The mainstreaming of the Blackberry. How the mainstreaming of a machine is the creation new social structures - they are one and the same thing.

The Age of Beta

Wired has short piece about the rise of products in perpetual beta. Let me offer a prediction (and recommendation): in the future, products will (and should) always be beta. Tweaking will be a strategic imperative, because value will be created from the ongoing dialogue between producers and consumers. The boundaries of the firm will blur.

As usual, Wired gets the strategy backwards. This is not a bad thing - it's a momentously good thing. It imposes costs on consumers, to be sure - but if offers massive potential for new value creation - it lets consumers dictate what they want.

Pause for a second to think about the counterfactual. Would you rather have the stale old world of products by the decree of managers? The problem is that they're trained to manage, not think - not get cool products and services to market. It's consumers/buyers who do the best thinking about the products they use - but they've been locked out of the value equation, well, since the age of guilds - about 500 years ago. That's the last time this kind of dialogue really existed. That's why so many people think business is boring, stupid, and artless.

Metcalfe on why IT matters. Note to Metcalfe: the battle is over, the beancounters won - because IT ate itself.

Nick Denton Bubble

How do bubbles happen? Inductive expectations and cognitive biases.

Rise of the Beancounters

A call for 'proper blog sourcing'. Look, the Net's power hinges on it's resistance to traditional political structures. Imposing those will kill the things we like best about it, and change the incentives for people to use it.

The Three Laws of Microsoft

I haven't see MS's Janus DRM discussed much, so:

".."The missing piece, the piece that we're delivering with Janus, is the ability to extend that subscription service content onto devices, and for it to still be protected," Jason Reindorp, a manager in Microsoft's Windows consumer group, told The Seattle Post-Intelligencer. Janus will enable users to transfer songs and other digital content from subscription music sites to handhelds, cell phones and portable music players. More important for the music moguls, the software stamps the content with a use-by date, requiring users to pay-up every so often to maintain their rights to tunes and movie."

Italics are mine. Here's the link.

OK. I've argued often that micromarkets for digital goods are bound to fail, and that micromarkets for digital services are far more likely to succeed. That's because they reduce asymmetrical information between buyers and sellers, and because bundling things which are hyperbolically discounted - like 5 cent digital microgoods - is a hugely efficient mechanism to reduce risk and compensate for consumers' heterogeneous (and increasingly more heterogeneous) preferences.

It's easy to say things like this, but in the real-world, execution can reaaaalllly botch them.

Can you imagine the difference between a user-centric value proposition incorporating the above economics, and the obviously supplier-centric, value-extraction focused proposition MS has come up with? They'd be galaxies apart.

I can't think of much more MS could do to make this thing more heavy-handed. Here's the point: consumers are especially risk-averse when it comes to media, because they've gotten screwed time and time again by shady record companies, etc, etc. I hardly think a value proposition that SCARES RISK-AVERSE CONSUMERS is gonna work.

The point is that micromarkets for services offer huge room for strategic innovation which is not economically possible with microgoods business models. The future is not about 'renting songs' - it's about renting intimacy with the creators of goods, and influencing the outcomes of the goods themselves. (Read Prahalad's latest stuff for more). This works partly because it's a massive source of new value creation, and partly because it's a really, really, really cool risk-mitigation mechanism for risk-averse consumers buying experience goods - but it's the second bit that tells us this is the model that's gonna work in microservice markets.

Also note that interconnectivity is now table stakes - not added value. I can already transfer my MP3s etc between almost any device I own. MS is, contrary to it's own belief, not creating value for consumers by 'allowing' them interconnectivity.

I've read so much scaremongering about MS in the last few days, I'd like to formulate 3 principles of thinking about MS:

1) MS is strategically (much) less intelligent than you think.
2) MS is strategically (much) less capable than you think.
3) Revise expectations 1 and 2 downwards again.

And, of course, the zeroth law is:

0) MS will tactically stoop (much) lower than you think (because of 1,2, and 3).

Japan's Broadcast Flag isn't working out. What a surprise.

Yahoo's adding anti-spyware from PestPatrol to it's toolbar. This is a nice move; it's something that speaks to the evolving dot-com value equation - and it actually solves a big part of it. This is doing what toolbars were supposed to: slash the transaction costs of surfing the web.

But I still have a suspicion they'll find a way to destroy this value, by making this feature so inaccessible, or difficult to use - they'll find a way to pile transaction costs on top of it - that's their core incompetence.

