in the value chain. In some segments, this was due to regulation � spectrum scarcity, for example, enforced an artificial broadcast distribution scarcity. In others, this was due to natural monopoly dynamics � newspapers, for example, are natural monopolies. In either case, media industries were dominated by monopoly dynamics � either naturally, or by fiat.

This distribution scarcity gave rise to a single dominant strategy, over and over again: marketing economies of scale and scope. These are best exemplified in the blockbuster. Blockbusters realize superior returns to expensive content by redistributing it through numerous channels according to simple price discrimination strategies.

Essentially, the blockbuster strategy is a choice to invest in attention rather than production � through leveraging scale and scope effects to realize economies in marketing and distribution. Because attention was scarce relative to distribution � largely due to the natural monopoly effects discussed above � investing in it yielded superior returns.

These scale and scope effects, despite the best efforts of regulators and industry execs alike, created huge economic incentives for the media players to consolidate; hence, the consolidation waves first seen in the 30s, periodically again after that, and last seen throughout the 90s.

New technologies are disrupting and inverting these economics, by making attention the scarcest resource in the value chain. Because these technologies make production and distribution relatively more abundant than attention, returns to attention for incumbents begin to erode. Diminishing returns to attention are at the root of falling newspaper circulation, magazine subscriptions, TV ad revenue, radio listenership, and book sales � at the heart of the industry�s current malaise.

Why does attention become relatively scarce in a Media 2.0 world? Fundamentally, because 2.0 technologies create a Cambrian Explosion in number and kind of media � a micromedia explosion. Since its birth, media has been limited in number and in kind. But cheaply networked digital technologies, on the other hand, are producing vast amounts of entirely new kinds of media � more than have ever concurrently been seen before.

By networking digital media, the incentives for prosumers to produce a huge plethora of forms of micromedia pop into existence; blogs, podcasts, vlogs, machinima, fan films, and cosplay are just a few examples. The relationship between technology and media relationship has undergone a phase shift: from one to one, to many to one. This is the Cambrian Explosion in micromedia.

The primary economic consequence of the micromedia explosion is that the equilibrium price of media everywhere falls. This is due to the simple economics of supply and demand, where prices fall when the supply curve shifts outward. In turn, the micromedia explosion means that competition for attention becomes truly intense, with economics most media markets haven't seen since the era of the printing press: attention becomes relatively more expensive than production.

These economics create competence traps for media incumbents in a 2.0 world: since attention is now relatively scarce, economic advantage flows to whichever players can allocate attention � not production � most efficiently. That is, to try and make sure, wherever possible, each viewer, listener, or reader is consuming media where, when, and how they derive the most value from doing so.

But media incumbents, have spent the last century largely developing exactly the opposite competences � by using blockbusters to allocate production resources, they�ve developed competences in buying attention � in marketing, branding, and star power.

These competences become traps in the Attention Economy: incumbents throw more and more dollars into marketing, star power, and branding, and less and less dollars into production, each marketing dollar chasing a smaller and smaller return on attention, just to keep margins constant. This is, in a nutshell, the reason Hollywood marketing budgets (or radio/network TV ad time, or magazine ad space) have exploded in the last 20 years.

How can incumbents and new entrants alike compete in a world of increasingly scarce attention? What strategies dominate the new economics of attention scarcity? Bubblegen's work is recognized as driving deep insight into Attention Economics and the strategies that dominate them. Bubblegen�s Attention Economics competence and practice is detailed in this presentation, which offers some avenues to approach finding dominant strategies.

To get started thinking about the Attention Economy, ask yourself:

To what extent are my industry economics still dominated by distribution and production scarcity?

To what extent are my industry economics now dominated by attention scarcity?

Is efficient attention allocation on my list of priorities?

Can I use efficient attention allocation strategically, to co-opt or pre-empt competitors, or to build a sustained competitive advantage in market share?

