Friday, March 31, 2006
Death of a Business Model
Link. Windowed releases (viz, simple price dicrimination across distribution channels) continue their long, well-deserved slide to oblivion.
I am in London - ping me if you wanna get together and chat.
"..."Capital spending will stay strong," said Gus Faucher, director of macroeconomic research at Moody's Economy.com. He theorizes that, to maintain productivity growth in a hypercompetitive world, companies will be forced to invest in capital as labor becomes relatively more expensive."
Or they will learn to leverage the edge...
You know, everytime I'm forced to buy American clothes, I'm astonished at just how truly awful they are. Apart from the materials and the designs, perhaps the biggest part of the awfulness is the fit. They don't really fit anyone, because they're trying to fit everyone.
Rethinking the way in which American clothes are sized is going to create a huge amount of value.
Now, it might not be this offering which does it. But, sooner or later, someone will come up with, in 2.0 style, a much more open, lightweight, flexible standard - and arbitrage this deeply inefficient and maladaptive market.
Sunday, March 26, 2006
The Snowball is the New Blockbuster
About a year ago, I began thinking about how the dominant media (in fact, consumer) strategy must shift from Blockbuster to Snowball, given the tectonic economic shifts that were taking place.
I haven't talked about this a great deal lately.
But today, when I look at consumer industries, I see the Snowball Effect everywhere - I see my prediction turning into reality much faster than I ever thought it would.
Here's a very small example - a video on YouTube exploding.
But in the last few days, we have had a much more dramatic example - one so obvious, it's almost invisible; the Ben Domenech story.
How did Domenech get fired? Because his plagiarism was found out. If we trace back the causality, we see it started with a single diary at DailyKos.
From there, numerous blogs picked it up and ran with it, discovering much more plagiarism, pseudo-racism, etc. This is a limit case of the Snowball Effect in today's world: in the end, the Post was forced to ask Domenech to resign, the NYT has covered the story, etc.
Now, when you think about this, don't think about blogs and bloggers - or even about media necessarily. That's missing the forest for the trees.
Understand that this is cheap coordination - the self-organization and regulation of complex, interdependent collective action. Further, I hope you will see that this is inevitable; it's the nearly bulletproof outcome of the economics of the edge, and market power shifting to consumers.
From an economic point of view, this is an amazing thing; I think it is almost without parallel.
Now, the most incredible part to me is that nearly every boardroom in the world still has no idea how to leverage the Snowball Effect; even "viral" marketers are really tapping just a fraction of the productive possibilities of the edge.
So in the next few months, I expect some fairly incredible things to happen at the edge.
Final note, Snowballs are not "nichebusters". Nichebusters have very different dynamics; they are simply blockbusters sliced more thinly.
Saturday, March 25, 2006
Friday, March 24, 2006
2.0 Business Models
Fred kicks off an interesting discussion about b-models; says his favorite recent model is free + premium services, which I call "enterprise subsidizes consumer" (to reflect the fact that it's often SMEs who are subsidizing the free half of these models).
An astute commenter calls this model "freemium", which is a name that is a work of art in itself - so freemium wins.
Now, I'm surprised to hear Fred say he likes this model the best. Is it a cool model? Yes. Does it make money? Sure.
But is freemium the model that's responsible for the largest amount of value capture across 2.0 spaces? Nope - not even close. You don't have to run numbers, this should be intutive - just think about how much money Flickr/Skype etc really make.
Finding your way through the maze of b-models is the focus of my next paper - here, I make it pretty clear that you should only shift to services if you haven't really figured out deep, direct value creation in the first place. That one's out next week...
Thursday, March 23, 2006
New Stuff - The Laws of Social Media
Folks, I have decided to shift the Bubblegen model a little bit.
Since I don't have time to consult with everyone, over the next few months, I am going to try offering a series of papers based on my research and consulting. Some of these will be free; the good stuff will cost you a bit.
The first of these is called The Laws of Social Media; it deconstructs how MySpace dominated this space, and the mistakes that it's numerous competitors - notably Friendster - made and continue to make, distilling all this stuff into about 12 key lessons for social media strategy.
It's like a mini workshop with me rolled into a nice, jargon-free 20 page pdf (not a dense, econ heavy ppt).
Who should be interested?
- VCs - to understand how the dynamics of social media will unfold, and help your portfolio companies find advantage (read: to figure out how to scale).
- Attention Economy players - to dig deeply into your strategy and business model, understanding the drivers of advantage.
- Media strategists - to begin understanding how and why to create social value propositions.
- Ad and marketing guys - so you understand what to look for as potential buyers of and complementors to social media plays.
- Everyone else - to cut through the noise and really begin understanding concrete lessons about the Attention Economy
If you would like to buy this paper, email me for pricing (less than a 300 page market research report, more than a
copy of subscription to the Economist) + access.
In the next couple of weeks, I hope to have a Google Base/Amazon set up going, and the majority of these papers online. The next one is specifically about building Attention Economy business models - so we don't clog the pipes, that one isn't available until next week.
No big sales pitch - in fact, an anti-sales pitch: I don't like the idea of charging particularly, but I can't give this hard-earned knowledge away; these papers are like blueprints for strategies and business models in my practice areas. Since I don't have time to consult with nearly as many people as I would like, I hope this experiment is a middle ground that gives more people some level of access to me.
Also note that at some point in the next year, prices will drop, and, even later, these papers will be free. So if you're just curious, and don't plan on using these as blueprints/insight now, it's probably worth it to wait. OTOH, if you're involved in these spaces, it's probably not.
Update - for clarity's sake: this isn't a new business model. BGSL is and will remain primarily a boutique strategy consultancy - I don't publicize my clients; suffice it to say you know who they are.
Rather, selling access to papers it's a way for me to try share my knowledge with a larger pool of people. Workshops and consulting gigs are expensive. Papers are (relatively) cheap. The goal is not so much $$ as it is offering a bigger universe of people a more economical path to the BGSL school of strategy.