Art of the Day

Manhattan Equinox. (Via Mefi).

Politics of the Day

1) The Islamization of Fallujah. Essential reading. You are fighting a war of civilizations, whether you like it or not.

Analyst Matrix

It only took NPD about five years to understand what gamers feel: games based on movies invariably suck. Really suck.

What happened? A few publishers developed strategies based around licenses as strategic assets - like FIFA, Madden, etc. Hyperimitation set in, and people picked up licenses indiscriminately, missing the point of licenses as strategic assets - they still had to be backed up with a competence in making fun games. Instead, the asset became an excuse for the resource - licenses became an excuse for making cool games, because it was assumed by publishers that licenses gave massive marketing leverage. Nonstrategy, in other words - license = strategy.

On another level, this is what happens when droids and suits gain control of creative industries - their incentives and expectations are very different from the guys that actually create. Blah, blah, blah...it's an old story by now. Of course, back then, analysts were gushing about these kinds of (non)strategies being the kind of innovation needed to grow the market.

Value Equation

AMD, Athlon 64, and the media center. We know that MS's will be locked down tighter than John Ashcroft. The only question - the big one - is where will AMD position itself in the Replication Wars? Whose side is it on? I hate to put it like that, but that's the essential question.

Snooze of the Day

The hard-drive industry, which killed itself by being the pawn between the platform coordinators. Lesson: radical innovation doesn't always pay (well, it does, just not for very long if you don't understand the dynamics of your market).

This article about indie perfumeries in the NYT fascinated me and I've been meaning to write about it for a couple of days now. It's interesting because it's such a completely pure example of a tectonic shift in consumer needs.

There's no fundamental difference in technology or technological advantage here - the big perfume houses could easily concentrate their resources and close the gap. Furthermore, note that perfume fits the traditional definition of a search good - you can test it out a million different ways before you buy, so there's no asymmetric information to cause any problems. In short, a really simple industry to think about.

The problem is that the big perfume houses are caught between two fundamentally different views of the world. The indies, who they can see are growing exponentially, are pursuing quality. But the Consultants tell them to market, and do (idiotic) things like bundling, versioning (ie gift sets) and designing products that appeal to the middle 80% of the market at the lowest cost possible. Obviously, this is a stupid strategy for many reasons, not least of which is that economies of scale in a cosmetic business are a vital point opponents can strike if you don't innovate - because you can either command market share via innovation or quality, and you're now doing neither. The problem, at heart, is that thinking in terms of 'brand' and 'loyalty' confuses this fundamental economics, which is the dominant force in the industry.

So the tectonic shift is that consumers have gotten fed up of staleness in innovation and have defected to quality, because, at the relatively higher price they're willing to pay, they have no options. This is what I mean by a 'shift in the value equation'.

Now the big perfume houses could respond - but then they'd have to change the beliefs which underlie their strategy, not just the strategy itself. So they simply won't innovate and play the game - they'll resort to greater and more violent competition inside a shrinking market segment.

Yeah, I know there are a few interesting exceptions to this dynamic, like Shiseido - but if you think about them carefully, they don't answer the new value equation consumers have thrown down either.

Consumer needs

"...clinical drug trials resulting in negative findings are routinely ignored; that the existence of these "file-drawer studies" is well-known among researchers, psychiatrists, and FDA policymakers; that the bulk of the studies concerning children show no benefit whatsoever from antidepressants; and that studies involving adults aren't much more convincing. Perhaps most shocking of all, FDA honchos even conceded that for some time they opposed adding warning labels to antidepressants because they feared it would expose the pharmaceutical industry to liability.

So far none of this seems to have had much effect on the sales of antidepressants in this country. According to a study published in the April issue of Psychiatric Services, use of these drugs by children and adolescents is growing by 10 percent a year; the fastest-growing user group is preschoolers".

The psychiatrist in the interview is a smart guy, but he misses the point. It's not big Pharma that convinced us depression was 'a disease'; it was capitalism itself - depression as disease goes back to the Industrial Revolution, which is where the meme first surfaced - along with moral panics about drugs, etc.

Any individual that threatened the social structures the machines built was (and is) subject to a host of social controls, from 'illness' to 'deviance' to, at the extreme, 'crime'.

Dot Com 2.0

The rebirth of comparison engines.