If so, what resources and capabilities do I need to drive efficient attention allocation? At what layers of the value chain do I need to invest? What alliances and partnerships will be valuable in developing these resources and capabilities?

Can I leverage edge competences to efficiently allocate attention?

-- umair // 11:28 PM // 11 comments


Comments:

Wow. On one hand this is exactly what I've been looking for. On the other it will take some time to wrap my head around it and figure out how to apply it to my business.

Thank you.
// Anonymous Anonymous // 6:32 PM
 

"Because attention was scarce relative to distribution � largely due to the natural monopoly effects discussed above � investing in it yielded superior returns."

Do you mean it this way round? If attention was scarce relative to distribution then, isn't it more so now?
// Blogger phil jones // 5:23 PM
 

Uh, aren't you stealing the phrase from this book?
// Anonymous Anonymous // 11:09 PM
 

Dear Umair Haque, since I am working as an economist in the field of media analysis (in Germany), I very much appreciated to study your work "The New Economics of Media." Even though I agree on several of your points, here are some remarks:

- I would have appriciated your contribution even more, if you had made your sources public. I am convinced that many of the points you make a yours, but you certainly have used other sources.

- You should be more careful using economic concepts. One example is your graph on slide "Attention and Production Costs at Large Scale" (and the following ones). From my point of view, you simply drew it the wrong way. The lines have to have their starting point in the diagram's origin. The line that represents the fact that the costs are equal has to be the 45 degree line, whereas the line reprenting lower production costs is below and so on.

- You are right that there are new forces out there reshaping the media landscape. But as always, the new trends will first be complementary to the established ones. Radio has not wiped out newspaper reading, neither has TV or Internet. Of course, there is a change and newspaper reading will vanish one day, but there still a lof of time to go by.

Best wishes from Germany,
Ingo
// Anonymous Ingo Kohlschein // 9:59 AM
 

Hi Anon,

The premise of attention scarcity is the same, but my conclusions are very different from the Davenport kru.

Hi Ingo,

If you want info on sources, contact me.

As for economic concepts, I think you're missing the point of those graphs - they are isoquants (not production functions, etc).

New and old media may be complementary eventually, in a distant future - but the job of strategists in this area is to get there from today's mediascape, where different media are more and more substitutes for one another.

Thx for the comments guys.
// Blogger umair // 5:35 PM
 

Dear Umair:

Well, I do not agree. Of course, your curves can represent isoquants. But if the curves are isoquants, then typically you do not have the costs labeling the axes. Instead, you have the production inputs there. (see: http://en.wikipedia.org/wiki/Production_theory_basics#Isoquants). On the curves, the output level is constant then. I think your representation is a bit confusing in this point.

On the issue of your sources: From my point of view, it is a signal of quality of journalistic and scientific work to make the sources used public in the text and not upon request.
// Anonymous Ingo Kohlschein // 10:35 AM
 

This is an awesome primer - I made a similar post except with far less words and eloquence here http://www.touchstonegadget.com/blog/2006/06/attention-scarcity-and-demand.html
// Blogger Chris // 6:27 AM
 

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// Anonymous Anonymous // 11:15 AM
 

Nice site, you seem to have a clue. :)

Have you considered the problems of fake attention much?

It is as far as I can see the biggest problem of the possible future.

I mean the most obvious and oldest is small sites paying (not in "real" money, but some virtual currency belonging to the site) users to click adverts (click on my sponsors once a day for free points) and generate revenue for them.

That act dribbles down to the level of people as well. Look at MPOGs, pretty much all of them, but think of WOW if you must. The game play is very much a case of keeping your foot on the dead mans peddle. You succeed simply by being there and paying attention. Most cheats are not in fact cheating in anyway other than providing false attention. Exactly the same buttons are clicked on and the same rituals performed, there is just no real person behind it all.

That is the weak point of everything 2.0, It's even the reason I have to pass a simple Turing test to post this comment. :)
// Anonymous Kriss // 1:24 AM
 
 

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