Breaking the Corporation - The Rise of the Edge
Case Study: GM. After decades of stifling hierarchy, anti-strategy, and an innovation failure so total, it will be the stuff of b-school discussions for years to come...
...and the workers are the ones that pay the price?
Look. I'm as much a vulture as the next strategist (OK, maybe not).
But this is, from an economic point of view, a deeply inefficient outcome. Here, the incentives are backwards. The guys that put the hierarchies in place, and cemented anti-innovation with design by committee - C-level, consultants, etc - should be the ones that get hurt by this.
This is elementary; they must bear the risk of their decisions for them to make rational decisions. The workers, by definition, shouldn't bear this risk, except in increments tiny enough to barely affect them, since they don't affect outcomes except in marginal ways. Put another way, the marginal product of a CEO's labor is enormously greater than the marginal product of an assemblyman's labor - that's, theoretically, the reason they get paid 100x as much.
Now, we can complicate this argument in many ways (by introducing different time horizons and preferences) - but I think we can all agree that for workers to take an order-of-magnitude cut in their lifetime earning is absurd; it's absurd even if C-level takes the same percentage pay cut.
There is no economic universe in which this outcome can be justified.
It points to the deeply inefficient mode of coordination and production the corporation has become.
It points to the malaise at the heart of our thinking about "free" markets, which, as this example demonstrates, really get freer the more capital you bring to the table. Certainly, if markets implicitly regulate the corporate sphere - they failed spectacularly in this case, and they continue to fail spectacularly.
Ultimately, this is the heart of edge competencies; this is why we see value shifting to (real) markets, networks, and communities.
Many think I'm simply talking about Web/Media 2.0 when I talk about edge competencies. But the shift to the edge is, I think, a much broader phenomenon, with much bigger implications: it is a fundamental reshaping of the economic landscape, in response to the growing inefficiency and abusrdity of the corporation.
How different is GM's failure from the fact that most investment banks are making more and more of their money from arbitrage (versus relatonship based dealmaking)? In the big picture, not really different - they are effects of a cause; the shift of value to the edge.
Politics of the Day - Washington
So, while I was busy slaving away this week, the Post did something awesome. As I'm sure you know, they hired a 24 year old kid to write a new "red" blog.
Why is this awesome? The sheer brain-exploding comedy factor of it is just too much.
-he thinks "evolution is a crock" (ha ha)
-he was formerly a Bush appointee (HA HA)
-he can't write to save his life (brain pressure)
-he's a thinker of the finest quality (viz, liberals are by default "shrieking extremists" - pressure increases)
-sometimes, he even dabbles in racism (aaaaaaa ha ha ha)
likes thinks Red Dawn is a spiritual experience (no...more...)
-he's a 24 year old chickenhawk (aaaaaaaaaaaaa ha ha ha)
-he even has the requisite family connection - his dad is also a Bush appointee. (mflurgle!#$#$!!!!)
-who's connected to Jack Abramoff (brain explodes).
At first I was offended. After all, it's not every day that a budding racist is given a podium at one of the country's top media outlets.
On reflection, I have a delicious sense of anticipation. This is a guy who says things like:
"...Apparently, this violent testosterone-fueled psychological imperitive - not a coherent and just strategy for defending America in response to the first major attack on our soil since Pearl Harbor - is the real reason for our war in Iraq."
I don't think the Post could have made a worse move, from any perspective, if they tried. I mean, this isn't just a strategic error - it's just asinine.
It's going to be drama of the highest order watching them get flambeed by the blogosphere, their competitors, and the public, roughly in that order, as everyone discovers just how bad a taste it leaves in the mouth to give people like this - those who love war, but won't fight it; those who can't reason, but yap away anyways - the keys to the town square.
Pass the popcorn.
Monday, March 20, 2006
Innovation and social capital
Aging Japan builds robot to look after elderly - Yahoo! News
Destruction of social capital is not necessarily orthogonal to innovation and entrepreneurship. Of course, it can be hardly desirable to live in a society where social capital has eroded to the extent of replacing humans with machines. This set off a chain of thoughts in my mind.
A pertinent issue is to what extent does focus on financial/material capital accumulation *causes* the destruction of social capital? I think there is overwhelming evidence to see a significant causal linkage here. For example, the Big-Boxification of rural US robs it whatever little socio-economic diversity and character it has. In fact, this is increasingly evident even in cities : traveling around in the US, I am just amazed at how uniform the entire landscape has become. It is all so uniform, and...boring!! Except for a few pockets of interesting and diverse places such as downtowns in a few large cities, the rest of the country is rapidly becoming one Big Box hell. If you were blindfolded and left at a Wal-Mart ot Costco in the middle of nowhere, would you even be able to tell what town or even which state you were in? Paradoxically, the US also has very high degree of ethnic diversity in its cities, but once the immigrants get assimilated they all pretty well live the same life centered around going to work and paying their bills. Charlie Chaplin presaged this at the dawn of industrial times, and I don't think he was too far off the mark from describing the misrebale lives of two-hour commutes from exurbs, organized shopping at Hallmark holidays fueled by huge consumer debts and lifelong payment of mortgage followed by reverse mortgage.
Another point I wanted to make was that sometimes, this is framed as an issue of choice, but that misses the whole point. The argument goes that by choosing to shop at Wal-Mart rather than at mom-and-pop shop, the consumer is choosing to vote with her wallet and therefore, society must let Wal-Mart win. However, free markets are the right solution only if buyers and sellers are reasonably well-informed, capable of judging a price based on the value of utility, and operating in a non-monopolistic environment. None of this is applicable in this case : economics has not yet developed the capability of figuring out the value of social capital and large scale retail is almost always a game of creating localized monopolistic power to destroy competition. Human minds as of today are incapable of valuing the opportunity cost of trading off social vs. financial capital. Our entire socio-economic discoures is driven primarily by a debate on various financial issues, but we don't have a clue about how the trade-off with socio-cultural capital is likely to affect us in the long run. Put it simply, if the consumer does not even know what the potential worth of losing the social (non-financial) value of interacting with Ma and Pa at the local grocery shop is, how can we reasonably say that she is exercising free choice in shopping at Wal-Mart?