Aarrgh. I am submitting a patent for 'System of human communication by 26 primitive elements' since the PTO clearly no longer gives a damn about what it does.

The Search Wars

There won't be any - ignore the hype. The real battle is a strategic one, and it's already been won. MS's strategy - in fact, it's whole epistemology - is focused on being end-to-end (in everything, search, media, etc, etc). The problem is that this becomes a thing-in-itself - a goal to be reached regardless of reality. And reality tells us that the last thing users want is search that integrates everything in the universe; intuitively, the results of such a search are meaningless.

That's because things from different contexts have different values - that's why Google separates shopping, usenet, web, and media results from each other. Imagine having all these on the same screen: your search value would decrease exponentially, because you have a lot more crap to filter through, much of which could be autofiltered by assigning value to categories before the search even happened.

For similar reasons, personalization doesn't create search economies - it massively limits them. Let's distinguish 2 types of personalization. First, shallow personalization: this tries to contradict the economics of search - it limits the search space itself (giving the user the illusion of more effective search). Second deep personalization: this uses filter and heuristics to add it's own 'search results'. Think Amazon. The problem, again, is the same: even deep personalization needs a context - sci-fi books, horror movies, academic papers, etc. And so far, only humans can really tell what that kind of context means.

This is why the search wars are already over. End2end search as a strategic goal completely ignores the fundamental microeconomics of search itself (but MS is playing a brilliant tactical game in convincing people and opponents it knows what it's doing). Think of this as a future MSN/Passport.

The IPO Window ain't opening. What a surprise. Is this because of 'investor confidence'? The problem is that we don't really know what that means.

Outsourcing spam. Look, this if corporations can exploit the fact that basic market structures don't exist in the third world, why can't spammers? Bit of a double standard if you ask me, because it's an example of the same thing: seeking the highest return for the lowest cost/at the lowest risk.

Malware markets emerge with a vengeance in Russia.

Carlyle gets 'priority rights' to buy a major stake in KDDI's DDI Pocket. This is a form of increasing returns economists like to pretend doesn't exist: increasing returns to reputation. Reputation asymmetries tend to create greater reputation asymmetries, unless search costs are minimal. Think of it like preferential attachment for the 'double coincidence of wants' - the phrase we use to talk about what buyers and sellers must do to match themselves when markets are costly to use. And this is a very nice example of such a market.

News Corp cans satellite connectivity model for US; India skips 3G and goes directly to 4G.

OK. We've all heard by now about MS's new $50 competitor to the iPod. First point to note: they announced this at an analyst call. Second point to note: MS's meaning of 'look and feel' generally means the OPPOSITE of Apple's, ie, it's driven by the marketing droids rather than being user-driven. Third point to note: this is part of a play to gain tighter control over the entire digital media space, which means that it will have to have watertight DRM, end-to-end identity management, etc, etc, for MS to be able to leverage it with suppliers for it's music service and other services.

Given all that, my take is that it's a) massive vaporware designed to force Apple into an equally massive strategic error (like Linus Torvalds just committed) and b) going to fail miserably, because it won't solve the value equation - consumers will arbitrage away the negative value from the rights and identity controls by simply choosing a more flexible alternative.

How not to analyze tech strategy, pt 373.

Nasdaq closes it's China board because the Government launched it's own competitor, which was naturally more successful. Very interesting. Will techno-nationalism shrink the pie for everybody? Yup. Will China still launch techno-nationalist offensives in every business it can? Yup.

Why? Because it's better to have a bigger piece of a small pie than a small piece of a big pie - this is anathema to all the nice things you learned in business school. But it's true: because it's a simple matter of leverage - you've got more in the former situation than the latter. And that's the goal of any kind of nationalism, or even corporatism: leverage over other people's outcomes, not maximizing wealth.

Why is Social Software Evil?

Because it simply recreates real-world social structures and accelerates them - magnifying forces like fragmentation, atomization, and boundary-creation. This is a simple example of the fundamental axiom: the machine is antisocial.

The certification of Linux means that MS has gotten exactly what they wanted.

It's too bad geeks aren't strategists, because if they were, they'd understand that MS has just employed a classic tactic, called the Defense Through Subtle Distinction, where you call attention to any ambiguity in an opponent's proposition - no matter how small or 'subtle'. Then you can exploit it, by creating a distinction - pointing out how you (or your products, services, etc) are superior. This is a chink in the armor that can be widened with a huge variety of other tactics.

