RSS Ads

I enjoy reading Feld's blog a lot, but I really loathe the ads in his feed.

In fact, I hate them much more than I hate the relatively innocuous ads on most blog sites. They make it very difficult to read the feed (for me, at least).

Interesting, because I think the ongoing success of RSS depends on exactly these kinds of nuisance costs not exploding.

More NYTSelect

I know, I know, you're sick of hearing about it. But bear with me for a sec.

The more I thought about it, the more I've come to the conclusion, that, just like the RIAA's replication wars have been the case study for digital strategy 1.0 (what not to do - sue your consumers for sharing), NYTSelect will be the same thing for digital strategy 2.0 (what not to do - charge your consumers for connected consumption).

The basic premise is that I think the NYT's analysis tells them that charging for access will essentially limit the supply of NYT content, and prices will get bid up for syndicators (ie, those that republish/discuss their content).

So, essentially, those people who pay for it also stand to realize a return. Hence, the NYT's affiliate program; in this analysis, no complementarity value (ie, discussions) is lost, because it's factored in via the notion of return for syndicators.

Now, this is interesting (to me, at least), because it's premised strictly on equilibrium economics - static demand and supply.

Now, if all the nonsense I've been spouting recently about complementarity and openness is actually right, then NYTSelect should fail miserably, because their analysis leaves out the kinds nonlinear dynamics complementarity creates - things like increasing returns and path dependence, which complicate life by creating multiple equilibria.

Sorry - last NYT post for a verrry long time.

The Snowball Effect

"...Their new book, Call to Action, is distributed entirely without nationwide bookstore support. Over 90% of the sales have been done online. Through a combination of low pricing and aggressive viral marketing, Bryan and Jeffery have essentially beaten the system at its own game. By working directly with bloggers, pundits and well-known members of the online marketing field, the Eisenbergs were able to spread the word like wildfire."

This is a nice example of what I call the snowball effect. It's the dominant Media 2.0 strategy; the inverse of the blockbuster is a useful way to think about it.

Note, it's not simply about viral marketing. That's missing the forest for the trees.

It's about the fact that consumption is connected - in a networked world, when you consume something, your consumption has an externality: I generally know how much satisfaction you got. As enough of this info is aggregated, demand within the niche increases for high-quality goods (and decreases correspondingly for low-quality goods).

That is, quality drives popularity hyperefficiently...if your good is of high enough quality, it will realize increasing returns, as people's consumption reveals their satisfaction to yet more people.

Now, this can happen via word-of-mouth. But that's a very inefficient mechanism, and it's not really economically powerful enough to create enough snowballs to destroy old industry economics.

It's the advent of much more efficient info processors - micromedia like blogs, and their distribution, aggregators - that is going to lay the groundwork for the snowball effect on a much larger scale - on a scale that is going to deconstruct industries which depend on marketing scale and scope economies. Like Hollywood, for example.

Now, this may seem obvious, but the implications aren't. For example, one big implication is that your dominant product strategy is to open up your goods - not protect them.

If you wanna read more of this kind of thing, grab a copy of my micromedia presentation.

Netflix vs The World

Nice piece about Netflix employing ultra price competition to destroy the attractiveness of the online video rental space. I never thought this was a very attractive space to invest in - and one of the reasons was limited room to do much of anything beyond price/quantity competition.

Bayosphere

I know it's pre-launch, but am I the only that finds that it's...missing something? I don't know exactly what - design, content, etc - I'm just not feeling it.

Maybe it's just me...!

GDCTV

GDC webcasts - an oldie but a goodie. Highly recommended.

Peer Production, Markets, and the 3rd World

Citizen journalism, aka CCJ, is breaking like a storm, it seems, across the States. A couple of things strike me as noteworthy as mentioning about peer production.

1) The Spectrum of Peer Production Markets

If it's not already obvious, citizen journalism is a weak (the weakest) form of peer production. The productivity of peers is bounded by how costly access to the means of production is, and how costly it is to coordinate the sharing of ultraspecalized information about inputs and outputs (ie, who's the 'best' citizen journalist for a particular article/paragraph/sentence?).

Now, bringing these costs down is a function of technology. I call creating such a discontinuous cost advantage a coordination economy.

It's easy to create coordination economies for things like newspapers and encyclopedias. So we can visualize a peer production spectrum: on the one hand, low complexity goods (like newspapers and encyclopedias), which require little technical knowledge, and on the other hand, high complexity goods, like fabs, which require detailed technical knowledge.