This has real implications about framing the debate on our socio-economic issues. Since social capital has no tangible value attributed to it, its economics becomes subject to Prisoner's Dilemma. Everyone is individually better off shopping at Wal-Mart because there's a direct financial benefit to doing so. However, if everyone actually does it, then the society as a whole loses not only the socio-cultural capital but also financially because of the burden on the tax-payer to support an underclass of workers who can hardly afford to pay even for basic needs like healthcare and education. Their entire lives are centered around living from paycheck to paycheck and working in multiple jobs just to keep up. One of the most pathetic things I have seen in the US is restaurants with large enough parking lots that allow people to buy food at their drive-in windows and then eat it in their cars in the parking lot on their way to or from work!! Even the minimal social interaction associated with the act of eating is disapperaing : Isn't this sad and miserable? If you can't see anything wrong with this picture, or that of a Wal-Mart employee who needs to supplement her income with state food stamps, then good luck to you and have a nice life in the comfort of your cars and parking lots. If not, then perhaps it may be a good idea to seriously think about understanding the value of the social aspects of your well-being.
I also believe that this lack of understanding about valuing socio-cultural capital is a huge part of the disconnect between North Americans and Europeans when it comes to economic dialogues : we just don't have a common valuation framework. Americans seem to have hugely undervalued socio-cultural capital while Europeans have hugely undervalued financial capital. Asia is an interesting case where traditionally, socio-cultural capital has, in effect, been enmeshed with financial capital : you could not even be in business unless you had a certain social capital.
Where do we go from here? I think the first thing is to realize what our goals are and question our focus on exclusively maximizing financial utility. I see a few vague contours of such questioning happen in the US : there is a reason why films such as this are getting a huge response, for example. In the post-industrial society that we are living in, our needs are outgrowing satisfaction by financial utility. It's obvious that societies collectively progress up the ladder on an equivalent of Maslow's hierarchy of needs, just as individuals do. Then does it make sense to have our entire universe of socio-economic debates revolve around financial utility? Clearly, no.
This means that an ideal socio-economic system needs to manage both the financial as well as socio-cultural well-being of a society. How do we do that? I don't know, but it will become increasingly important to all of our futures because the consequences of not doing that are likely to be terrible : a crass oversimplification of this scenario will be that if we don't figure this out, it will cause Americans to end up chasing the mirage of happiness through material consumption while Europeans will be left wondering how their pension funds went bankrupt in a couple of decades. Life as a television zombie fueled by consumption is unlikely to be better than surviving on a meagre social welfare and crumbling government services. So, Americans : please be nice to the hippy, enjoy the conversation with him, and recognize that there are a lot of people and societies living much happier lives than yours inspite of being poorer than you so perhaps you could learn something from them. Europeans : please be nice to the immigrant and the entrepreneur : unless he makes money, your pension funds will run out of stocks to buy and give you capital appreciation to take care of you. Asians : please go on and be different, learn from the mistakes of Europeans and Americans to make better societies for yourselves.
Sunday, March 19, 2006
Pandora and Last.fm: Nature vs. Nurture in Music Recommenders
This is a must-read analyis. (Hat tip : Paul Kedrosky)
A few quick points:
1.Really cool example of edge competency is how Last.fm's plug-in allows it to automatically capture data to improve its search filters. If you have followed Umair's thesis so far, you should be able to immediately see increasing returns to scale through positive feedback loop and how it creates a very strong barrier to entry. This is strategically brilliant.
2.This also illustrates a theme I blogged about earlier.
We seem to have two distinct strands of how edge competencies are developed : algorithmic or anthropocentric (yes, I am coining that term here and now). Although they both have common strategic roots, clearly the execution will be very different. Firms will need to pick one or the other and allocate their resources accordingly. An implication is that firms must clearly know what they are doing : they are unlikely to succeed with a hybrid approach. One way to see this is that making this choice offers a migration path for the firm's existing core competence. In other words, firms can see where they are today and then make the most doable choice. For example, it will be an idiotic strategy for Google to develop an anthroppocentric edge competency, because they are all about computation and algorithms. Witness how miserably Google's social network attempts have failed.
3.Gratutious strategic advice for MySpace : please shut up and buy Last.fm already!
Guys, I have been in hardcore work mode for the last few days - comment responses to follow in the next day or so.
As always, please comment here if it's a burning issue, or I've said something that offended you (like "America sucks" :)
Breaking the Corporation - Redefining Innovation
A nice article from the Post about the Office highlight something many of us can instinctively feel: the corporation is broken.
The ways we manage are deeply out of sync with the world around us. There's a reason so many movies, books, etc have been focused on the Kafkaesque institution the corporation has become.
They are telling us something very important: it's time to innovate not just what we produce, or who we sell it to, but why we produce.
My profs stressed "who, what, how" as a simple template for strategic innovation (redefine customer selection, value propositions, value chains). This is probably the most powerful strategic innovation framework around - it's a simple but elegant synthesis of many strands of thinking (Value innovation/market-driving, Porter/IO, RBV, etc).
The question that occurred to me even then was: where is the "why" in this equation?
Today, IMHO, the "why" is becoming much more important. Why do we produce the way we do? Why do we focus on the so-called productive when it's patently absurd most of the time? Why do we manage in such obviously self-defeating ways?
I think the next wave of great strategic innovation will be built on asking "why" - and answering it in radically new ways.
Let me give you a few examples.
Coordination innovators are asking: why do we interact?
Brand innovators are asking: why do we need to attach social meanings?