Look, the truth does come out in the end - even in nasty places like markets. The point is that it can take a long time - and you might not be around to see it, unless you can think at least a little strategically.

Of course, this decision will have huge knock-on effects on the innovation rate of the user base and, most importantly, the incentive to innovate, because it shifts the gains to innovation.

Bad move - really bad.

Gravity

Every industry has a 'natural' economics, or dominant force. Porter's 'five forces' are economic structures that are the result of this dominant force; Porter picked the ones most relevant to traditional manufacturing industries based on economies of scale. Here's an example of natural monopoly, which is a different force that creates different structures.

The Fundamental Attribution Error

Humans overestimate the impact of existing strategies on outcomes, and underestimate the impact of the environment. Example: the growth of a market. Viz: "well, it's worked so far..."

Politics of the Day

Why does American media have little credibility in the rest of the world? And Why is it losing credibility at home? Because it doesn't really publish what's news. This is a vital point that opponents could (will) strike to gain competitive advantage.

You may also want to read the conspiracy theory about elections being postponed.

Here's a nice review paper to get you started with Neuroecon.

Yeah, yeah, I've read the NYT 'innovator vs distributor' article. It's all wrong. Not much to look at here, folks - innovation and imitation are the two fundamental strategies of any kind of competition (economic, biological, etc).

This whole article is a restatement of a truism...the only thing that's going to happen here is the simple competitive dynamic of Schumpeterian rents flowing to HP, and the rest of the pie - quasi-Ricardian rents - flowing to Dell. I suggest you ignore stuff like this and go read Ron Burt, or even Duncan Watts for that matter.

Read and learn. This is seriously important work. Sociology was the first subject I really studied, and Ron Burt is one of the few guys still really pushing this field in new directions.

If you haven't read Coleman (James), go read him first. If you haven't read Weber and Durkheim, go read them first. Then you can critically think about guys like Duncan Watts, whom I'm sure most of you have heard of and thought was pretty cool.

Exogenous Shock

Lovelock compares global warming to Hitler (invoking Godwin's law on the Gaia Hypothesis itself), Slashdot panic ensues. No one else pays much attention.

I think he's making an absolutely fundamental point - all the links are at the Slashdot thread, which is worth reading.

It's too bad Bush has stocked the EPA with people still essentially on the corporate payroll, slashed and politicised funding for fat science projects that aren't related somehow to 'Homeland Security', etc, etc, etc - now, it's almost definite that nothing's going to happen until some kind of exogenous shock tips the system into disequilibrium, because the people who have expertise and commitment can't do anything - there is no game to analyse, the other side's been taken out of the game.

Fun of the Day

Speaking of Vintage Levi's, my favorite jeans, ever. They actually feel even more disgusting than they look (which is saying a lot) - a mind-blowing bit of innovation from Levi's, who's, sadly, completely lost the deep strategic lesson in a beat up pair of replica jeans.

Politics of the Day

The Pentagon's denying killing innocents at a wedding, denying it despite obvious footage of mangled dead babies. Here's, most likely, where the sad sad truth lies:

"...Meanwhile, a couple of days ago, 40 people were murdered in western Iraq while they were celebrating a wedding- an American helicopter fired at the civilians, killing women and children. Apparently, the guests at the wedding were shooting klashnikovs into the air. You'd think that the Americans would know by now that shooting klashnikovs into the air is a form of celebration and considering the fact that the party was far from any major town or city, the shots were virtually harmless. No one did anything about the shots being fired when Saddam was caught- in spite of the fact that Baghdad was a virtual firestorm of bullets for several hours. That was ok- that was 'acceptable' and even amusing to the 'authorities'. I can see how dozens of women, children and celebrating men would be a 'threat' though. Yes, it makes perfect sense."

Read the rest of the blog. Look, I know you don't come here for politics - but take it from me, I've spent a hell of a lot of time in the Third World. And where there's Kalashnikovs and rednecks - and these poor bastards were the equivalent of Iraqi rednecks - there's gonna be celebratory firing in the air. If you don't trust the Iraqis, trust me - people do it at weddings, birthdays, blah blah blah. All the time in fact (well, people also get killed by it, but not usually by helicopter gunships).

Competence Leverage

The McDVD.

Solving the Value Equation

Strategy as color. Example 1. Example 2.

