Umair Haque / Bubblegeneration
umair haque  


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

Wednesday, November 30, 2005

qwning the Googleplex, Pt 1

I've been meaning to wite a series of quick notes outlining how to (really) compete against Google, since it's something I'm asked all the time lately.

Since John Battelle has kicked off a discussion about whether Google's hitting a turning point, here's a quick part one.

One way to qwn Google is through connected consumption. Google has proven time and time again that it doesn't have a real competence in community. Most of it's community-based initiatives are also-rans (Orkut, News, etc).

But communities are huge sources of value creation in a post-network economy - especially when they scale. That is, they realize increasing returns via viral and network economies of scale. So, for example, rather than Yahoo (etc) trying to roll it's own communities, a much smarter play would be to begin acquiring vertical communities and build nonlinear returns to scale, because each acquisition price won't reflect network benefits.

Vertical communities create value in two ways. First, they're hyperefficient attention allocators. Second, that's because they've built huge knowledge pools about their verticals. Check out Basenotes for a quick example. The trick is that few of them realize much value now, because their networks haven't reached scale.

But the economics are clear: both of these sources of value creation are deeply disruptive to traditional consumer-facing industries. Where newspapers are today because of micromedia and ambient media, so tomorrow most consumer-facing industries will be because of communities - think magazines, department stores, and other mass players. And that means that a community roll-up player can exert huge market power over complementors - like Google - because it will own the edge of the value chain.

Of course, looking at communities this way means disregarding the standard corporate notion of communities as "consumer-generated content" or basically, just resources to be exploited/cashflows to be discounted, which is how suits usually think about communities today - and which is why they fail to realize much value from them.

-- umair // 11:30 PM // 3 comments


Core vs Edge, Pt 2

MS Classifieds - link. Too little, too late, too lame.

Honestly, if there's one company in the world that has no hope of developing edge competencies, it's MS; because edge competencies are about the very things MS is not - openness, transparency, anarchy, fuzziness, sharing.

Guys, I think you're better off sticking with the core (aka being evil).

-- umair // 11:22 PM // 3 comments


Core vs Edge

Yahoo Mail incorporates an RSS reader. While I think the product itself is certainly cool, I'm not so sure about the strategy.

I think Yahoo has been struggling with the issue of what to do with an RSS reader for quite a while. And I think this is not the best way to leverage such a valuable resource.

Here's why: Yahoo should be building edge competencies. Not focusing on features and products. That is, they should be focusing on learning how to leverage cheap coordination to create economic value through, for example, plasticity, liquidity, or newer sources.

I'm not sure that simply bundling products is the way to do this - in fact, if anything, it's a core product focused move, to drive mass market adoption, and generate switching costs via scope economies = very 1999. IMHO, it would be smarter to focus on thinking about the RSS reader in the context of an edge platform.

How do we know that Yahoo's fumbling edge competencies? Stories like this are pretty compelling evidence:

"...One of the things that troubles me the most about this situation is that I found this retailer through Yahoo! shopping and they were perceived to have positive feedback. Is the feedback mechanism for Yahoo! Shopping broken? How could this horrible retailer have a four star rating with 858 ratings?

I'm convinced that there is a possibility that many of the "reviews" for this company could be fake. I should though have sorted through the reviews to the worst to see that many others had fallen prey to similar fraud by this company."

Which are what ultimately translate into an order of magnitude difference in market cap compared to Goog.

-- umair // 10:34 PM // 0 comments


Dear Google

How are you going to qwn the world if you can't even fix my Gmail account in the last 3 hours?



-- umair // 10:16 PM // 0 comments

Sunday, November 27, 2005

Weekend Reading: Media 2.0

A killer two part series at NYBooks about the problems facing the news market. Essential - do not miss.

-- umair // 1:58 AM // 3 comments

Friday, November 25, 2005

The Ugly American : Net Edition

Outsourcing outrage

Sometimes, in the midst of talking about edge competencies and low-cost coordination, we tend to forget about how economic forces are affecting the lives of millions of people around the world. The more the world shrinks, the more we see the ugly reality of life in different societies. I can't remember who it was that articulated this profound and counterintuitive viewpoint that globalization and cheap communication will *not* lead to a more homogenized One World utopia, but in fact, create even more sharply defined boundaries among people as they get first-hand experience of other societies and cultures. Communication is not the problem, we are. Sad, but true.