Media innovators are asking: why do we need to mediate?
Makers of markets, networks, and communities are asking: why do we need the firm?
Disruptive managers are asking: why do we need to control?
Strategists (esp the ones that work with me) are asking: why do we need competencies at the core? Why do we need to compete?
Soon, I think, if you're not asking "why" - instead of "who, what, how", you will be squarely at the mercy of global hypercompetition and the accelerating loss of traditional sources of advantage.
Thursday, March 16, 2006
Somebody, please. I am so backed up on email because it is such a retarded way of interaction. And you're probably there too - maybe email overload will be 06's feed overload.
It's interesting how kids have adapted by basically, well, never using email in the first place...
It occurred to me while reading this fascinating thread from folks who work at McDonald's hacking dishes, that if you take edge competencies to the limit, a possible future for McDonald's is exactly this: a place where you can go and hack together your own fastfood; like...uhhh...a Google for food.
The Banality of the Market, pt 4
Jeff N thinks my recent posts have simply been saying "America is stupid and it sucks, you should have a European accent". Now, I think that's a (way) unfair reading from someone I have a greal deal of respect for and I think is really cool, so let me try and summarize my argument.
I'm pointing out that econ is very good at explaining many things; but in America the language of econ dominates everyday life and everyday business - which it was never meant to do.
We misuse it in two ways:
1) We have no idea what the hell we're talking about. This is Bush sending the country into penury, with half-baked mumbo jumbo to back him up.
2) We fail to factor in the various kinds of capital into our understanding. If we want to use the language of the market to understand things, that's fine - but too often, we ignore the fact that there are many kinds of capital, of which financial capital is, today, the one that's being devalued the fastest.
So our decisions often have unintended consequences: right now, we are essentially trading financial capital (which is then being mortgaged to China) for social and cultural capital.
But we pretend like those forms of capital don't exist. Of course, they do. The loss isn't just felt in terms of binding us together now; their present value is the sum of the innovations that flow from them, and that's lost, too.
Let me use an example to illustrate. The cost of Wal-Mart killing your local mom and pop bakery isn't just terrible food, no more friendly chats, and unemloyment. In fact, Wal-Mart offsets your loss in quality with scale economies, creating value.
Actually, the real economic loss is more subtle, and much more pernicious: we lose entire sets of people deeply committed to what they do, which is where real creativity ultimately flows from. We lose people with skin in the game, and replace them with workerbots. The guys at your local bakery were makers of tiny cultures, not just producers of goods. Which do you think will be more valuable in a world of Chinese/Indian/etc hypercompetition - scale economies, or creativity driven by passion and commitment?
Now, in Europe, people recognize that social and cultural capital are deeply important and valuable forms of capital.
Does that make us Americans stupid? Possibly.
But Europeans are stupid in another way; there, there are no structures to make capital productive (ie, venture capital, etc). Put another way, it has tons of creativity, but because no one thinks about how to make it productive or useful, value is foregone.
The trick for the future, I think, if we (all of us) want to maintain our rapidly dwindling innovative capacity, is to be able to avoid both kinds of stupidity.
Wednesday, March 15, 2006
Lots of feedback/friction on "jargon". Guys, you might want to check my presentations if you're kind of lost.
Antistrategy of the Week
"...EA's ambitious goal is to create more such innovative, internally developed games while lessening the company's dependence on professional sports and Hollywood movie franchises."
Wow - actually making cool games instead of being beancounters? How ambitious!
Just imagine if they started doing this years ago, when it was obvious that their strategy was in deep decay.
Tuesday, March 14, 2006
The Corporatization of 2.0
OMG. I am so totally creeped out by USA Networks new social networking site "Show Us Your Character" (it's in Beta!).
It's somewhat nauseating to see see such a grossly corporate appropriation of the social. Expect about a million more of these (this means you, Tagged); leave it to the market to give us 15,000 Frankensteins in imitation of the real thing.
Lucky for us Show Us Your Character won't last long; USA's got the formula totally, completely wrong.
More is More and Less is More
Shorter version of my post below about Seth's "too much blogging".
Like Scott says, it's not that there are too many bloggers blogging too much - it's that the filters we have right now, as much as we luv them, well, kind of suck.
In my newer work, I call these concepts more is more, and then less is more. For content guys, more is more. For filter guys, less is more.
But the point is that each depends critically on the other. The whole "less is more" etc thing is a bit of a false dichotomy, and it's time we exploded it.
I appreciate a Web 2.0 sanity check as much (more) than anyone else. Hopefully, I've been responsible for more than my fair share.
But this kind of thing is (way) over the top:
"...That�s the first indicator that this was a teeny-weeny deal. When people sell-out in a big-money acquisitions, they usually can�t help but tell that trusted someone, who tells another trusted someone, who passes the word onto another trusted someone and so on until a pretty reasonable picture emerges as to roughly what was paid.
The fact that no-one�s bragging on this one, suggests that, well, there ain�t much to brag about.
More telling though is that I�ve been chatting to a company who is a significant player in this whole web-office space and they swears blind they�ve not even had a nibble from Google. Not a single call, e-mail or overture. Nada.
...How much is a �reasonable subscription feed�. If you look at paid services like Trumba or BackPack we�re probably talking about $50 per year. So best case, we�re looking at revenues around the $50,000 per year mark. We�re not even close to covering the four Writely salaries at those levels."
Positive hysteria (a la the TechCruch commenters) is as counterproductive as this kind of negative hysteria.
For those to whom it's not obvious...
First, "teeny-weeny" is very much in the eye of the beholder. Even if Writely went for $5m, the Writely guys each made >$1m. That's not too bad for a few months of work.
Second, worrying about pricing deals like this in terms of some kind nebulous independent revenue multiple misses the whole point. It's the combined picture that counts. Google (etc) buy them because they instantly realize fairly significant synergies from a user base, because they want to learn/capture technology, or simply because they want the people.