What's interesting about this? Well, the fact that entrepreneurs are focusing, at the moment, at the extreme ends of the spectrum. But there's a whole range of possibilities in between - and these possibilities are really where the returns are.

That's because each peer production market (ie, news, music, etc) will be a winner-take-all market. Now, by definition, prices for low complexity goods will be lower than prices for high complexity goods. But costs for peer production infrastructures stay relatively stable in complexity. So you're better off investing as far up the spectrum as you can.

In fact, smart VCs and entrepreneurs were ahead of the curve by investing up the peer production spectrum. Plays like SecondLife (LindenLab) and Habbo Hotel (Sulake), I suspect, are going to be about much more than virtual marketing - they will ultimately become peer production platforms. This is already happening to a great extent on SecondLife.

2) Peer Production and Human Capital

It's obvious that peer production depends crucially on human capital - on communities of ultraspecialized microproducers each contributing their own tiny chunk of larger goods.

Now that I'm back in the 3rd world for a few weeks to take care of my grandmother, it strikes me as how impossible peer production is here.

A huge proportion of the population is still illiterate - let alone being able to user a computer, surf the net, and contribute knowledge.

So, I think, peer production is going to bring the human capital gap into stark relief.

I mean, here, mass media hasn't even really happened properly, let alone peer production and micromedia. It's quite amazing.

New Stuff

I uploaded two presentations I've been working on lately.

The first outlines my thoughts on mass media versus micromedia economics, and the second explores peer production strategy and economics in great (uhh, too much) detail.

I haven't seen a lot of work done on these areas in strategy terms, so I had a lot of fun working on them.

I was going to use them for freelance work, but got wrapped up in a new venture, don't have the time to do much else at the moment, so thought I would open-access them.

Of course, if you actually use them to do something incredibly cool, PayPal me. Preferably enough for a new DB9, but every little bit will count towards my new venture.

Publishing 2.0

A somewhat interesting OJR post on the future of magazines - basically, (finally) inching ever closer to micromedia and peer production.

What I Would Do If I Was Martin Nisenholtz

Got a nice email asking me since I'm picking on the NYTDigital so much, what would I do differently. It's a good question.

In my model, value creation flows from openness, which creates huge amount of complementarity...etc. Scroll down for more, if you're interested.

OK. Since a huge proportion of what's discussed on the blogosphere is NYT links, I would recognize that I have a significant opportunity to create and capture new value.

I would do the opposite of what Nisenholtz is doing. Instead of building barriers to complementarity, I would help lubricate the blogosphere's and the emerging micromediasphere's access to the NYT.

How would I do this? First, by creating new, lightweight, open trackbackesque standards that facilitate discussion across micromedia. I would centralize control of this standard so the most heavily-trafficked discussions which depend on my content are under my control.

A specialized feedreader for NYT micromediasphere discussions, if you will. This maximizes value creation, by reducing the costs of creating complements to my content. I would also make sure it was extensible across all micromedia.

But because I had control over not only my own content, but also over complements - others' contributions, comments, links, tags, etc - I could serve up very tightly focused profile-based ads. This maximizes value capture.

Second, I would co-opt key bloggers, having them produce content for me, or sponsoring their blogs, and eventually building an open-access system which they could control and regulate. My point would be to gain a share of their future value.

Third, I would create and expose efficient info sharing (and storage) mechanisms for peer production of content. I would create an incentive for prosumers to use this by ensuring that their content had a better chance of benefiting them on my peer production site than on their own blogs (vlogs, etc). You know the score - an OhMy News type of peer production portal for news, editorial, weather, traffic, etc.

The point of the first two initiatives would be to engineer increasing returns to adoption of my content - to snowball value by making sure that the more it's read, the more it's read. This would increase the length of my currently short and inefficient content lifecycle, as well as create winner-take-all dynamics that work in my favor.

The point of the third is to internalize the value created by ultraspecialized microproducers for whom the incentive to maintain their own micromedia is weak.

Now, all this rests on the assumption thatt the rise of micromedia is a structural shift in the media industry - that it's about much more than a motley bunch of bloggers; it's about blogs, podcasts, vlogs, zines, laptop audio, etc. That fundamentally, it's about the shift of media from goods to services, because now media is hypercommoditized - it's plastic and cheap. This is industry revolution in the most classic sense.

So my expectation would be that building a successful long-term strategy in a revolutionized industry has short-term costs. I wouldn't expect my investments to pay off in the short term - I would expect to consolidate my position in terms of key relative micromedia share metrics in the short term.