Update: it was McLuhan, one of my ATF thinkers. As with so many other things, he was right on the money on this one too.

-- Mahashunyam // 6:58 PM // 3 comments

Wednesday, November 23, 2005

Four More Paragraphs on Edge Competences

Recently in my comments:

"... AdWords are very plastic, and that's an edge competency.

I wonder what kind of video prosumers are creating. Even though you can buy an HD cam and editing software cheap, it's going to be hard leverage cheap coordinating and have liquidity."

If you're going to make an error in strategy, make a small one. Do not underestimate the power of cheap coordination.

I keep highlighting it for a reason: because I think it is the defining economic discontinuity of today and tomorrow, like cheap information defined the second half of the 20th century, and the rationalization of production and supply defined the first half of the 20th century.

Like each of those discontinuities required their own new dominant strategies - respectively, core competences/disintegration, and vertical integration - so cheap coordination calls for entirely new dominant strategies: edge competences.

The signs are everywhere. Here's the most recent example:

"..."Star Wreck: In the Pirkinning" is a full-length feature in Finnish with English subtitles. It was made by a group of students and other amateur film makers with a bare-bones budget and a few home computers to create elaborate special effects."

The point is simple: edge competences let smart players leverage and internalize things like Star Wreck - and the much broader universe of more deeply disruptive possibilites cheap coordination makes economical - instead of fighting against them. Which is futile, because you can't fight economics; strategy decay in a world of hypercompetition is a very, very bad move.

-- umair // 10:13 PM // 2 comments

Tuesday, November 22, 2005

Four Paragraphs on Edge Competences

The XBox 360 is an important move for Microsoft. But I'm not sure the buzz, recognizes why: because it lets MS begin to build edge competences.

Consider core competences. Core competences were expressd through core products - products that embodied the essence of the deep, inimitable, and valuable learning these competences were composed of. Think the Walkman in the 80s and 90s, or HP printers, or the iPod in the 00s.

Now, core competences - and core products - are getting devalued. Why? Simply, because both information and coordination are cheap. Manufacturers in China can easily obtain the information necessary to build core products, and can also now coordinate efficently enough to manage production.

This means firms should shift away from core competences to edge competences. Rather than fighting against cheap coordination, edge competences let firms leverage it. How? Core products fight cheap coordination. But edge platforms leverage cheap coordination, by letting prosumers and other parties external to the firm coordinate to build value for the firm.

Think AdWords and AdSense - it's a kind of judo on Google's part. Rather than fighting cheap coordination - by locking up distribution channels Media 1.0 style, or even using nasty tactics like popups and popunders, Media 1.5 style - they've leveraged it, creating a market where nearly anyone can buy and sell ads. This, in turn, has disrupted the core competences in ad selling Media 1.0 players have spent the better part of a century building. Contrast this with Yahoo's stuck-in-the-middle approach; developing competences neither at the core, nor at the edge. If MS can avoid errors like this - if MS recognizes it must shift intent from the core product to the edge platform - potentially, the 360 can bring a similar disruption to the games industry.

-- umair // 8:39 PM // 13 comments


Intelligent Design

No comment, check the (hilarious) link (warning: extremely childish humour).

-- umair // 10:03 AM // 0 comments


RIP Link Wray

A giant and radical innovator in a bland, homogeneous culture industry.

-- umair // 9:58 AM // 0 comments


Research Note - Two Sentences on Thinking Strategically About Micromedia

If I can make a suggestion: perhaps it's more useful to think resources and (edge) competences, rather than features and technologies. I think you will find it much easier to find how and where to create powerful sources of new value creation by doing so.

-- umair // 9:46 AM // 7 comments


...Like It's 1999

Check out this Post article about avatars. Forget the 2005 = 1999, I just want an Automan avatar.

-- umair // 8:20 AM // 0 comments

Monday, November 21, 2005

Edge Competences: Plasticity

Fred talks about why the edge is important, and details many new plays leveraging plasticity - the ability to arbitrarily unbundle and rebundle resources; in this case microchunks of content with new content/distribution. Highly recommended.

Also, you may want to think about the fact that plasticity is just one edge competence. I've detailed several others; liquidity, blur, and search, to name a few. Contact me if you'd like to chat more about edge competences.

-- umair // 11:49 PM // 0 comments



So is it just my Gmail spam filter that's stopped working all of a sudden...?