Third, XYZ company you luv probably didn't get the call because they don't have any of the above.
Despite the hype about the Knight Ridder deal, the price multiple (1.5x revenues) isn't atrocious relative to the precarious strategic situation of the entire industry.
Though it's low relative to other media markets, and especially for the 2.0 crowd, the last big newspaper acquisition was probably Tribune + Times Mirror, at a multiple of about 2.15 - and that was at the height of the boom.
Usefulness and The Banality of Business
Seth says that bloggers blog too much; that they're littering an "attention commons".
This is a deeply interesting statement, which gets to the heart of all the problems with American business (and culture) - doubly interesting because it comes from Seth.
There's this curious notion in America: everything must be useful. This is why, at heart, there's little, if any room, for thinking; for the long-term; for the creative.
It's the naive culture of the market taken to an absurd extreme: the old economists' notion of utility. By itself, utility is deeply insightful. It lets us understand decision-making and the microstructure of value creation in powerful ways.
But it's no basis for a society, or a culture. The useful, too often, is the banal. Strip-malls, freeways, suburbs, fast food, sitcoms - all these things are useful; but they're also deeply banal.
What's "useful" to the too often myopic and narrow discussions that happen in boardrooms has deep, pervasive hidden costs; in America, these are the death of social and cultural capital. Put another way, usefulness is the enemy of creativity.
And, ultimately, it is creativity that is going to be the single source of tomorrow's strategic advantage. Utility is the enemy of strategy in a world where coordination is cheap; a world where the cost of bringing new products and service to market is melting, where global hypercompetition is accelerating, where global supply chains can be accessed and reconfigured in hours - not years.
The shift to this world - what I call the post-network economy - is why innovation is becoming both the single reason for firms in Europe and the US to exist; and why innovation seems, today, more difficult, confusing, and costly than ever.
It's not just that focusing so heavily on the useful makes America a deeply, inescapably boring place to be; it's also that the last hundred years of American business have been about building structures to make myopically focusing on near-term utility as efficient as possible. It's no surprise, then, that America finds itself confronted by a gap in innovative capacity: usefulness, too, has its costs.
More to the point: should we see the new world of micromedia as a limited resource; a commons, like Hyde Park, or a fishery? Are we really having externalities on each other when we blog, podcast, and vlog?
I think Seth's post is this kind of misuse of economics. The genius of micromedia is that it blows apart the notion of distribution of a scarce resource. The whole point is that attention is no longer a commons; now, it's about individual expectations and preferences.
Attention is only a commons when distribution is scarce; that's when I end up having to share space with Nascar fans, militarists, and religious fundamentalists. That's essentially how Fox News, cheezy Hollywood flicks, and advertorials happen. That's when other people tread on my attention; people I wouldn't want to get within shouting distance of in real life. But in a mass media world, we literally have to share the same space.
And this is the heart of the problem. Too often in America we use the tools of economics and the language of the market to try and understand everything. But these tools require care and knowledge, like a surgeon's scalpel. They also require other tools, to guide them, just like a surgeon does.
Unsusrprisngly, we end up misunderstanding and misusing them, and reaching conclusions that are valid in the short term, but completely, obviously, totally unsustainable, because their hidden costs are far greater than their obvious benefits - and the result, too often is the banal; strip malls, freeways, Wal-Mart.
Does it really take a PhD in economics to understand that strip malls and discounters kill the social and the cultural dead, or that Wal-Mart's strategy is built around essentially being subsidized by the consumer (viz, by not paying even the most basic of benefits)? How is it possible that an entire nation can't see what's under its nose?
For the same reason that Seth thinks we're littering an attention "commons" when we blog - we've been fooled by thinking too narrowly, because the language of the market and the concepts of economics, used without care, limit our vision: we've been fooled by economics.
Monday, March 13, 2006
Europe vs Innovation - Counterpoint
I couldn't disagree more with M's post below. It's a good argument, but it misses very real sources of value creation.
In a sense, it's the standard (Milton, not Tom) Friedmanite argument about why Europe "doesn't innovate". Is that really true?
At a simple level, yes. Europe needs structures which create more liquid markets for entrepreneurship, sure. But that's a very small part of the next great economic game, truth be told; and Eurocrats are working to build them, in their own ponderous way.
But to focus solely on entrepreneurship is to miss the bigger picture. I think Europe is poised to be the world's next fountain of innovation; far more so than the US. Here's why.
Europe has two huge capital stocks that no one else in the world does: social and cultural capital. These are the fundamental drivers behind the innovation clusters M talks about
Now, measures like GDP don't capture the value created by these capital stocks because, in Europe, social + cultural capital = creative industries; the goods in these industries are difficult to protect, and so rents are appropriated, most often, by people outside Europe. Europe's challenge, then, is to capture a share of the value it's innovative capacity creates.
Leave aside, for a second, the fact that living in the States is, by any realistic measure of social or cultural value, deeply inferior; leave aside for a second the fact that the Friedmanite argument completely misses the fact that markets can't solve public goods problems like healthcare, and so...welll...Americans die because they're poor and sick.
Let's focus on a more concrete, less emotional argument. The bigger point I want to make is that the Friedmanite argument misses the fact that markets, often, kill culture and the social dead.
Put another way, the simple fact is that the world's cultural innovations are invented in Europe, and diffuse outwards from there. Europe is still the world's media, fashion, art, culture epicenter.
Just think about the wasteland the American "market" for media - really, a collection of monopolistic markets - has created; contrast it with, I don't know, the Beeb, the CBC, RAI, etc. That's a a very important comparison - because those dynamics are the future of all consumer industries.
Consider how many of Hollywood's great actors and directors aren't American. Consider the fact that Hollywood's blockbusters, for the last ten years, have been essentially European (or Japanese) exports. Consider how many great fashion designers are American (no, Ralph Lauren and P Diddy don't count). Consider the fact that reality TV - the present and future of TV - is a European export.