Needless to say, all these depend on me not charging for access.

NYT Select Redux

The Post has a nice piece discussing the move to subscription models by guys like the NYT in recent days. Here's what Nisenholtz says:

"..."For the cost of roughly two and a half martinis, you can have access to the entire archives," Nisenholtz quipped. He took issue with bloggers who predicted the subscription plan will reduce the readership and influence of the paper's columnists. "We expect quite a number of people will subscribe," he said."

You see, this is the point. Martinis don't cost 20 bucks at the bars most people go to.

So either NYTDigital is only interested in having crusty Manhattan and LA subscribe to the NYT digital, or they're out of touch with the price of mass-market substitutes for their content. But I think this is not the real point.

He also says:

"..."There comes a point at which you have to say, 'Where is the value equation?' when you are talking about online media," said Martin Nisenholtz, president of New York Times Digital."

Don't wanna be rude, but I think he's missed the whole point of Media 2.0 strategy.

The value equation is, at the moment, exploding. The hypergrowth of micromedia, subsequent return of ad dollars, etc, etc.

But it's also a fundamentally new value equation - value is a function of attention scarcity, not distribution or retail scarcity. Local natural monopoly dynamics - like those that pushed the NYT to fame in the first place - are about to vanish.

The value equation, I suspect, is very much there; but it's been inverted. This, I think, is the source of confusion for many Media 1.0 players.

Growing the Podcasting Market

ABC starts podcasting. It's a good opening move, it leverages ABC's core competences to enter a new market.

OK; the simple answer is that you can't sustain a business the size of ABC's by moves like these.

The more complicated problem is that no one's podcasting (yet). And all the podcast gurus seem to be waiting for Odeo to slash the costs of making a podcast - but I'm not so sure about this. There are already more than a few audio/video blogging services out there.

So the question becomes - assuming that it's not the transaction costs that stop them, why aren't people podcasting? I think it's because podcasts don't realize the same kind of huge complementarity that blogs do, through comments, link aggregators, etc.

You can have a conversation on a blog, which makes value snowball - increasing returns. So blogging has a pretty powerful value prop, which is why we see so many people blog.

I think that unless we start seeing conversations and complementarity in podcasts, I suspect the market won't tip like blogs did, and the amount of value created will stay small.

So the point is that if ABC's really interested in capturing value from podcasting, it has to help create it first, by kickstarting the larger podcastosphere by leveraging complementarity.

If they do this, podcasting (and micromedia in general) become a source of increasing returns, and value snowballs.

If, on the other hand, Media 1.0 strategists simply see podcasting as just another 'distribution channel' for content they're already good at producing, I think their future is kind of bleak. In fact, I think a lot of podcasting gurus are falling into the same trap, and this is why the podcasting market seems to have hit a wall.

The larger point is that Media 1.0 guys are good at producing content to podcast because that's one of their core competences - production of content to be pushed to consumers.

But Media 2.0, I think, requires new competences - focused around conversation, or production where information can be shared (and ultimately, peer production begins to coalesce). This is the problem with NYT Select - it invests in building the kind of one-way competences which are only valuable in a Media 1.0 world.

Media 2.0

Tom asks if openness is a dominant strategy across all media - the answer is yes.

The only exceptions are those markets in which the transition from mass media to micromedia is never made - I can't think of any examples of this transition failing to happen, so unless you guys can, yes.

Advertising 2.0

RSS is disintermediating the www - no kidding - of course it is. The question is, why do consumers find this useful?

After all, RSS erases the utility consumers might derive from html, javascript, etc. I know a lot of you will disagree with me, but I think the reason is that RSS basically very efficiently destroys crappy and ever-nastier web tracking and ads.

Now, of course, the paradox is that RSS is just about to be hit by a deluge of ads itself.

And these ads are going to be even more costly, in terms of privacy, than simple (or behavioural) web ads.

That's because your feedreader know a hell of a lot more about you than your browser does, so it can target ads much more efficiently. Think about it this way - Google targets ads based on a few keywords you type in. Feedreaders can serve up ads based on all the info in the feed - that's a rich lode to mine for advertisers.

Now, of course, this may lay the groundwork for a truly disruptive scenario - one where ads are more beneficial to both consumers and advertisers, by being less nasty, but much better targeted. This is what I've called profile-based advertising.

Make no mistake, it's just around the corner - viz Google's recent RSS ads move is really a move to pre-empt the fairly significant number of start-ups and incumbents alike working on this.