Took some flak for my 'smart marketers aren't trying to market' comment below. What did I mean? It's pretty simple: smart marketers are trying to discover: to discover what the social meanings of products really are, and expose the value in them. If they're really smart marketers, they might even expose the costs in the social meanings, because that's where real revolution in consumer needs comes from.

But my point really was that the era of engineering social meanings is over - at least by corporates. Users can still engineer social meanings, but when they do, those meanings are usually dependent on hacking the product as well.

For my generation, this is easy to understand: social meanings for us have almost always been aggregate properties of goods. What is the social meaning of McDonald's? 'I'm puking it' is generally the answer. The meaning's shifted, because the way people consume McDonald's, at least in the aggregate, has shifted.

Now the academic answer is that there's a time lag between this message being formed, (or the social meaning of a good emerging, if you like), and the corporate world getting it. That's why we see marketing errors.

I think the answer's (really) different. I think that getting this picture is itself really tricky for suits, beancounters, and marketing droids alike. That's because they subscribe to a fundamentally different epistemology: for them, social meanings are properties of the market. What is the meaning of McDonald's? The confused signal the markets are sending - healthy, clean, fast food that might just be in need of a quick patch-up job.

Now, the point of all this: going from one causality to the other is a massive inversion - it's not an easy jump to make.

Make any sense? Good.

Art of the Day

Bob Peak (via LinkFilter)

Cooling, Pt 2

The Cooling of something is a classic example of an 'emergent' phenomena. Look, I know everyone and their mother thinks they know about 'emergence' after reading the Johnson book of the same name - but there's a whole lot more to it than he talks about. If you're really interested, I recommend you read Prigogine, Kauffman, and Maturana to begin with.

Here's a cool example: Dextroverse, which is a site about DXM, which is a drug in cough syrup, which kids are starting to take. It's also a nice example of how the Net is accelerating the Cooling lifecycle - before this, coordination among followers and leaders, and communication between them, was really, really, costly. It was bounded not just by the physical costs of using the infrastructure, but by the psychological costs of being cool or not cool (which, if you were unlucky, like my old pal Brian Spence, could be nearly infinite). But now it's bounded, essentially, by search costs.

Hmm. Just surfing and discovered what appears to be a fun bunch of articles about 'the current state of invention' at MSNBC. Worth a glance.

Unintended consequences of appeasement tactics.

The Cooling of something - like video games - is not as simple as saying 'retro is cool'. That's facile. It's about the inversion of control, and the curious blandness and meaninglessness that hypercompetition creates in products and services. Smart marketers exploit it. Oh wait - smart marketers aren't trying to 'market' in the first place.

But I listen to chip tunes occasionally, so you may want to hyperbolically discount the future value of my statements.

Replication Wars

Golan V Ashcroft

Challenges the removal of works from the public domain which have been given 'restored' copyrights.

This is pretty cool - go help them out.

Strategy Decay

The death of the sitcom. Good riddance - most of my generation grew up absolutely loathing sitcoms and their inane laughtracks (OK, OK, apart from Diffrent Strokes). What happened? Radical innovation by competitors because of technological discontinuities - new genres emerging from new entrants on cable networks. The interesting bit is that this drove a massive shift in consumer wants - and all of a sudden, the resources and competences of the networks and producers weren't just misaligned with the environment, they were creating competence traps: the networks would have been able to compete more effectively without those old resources and competences.

The point is that this endgame competitive dynamic is the result of the radical innovation new entrants unleashed 20 years ago. And the networks and their producers still can't really compete - the innovation is still not coming from them. Why? Because they won't get rid of their old resources and competences, which are, in the shifted environment, massive innovation blockers.

That's why they're losing share of mind, disposable income, etc, fast - my demographic, twentysomething guys, is the first to go - but the others aren't far behind.

Of course, I didn't have to write all this - I could have just corporate TV sucks, and I think you would have gotten the picture.

Here's a nice piece for context:

"...There's a scene in one of the "Back to the Future" movies, set in the year 2015, where Marty McFly Jr. walks into his family's television room and barks out a lineup of TV channels he would like to see. Seconds later, a big movie-theater-like screen lights up with a grid of multiple TV screens, each showing a live broadcast of his favorite channels.

This is what Hollywood thought TV of the future would look like."

And here's an example of another industry who's business model is decaying - and again, the rot is as much internal (competence traps and strategic myopia) as external (technological discontinuity).