The point is simple: knocking Europe is to completely miss the reason people love to live there.
Yes, M's argument is right in one respect. America is a giant market. But that's all it is - nothing more.
Is that what India and China want to be? Are they willing to pay the price America is paying - a society fraying at the seams? Anti cultures, where the life revolves solely around consumption and production? An economy where the market is chewing up and spitting out every form of capital, in the insatiable quest for near-term returns, and so the center can't hold?
This is a very real economic point. It's not mine alone. In fact, you might be surprised to find out the much of it is found in Zingales and Rajan's phenomenal Saving Capitalism From the Capitalists - two finance profs at the Chicago GSB, the erstwhile high church of market driven innovation.
The point is that Europe is more than a just a market - it has societies and cultures which are deeply distinct (and often in opposition to) the market.
In fact, if you read the tea leaves a little bit, it becomes fairly obvious why this valuable: this is going to be the only real source of advantage in a world of hypercommoditized products - mass produced with little love or emotion in India and China. Who else is going to imbue these products with meaning, create experiences, etc?
Make no mistake. It is this redefinition of consumption that is the next wave of innovation. Engineering and rationalism have their day; the friction has been sucked out of global supply chains. Innovation 2.0 is squarely, fundamentally about social and cultural capital.
America isn't losing it's innovation advantage because it lacks scientists or engineers. By any measure, it still leads the world by an enormous, tremendous margin in scientific output.
America is losing it's innovation advantage for a far more elemental reason - one so simple, and antithetical to markets, Americans can't really see it, much less discuss it. Because America has robbed Peter to pay Paul - mortgaged it's social and cultural capital for less durable, less valuable financial capital - it is less and less able to innovate in a world, where, suddenly, the economic is deeply enmeshed in the social, the cultural - and the creative.
At heart, that's the source of Europe's genius: it is, fundamentally, the most creative place in the world.
Saturday, March 11, 2006
The Big Picture
Paris protest recalls '68 riots
Public sector strikes hit Germany
Europe, the immovable object meets Economics, the irresistable force.
This is just so retarded : how can a country be possibly brought to a standstill over a measly 1.5 hour increase in the work week or a slightly less insane policy on job security? The world moved on from 40 hour work weeks and job security long time ago.
One possible reason for these events is the anti-entrepreneurialism of Europe. The kind of participative capitalism prevalent in North America - and, increasingly, in Asia - that allows employees to reap significant rewards of business success does not seem to have evolved in Europe. There are many distinctive attributes of a culture that enables wealth-creating capitalist eco-systems like the Valley, Shanghai or Bangalore, and Europe sadly lacks most of them. Some of them include openness to new ideas, a business-friendly regulatory environment, social attitude towards risk-taking and failures, non-punitive tax regimes, value for individual capabilities regardless of their ethno-religious-educational-economic background and, above everything else, an incentive structure that motivates employees by getting part of the rewards for business success. For example, it's very common for Silicon Valley start-ups to set aside 20-30% of their stock for employee options and purchase plans. Similarly, employees in Indian tech companies experience a significant rise in their purchasing power due to high and growing wages, and a lot of perks that almost verge on pampering. This results in employees having a significant stake in the success of business leading to a reduced potential for conflict between maangement and employees, and increased flexiblilty in responding to changes in the environment : it's not uncommon for techies in California or Bangalore to pull all-nighters to meet pressing deadlines. But the employees understand how critical those deadlines are and work with their managers to make the business successful. Successful businesses, in turn, create rich employees who then become the feedstock for the next generation of entrepreneurs - and the innovation machine merrily continues to chug along.
The last point is lost upon many people, but it's key to understanding the formation and sustenance of innovation clusters. Rich employees in entrepreneurial societies create a deep reserve of risk-taking capacity at the societal level, which adds to that society's competitive advantage. For example, I have seen many people who got rich off IPOs or acquisitions as employees and then quit their jobs to work on their new project, some which turned into successful businesses. Many others became angel investors or participated in venture funds, which further adds to the availability of risk capital at the grass roots level. They could not have taken these risks unless they had become financially secure at a sufficiently young age. The existence of such smart and deep pools of risk capital controlled by people educated in the school of hard knocks is key to attracting the best talent from around the world in the open and freewheeling culture of these clusters who then continue to obsessivley work on the new new thing and make even more money. Here's an example that i recently came across: Gautam Godhwani.
To use my MBA jargon, this is the key competence that North Ameerica possesses today, and one that Asia is quickly developling. I am not using the word competence lightly here : it is a rare, inimitable and valuable capability that is deeply rooted in culture and not easily replicable. Therefore, this competence is a competitive advantage for US, Canada & UK to a certain degree, and will become one for India and China as they increasingly unleash their entrepreneurial energy in the global market. You can see a lot more detailed research on this in Michael Porter's work on the formation of innovation clusters.
Europe, on the other hand, appears to be much more of an oligarchy with the old guard using capital merely as a means to buy labour without seeing it as participants in wealth-creation. The workers then return the favour in-kind, framing their relationship with the business owners through the retarded Marxist framework of class struggle and bargaining to maximize the most money they can get with the least effort.
This makes me think that Europe, on the whole, appears to be unprepared for the age of the Knowledge Worker who is a co-creator of wealth although there are a few pockets of innovation in certain industries such as mobile communications and software. But, the model is very different : it's either dumb and risk-averse Big Government money or it's led by R&D labs in large corporations such as Nokia. On the whole, Europe seems to be less capable of creating innovation clusters in new industries by grass-roots entrepreneurship and a whole lot of energetic start-ups.