The only question is - will it be disruptive in a way that's beneficial to consumers, to advertisers, or to both. I think the pendulum can swing either way, because feedreaders have a lot of control over consumers at the moment.

Apple vs Apple, Part 37812

I hate to say I told you so, but Apple's worst enemy is...Apple. If you ask me, now that iTunes has been cloned, Apple's future dominance of the Media 2.0 value chain is under fairly serious threat. This is because the complementarity between the iPod and iTunes has effectively been destroyed.

The problem, at the risk of repeating myself, is that heavily protecting your goods is a fatal error in a Media 2.0 world. Value flows from complementarity - letting other folks do and make cool stuff with your goods.

Why? Two reasons. First, in a Media 1.0 (a mass media) world, media goods weren't plastic - no one could do much with them. Technology to remix, tweak, comment, splice, etc, was expensive to learn and buy. Second, in a Media 1.0 world, the supply of media was artificially fixed - by spectrum scarcity, regulation, etc.

So in this case, there was no point to opening up your goods - the only people who would do anything with them were your competitors, who would simply imitate you, and kill your margins.

But in a Media 2.0 world, media is plastic, and the supply of media has exploded. So, there are two huge reasons to open up your goods and platforms. First, it's not just competitors who can do bad things with your goods anymore - it's also fans, consumers, and complementors who can do cool things with your goods. Second, conversely, competition for attention is much more intense now that supply has exploded - protecting your goods makes it much more difficult to gain a share of attention, because you can't leverage anything but your own marketing.

These two factors mean that barriers to imitation - formal or informal property rights protecting your goods - effectively become barriers to value creation in a Media 2.0 world.

This is a lot to chew on, so here's an easier way to think about it. In a sense, this dynamic is really the media industry's eventual, but inevitable, shift from goods to services - from inert bits of data that can only be consumed, to open platforms which can be built upon.

So by closing off it's platform - by tying iTunes to the iPod - Apple effectively blocked huge amounts of value creation. Much more than the value it might have lost due to imitation. It killed what might have been a vibrant market for complements - plugins, mods, skins, etc - before it even began.

In fact, by closing off it's platform, Apple effectively created the incentive for rivals to break it, in order to grab a piece of the pie. Much better to have opened up and co-opted rivals, using the licensing cash to subsidize newer, better ways to extend your platform dominance. Discussed here and here in nauseating detail.

Now, this sounds like small beans to marketing driven Apple dudes. But strategically, it's a disaster. The severing of the economic link between iTunes and the iPod is the hole in the dike - it's a huge threat to all the future value Apple stood to realize from dominating the Media 2.0 value chain, because this dominance depended critically on iTunes being the Media 2.0 aggregator...which, of course, is now no longer a sure thing.

Phones as iPod Killers

No way. A great example of how not to analyse strategy.

Look, the game here is simple. Apple's dominance is due to the iTunes/iPod combo. Let's put this platform in perspective vis a vis the competition.

All over the world, network operators have proven themselves to be utterly inept at educating customers about new ("value-added") services, and actually making money from them. We could go down the list - MMS, wap, etc.

In fact, all over the world customers, consumers have fought back, and engaged in "tariff arbitrage" - ie, getting the best deals on the cheapest services.

Given this history, the chances of any network operator offering a decent download service are fairly low. The one counterargument I think is possible is that ringtones sell well. But the point there is that they don't cannibalize the music industry's primary revenue streams - whereas downloads to phones obviously do.

Now, at the same time, iTunes is where Apple's strategy is - in the software, the distribution, the control of the value chain and putting the eventual squeeze on publishers - not in hardware. Apple's been very good at doing exactly what the network operators have failed at, time and time again: educating customers about whya a new service should be attractive to them.

That's why Apple is not, by any stretch of imagination, even gonna be threatened by MNO download services - even though the record labels will do their best to make it happen, the network operators will build a house of cards.

Note, I'm no rabid Apple fanboy - I've been extremely critical of Apple's closed platform approach to digital music, which I still think is a (huge) mistake.

Media 2.0 - Barriers to Complementarity

Tom Coates says he won't link to any more NYT articles (or even read them), because of the irritating reg process.

Look, I hate to pick on the NYT again - but the fundamental strategic error Media 1.0 firms make in shifting to Media 2.0 is going to be building strong barriers around their goods. In a Media 2.0 world, these barriers don't protect the value of your good - they destroy it.

Without going into too much detail, the fundamental source of Media 2.0 value creation is scarce attention. The most efficient way to allocate scarce attention is to open your good up, because then others can cheaply produce complements.