Why is this the case? My hypothesis is that the socialist, anti-immigrant, and anti-entrepreneurial culture of Europe is perhaps responsible for this. I keep thinking about an interesting thought experiment to explore this hypothesis : what would happen if we were to magically transport many of these French and German workers to toil away at start-ups in California or Bangalore? Would their world-view change? Certainly, many people choose to work less to enjoy more personal time. However, there is a trade-off here, and if work itself can provide personal fulfillment or opportunity to reap large financial rewards, wouldn't it fundamentally alter how they think of work? In other words, wouldn't changing the incentives for workers replace their attitude from seeing work as drudgery that only serves to fill the owner's coffers be replaced with the attitude of working hard and taking high risks to reap high rewards?
More than anything else, I am left utterly perplexed by the philosophical undercurrents of events in Europe : have the French and German policy makers utterly diswoned the Austrian School? To see the land that was once home to giants of economic thought such as Bastiat, Mill, Hayek and Von Mises turn into a sorry spectacle of its former self would be funny, if it weren't so tragic for the economic well-being of its citizens. Optimists may hope that the current decline of Europe into economic Dark Ages will give birth to the next Renaisaance. Pessimists might see the end of the European Millennium as setting the stage for the US, and possibly India and China, to stake a claim on this millenium.
Thursday, March 09, 2006
Etech Gets Ninged?
Having gone through as much Etech stuff as I can, I have to say: it seems like Etech was less than hugely insightful about the attention economy, as many were hoping.
Now, I wasn't there. But given the fairly broad feedback I've heard, and all the stuff I've read, there seemed to be a notable dearth of good ideas.
The best, IMHO, probably Doc's notion of the "intention economy"; but even this has a fatal flaw: it squares the marketing circle nearly bringing us back to the much-loved/much-loathed "persuasion", and it's logical consequences are nasty things like focus groups and intrusion wars.
Attention is not intention; nor should it be, because intention leaves a huge gap open for heavy-handed, ham-fisted, marketing 1.0 style "persuasion" (that's when marketers begin thinking they should try to change your intention...). But I digress.
Why the lack of good, seminal ideas?
Because, like Erick Schonfeld points out, there is a big problem: there are no first principles (definitions, etc) to base discussions of attention on.
This begs the question: why not?
My take: Etech is still very much a geeky thing. And geekspeak, by itself, unfortunately, can't get to the bottom of the attention equation.
"...The problem that Slashdot faces is the tragedy of the commons. The aggregate attention of the users is the commons. Everyone has an incentive to see that maintained for Slashdot to thrive. Every poster has an incentive to defect, to get attention for themselves. So here are how Slashdot attempts to maintain the tragedy fo the commons."
This is from O'Reilly Radar's summary of Shirky's talk. Let's note a few things.
1) We are talking, here, about the oldest, crappiest piece of "social" software on th www: Slashdot. Is it really relevant to talk about Slashdot in 06? I don't think so.
2) Note the (deeply flawed) assumptions behind this analysis: attention is a public good (Slashdot threads are the public good, actually), everybody's payoffs are like Prisoner's Dilemma payoffs (are they? does everybody really want to be always and everywhere a troll? I don't think so), etc.
Let me put it another way: Etech didn't invite the guys the are really revolutionizing the economics of attention.
Who are these guys?
MySpace, teens in Korea, a handful of very smart ad + branding agencies, etc...
So how could deep learning really take place, when the real innovators weren't at the conference?
This is another form of getting Ninged - too much geekiness, too little interface.
Of course, this is just my take - so feel free to comment if you were there and loved it.
Tuesday, March 07, 2006
Marketing 2.0 Crosses the Line Between Good and Evil
Ha ha. Lemme get this straight - exactly one day after I caution Edelman (and Rubel) that a lack of transparency is probably going to get them in trouble...it does.
That's pretty rich.
"...Bloggers can take care of themselves in this evolving world."
I won't say much, except to reiterate that transparency is the basis of trust. Trust is a necessary building block of edge competencies.
Note to Rubel and Edelman: if you guys want to leverage the edge, you have to learn from your mistakes - not just shrug them off.
The question, despite what smart guys like Jarvis are saying, isn't really an ethical one; that's your mistake. It's a strategic one. You're much better of being transparent not so much because it's "right" (though it is) but because that's how self-selection happens at the edge. Without transparency, you guys will be the Yahoo of marketing 2.0 - trying, but never really learning.
This (lack of transparency) is probably also going to get Google in (deep) trouble this year as well.
Monday, March 06, 2006
Marketing 2.0: The Line Between Good and Evil
I was surprised today to read this quote from Rubel:
"..."Internet word of mouth is extremely important," said Steve Rubel, a marketing expert and senior vice president at Edelman public relations. "You see what the most vocal consumers have to say about you and about your competitors -- and they're saying it without necessarily knowing you're watching them."
Lately, I've been following Edelman (and Rubel, to a lesser degree) with some interest. I think Edelman is on the right track - he understands why 2.0 models are hyperefficient to a degree many PR/ad guys don't; they just see them as amplifiers, or mechanisms to be gamed (viz, seeding communities with thinly veiled "advocates").
So I was surprised to read this quote. Maybe it sounds more evil than it really is.
Here's the point: transparency is the basis of trust, which is the building block of social capital/communities/networks/slashes transaction costs in markets, etc. You know the score.
If marketing 2.0 is just like marketing 1.0, but more evil, (trust me) it will fail miserably. Why? Market power has shifted irrevocably to consumers. Making "strategic" moves (read: myopic ones) which squander trust will lead to marketers and PR guys never understanding how value is created at the edge.
The trick, in fact, is the opposite: to let people know you're listening, and that you can take the pain of hearing some real-world criticism.
Or think about this quote from Edelman:
"...4) Stupid does not mean anti-corporate. Note that the #1 rated video on the site is the Ebay song.
6) Why not reinvent product placement by giving avid community members samples David Weinberger's immortal word swag so they can make videos that help to co create the brand reputation prior to brand launch?".