Complementarity can let your goods snowball - others can add cool stuff to them. These other can be peers, professionals - anyone at all - nwo that barriers to producing media have fallen.

In this case, the NYT's imitation barriers - registration - also become complementarity barriers. They don't just block losses, they block gains as well.

The complementarity loss is Tom commenting on NYT articles - which won't happen anymore. That may seem like a small loss, but the point is that Media 2.0 is about increasing returns - value snowballs. Value can't snowball if you build barriers around your goods.

I think a lot of Media 1.0 firms will never be able to wrap their heads around this, because it's so radically different from using IPR (or registration, etc) to protect your goods from imitation - wprotection was a strategy that did work in a Media 1.0 world - it's a strategy that will absolutely kill you in a Media 2.0 world.

Hypecasting

Another breathless podcasting article - the hype, I think, somewhat outpaces the reality.

But it begs an interesting question: when beancounters pile onto a promising cool new idea, do the expectations, greed, and hype kill it, or help it grow?

It's been quite a while since this kind of thing happened...

Politics of the Day - Wretchard Hates America, Volume #371738

"...We live in a strange world where the Beslan story vanishes in weeks while Abu Ghraib lives on for years."

Link. Look, at the risk of offending most of my readers - let me try and explain, as an American with origins in the 3rd world, why a vast portion of the world hates America: it's exactly because of the butchery of reason that underlies Wretchard's sentence.

The point is that, clearly, America is supposed to better than Abu Ghraib - that is the entire point of it's existence; the entire rationale for it's being.

To think otherwise is to either be a hypocrite, or to be a fool.

Now, despite what Fox News tells you, the rest of the world is not full of idiots. I've met people all over the 3rd world with zero meaningful education who have put this argument to me (as an American).

That is to say, you don't have to be a rocket scientist to understand the flaw in such thinking - and because the flaw is so bloody obvious, most of the rest of the world concludes that anyone making this argument is a self-serving hypocrite.

Unfortunately for us, that includes most of our current government.

Now, this is not to condone Beslan - in fact, the unsaid implication and unstated admission of the above logic is that the American way really is better.

Here's another example:

"..Try Sam Brownback, Kansas Republican. He�s leading the way against the international sex trade and religious persecution as human rights issues that don't seem to be priorities for Amnesty International."

Link. Exactly the same logic applies here. If, as, according to our Constitution, every person is created equal, then logic dictates we give help wherever it can save the most lives for the least dollars - the most bang for the buck.

Now, clearly, biasing this logic in favor of groups where aid dollars are less effectively, but who we have some special interest in - essentially playing favorites because of religion, is again, well, either incredibly stupid, or incredibly hypocritical.

The point, my fellow Amurcans, is that by falling for the kinds of shoddy rhetorical tricks employed by guys like Wretchard, you're making yourselves look pretty dumb - the rest of the world expects you to be so much better and smarter than this.

That's the source of the frustration so many people feel towards America (and Bush, and Condi, and Cheney, and Rumsfeld, and...).

Google vs Publishing 2.0

Publishers are slowly waking up to the fact that Google is not exactly their friend, and has laid the strategic groundwork to enjoy a nice long period of appropriating the lion''s share of value from the content they own. The minor property rights revolution Google is sparking continues to be a theme to pay attention to.

Most interesting to me about this is that Zittrain and Lessing are both quoted as backing Google. Why? Both are big influences on my thinking, and I think they're mistaken in their positions, which essentially amounts to a huge subsidy for Google.

I think it's a huge flaw in the Free Culturites thinking to always back Google, and I'm kind of mystified as to why they do it. It's fairly straightforward to understand that if it's fair use for Google to essentially redisitribute publishers' content, then because search is a winner-take-all market, Google extends it's monopoly to a new market essentially by tying print search to it's current dominance in web search, and the publishers go out of business (eventually).

Of course, in this scenario, culture becomes less free than it was before - instead of rights being held by a competitive market of publishers, all rights are essentially held by a monopolist. See my post from a few days for more if you're interested.

I could be wrong - since I appear to be the only guy dumb enough to talk about this at the moment - but I think Google's long-standing appropriation of property rights is about to reach a tipping point, and the Free Culture guys will eventually get called out for their support of a position that contradicts the essence of the ideas that have led them to prominence.

Note, I'm not arguing that property rights are a dominant strategy - in fact, I think the opposite. I'm pointing out that in it's current guise, the Free Culture movement amounts to a subsidy, which helps sustain a monopolist.