Again, I am struck hard by the (to put it more bluntly than I would like) sheer lack of imagination in Edelman's ideas. 2.0 offers enormous new space for radically disruptive media value propositions - and the best we get is "stupid is not anti-corporate"?
Come on. 2.0 is about the firm being unbundled. It is deeply anti "corporate" in it's essence. Yesterday's bureauracy is fast disappearing because 2.0 models are far more efficient (outsourcing, Innocentive, NineSigma, etc). Isn't the point for marketers to help firms adjust to a world where they can't exert total control the conversation anymore (a la Fox News/CNN/etc)?
Come on. Is brand co-creation really that, well, lame? Is it really just the new old thing - the new product placement? Funny, I thought it was about creativity and value flowing in both directions.
I could go on. Perhaps I'm making a mountain out of a molehill; perhaps I'm (really) wrong about all this. In fact, I hope I am.
The bigger point is this: I think, based on the very simple economics of attention scarcity, that marketing 2.0 must (must - not should) be less evil than 1.0 if it's to create, rather than destroy, value. Are these datapoints that tell us the PR end of marketing 2.0 is already on the wrong track?
Sunday, March 05, 2006
Saturday, March 04, 2006
�1 in 6 male immigrants leaves Canada�
Some signs of Canadians cluing into the problems they face in absorbing imported skills in their labour market. Regular readers of b-gen would, of course, not be surprised at the findings of the study. I have blogged about this issue a number of times.
What are the chances of Canada getting this right? I remain skeptical. Stephen Harper did make this issue a part of his electoral platform, but until I see any tangible action I'd consider it as just a cynical ploy to attract immigrant votes from Liberals and NDP. Besides, the real problem is at the provincial level because professional regulation in Canada is a matter of provinical jurisdiction. Unfortunately, provincial professional associations are very powerful lobbies whose main interest is in preventing competition from imported skills so that their existing members can continue to earn high wages. They make it extremely hard, tedious and expensive for new immigrants to practise their professions in Canada by creating a labyrinth of regulations whose sole purpose is to keep as many immigrants out of their professions as possible. Of course, they hide behind pseudo-concerns of "assuring safe practices" and indulge in not-too-subtle fear-mongering about third-world educated furriners let loose in Canada. The provinces leave it up to them to work out the procedural details, which is kinda like asking union hacks to come up with procedures to qualify scab labour for work. Essentially, this creates a market failure that allows current members of professional associations to seek rents.
This is a huge structural problem with the Canadian economy. On one hand, immigrants are making up the shortfall in Canadian population growth : if Canada were to stop immigration, its population would fall and the economy would shrink due to low birth rates. For many years the replacement of retiring workers and growth in new skills has been accounted for by the immigrant labour. However, the creation of entry barriers by professional accreditation bodies creates a structural impediment for the new supply of labour and skills in connecting with the growing demand. Therefore, you have this ridiculous situation where many parts of Canada are running short of doctors, engineers and nurses but many well-qualified doctors, engineers and nurses educated in foreign universities continue to drive cabs or deliver pizzas in Toronto and Vancvouer. Clearly, this cannot go on indefinitely and as other destinations open up and compete for a share of the same migrant labour skills, Canada would lose its attractiveness.
This leads me to believe that perhaps the real problem is the separation of federal and provincial powers in Canada. Immigration is federally regulated and works in its own little silo to meet its targets of attracting targeted volumes of skills. Once those people come into the country, they are left to fend for themselves and there is no coherent strategy to ensure that Canadian society actually benefits from the increase in labour pool. The provinces are not particularly involved in helping immigrants integrate into the labour market, although they have jursdiction over regulation of professions, and thus an indirect control over such integration.
Solution? There are a few obvious options to solve the problem : get the provinces involved in immigration, or create federal accreditation standards, or help immigrants qualify for specific provincial jursidictions even before they enter the country, or change the immigration policy so that only people posessing relatively easy-to-absorb skills are brought into the country. The time to do it is now. Too many lives are being ruined by false promises held out by Canada. I have heard enough tales of woe from frustrated cab drivers in Toronto and Vancouver to see first-hand how painful this is. Of course, such retarded policy is also hurting Canada's long-term economic interests and destroys one of the few macroeconomic competitive advantages the country has. Canada must leverage the attractiveness of its otherwise tolerant and peaceful society to attract global talent and let it flourish in its beautiful, cosmopolitan cities if it wants to have any chance of creating a post-resources, post-industrial economy. $60 oil is not going to last forever, Alberta.
When you can't earn an MBA
A friend forwarded me this interesting e-book on the potential (lack of) value of an MBA, written by an Indian entrepreneur.
Disclaimer: as a matter of fact, I do have an MBA from a good school that I am quite happy to have earned. I'd like to think that I have, in fact, learnt something at b-school and my MBA has also opened up many doors for me that otherwise would have remined closed. Funny enough, I am making less money post-MBA than I made pre-MBA, but I absolutely love my post-MBA job. However, this book presents an interesting counterargument, one that I have seen many potential b-school applicants think about in some form.
My personal take on the MBA : if you are passionate about business, economics, strategy and leadership (as I am), you can't go wrong with a top MBA. However, if you see the MBA just as an escape hatch that takes you from being a code monkey at tech shop and land you a spreadsheet monkey job at an I-bank or become a consultant droid, you would most likely miss out on what could potentially be the most rewarding and enriching educational experience of your life. I *loved* each and every moment I spent at b-school. Just pick a school that in non-parochial and attracts smart people from around the world.
Bottomline: As Steve Jobs says, you gotta find what you love. Some of us find it at b-school. Others don't. How much your MBA means to you would most likely depend upon which of these two categories you fall under.
Friday, March 03, 2006
McLuhanisms - Marshall McLuhan
Just going through some of my all-time favourite stuff on McLuhan's website for the zillionth time. Did I mention that I am an utterly unabashed McLuhan groupie? He's, like, the coolest Canuck ever.