-- umair // 10:27 PM // 1 comments


Media 2.0

A very interesting catch by PSFK about remixing movies, related to yesterday's post about different endings. Recommended.

-- umair // 9:54 PM // 1 comments

Sunday, November 20, 2005

Why Variable iTunes Pricing Means the Music Industry Knows It's qwned

OK. I have taken no small amount of flak recently for saying that variable pricing on iTunes is a very, very, very good thing.

I think it's amazing that people are arguing the opposite, in fact (no, this is not about signaling- it's about trying to maximize profits). Look, I am the guy that wrote the original "file-sharing is economically cool" article. So let me explain my thinking on this for a sec.

Think about what's really going on here. This is the first concrete sign that the market power record labels used to hold is shifting to consumers. Strategically, it's great news for consumers.

But let's go deeper. In fact, this is (finally) the reflection of a radical shift in music industry economics: the atomization of the core, where publishers, and labels sit, and the shift of value to the edges - to consumers, artists, and aggregators/reconstructors like iTunes. It's an admission by the industry that it is indeed deep in strategy decay.

Think about the economics of fixed pricing. Essentially, it meant that something incredibly backwards, and quite strategic, is happening: essentially, unpopular artists subsidize popular ones.

That is, the Metrics of the world subsidize the Britneys and Xtinas. Why? Simple: it costs a huge amount more to create a Britney or Xtina - marketing deals, etc are the most significant cost driver for blockbuster artists. Those higher costs should be reflected in higher prices.

So prices for popular artists should be higher than prices for unpopular ones, to reflect their higher costs. That they're not simply means that popular artists are relatively underpriced, and unpopular artists are relatively overpriced. And that, in turn means, that unpopular artists are effectively subsidizing popular ones.

Think about that for a sec. That's a big deal - it's really why we all think the music industry sucks, to be blunt.

Why? Producers can get away with mechanisms like this that create economic inefficiency when they have market power. In a situation of monopolistic competition, the music industry could enforce this - and use it to boost revenues (at the expense, essentially, of consumer surplus). But that's the point: the fact that the industry recognizes those days are long gone is a great thing for consumers.

That's because when unpopular artists don't subsidize popular ones, the industry loses a key economic component of the blockbuster model. It has less incentive to invest such huge amounts in marketing Britneys and Xtinas. Conversely, it's incentive to invest in less popular artists increases, because, counterintuitively, capital is freed up to invest more in artists, and less in marketing.

And that, in turn, means that the market is becoming more efficient: the industry is finally slowly being forced to begin producing music people want to hear (versus what gets marketed) - because this whole thing is an admission, really, that returns to marketing economies are eroding fast in a world of scarce attention.

Now, will the industry try to use this a tool, to prop up it's decaying strategy? Of course - you didn't really expect otherwise, did you? But it doesn't matter - you can game mechanisms, but not your own industry economics. And that's the point: this is a reflection of deep shifts in industry economics, which are shifting power to the edges of the value chain. And that is a great thing.

-- umair // 11:58 PM // 7 comments


Media 1.0 vs Media 2.0 vs Edge Competences

"...IT was perhaps a little embarrassing to learn that the British producers of the latest "Pride and Prejudice" released a different ending for American audiences: a swoony moonlit scene of Elizabeth Bennet and Mr. Darcy in dishabille, kissing and cooing in a post-coital clinch.

...The different endings caused a trans-Atlantic stir, but also a backlash. The film's director, Joe Wright, chose to cut the final kiss for the domestic market after test audiences in England complained, but kept it for the American market, figuring, not wrongly, that Americans are saps with a lighter allegiance to literary accuracy. Or as he put it, "I guess, in America, you just like a little more sugar in your champagne."

Interesting. Edge comepetences begin to deconstruct the boundaries between firms and consumers. This is what plasticity and liquidity really are; firms leveraging prosumers. If the industry was building edge competences, it wouldn't have to make errors like this.

-- umair // 11:51 PM // 0 comments


Weekend Reading

If there's one thing you shouldn't miss, it's Baudrillard in the NYT.

-- umair // 8:16 PM // 1 comments


Google <3 Bubblegen

A recent comment points out that Google is now sharing ad revenue with authors/publishers in Google Print aka Book Search.

That was exactly one of the points of my recent note. Very interesting, no?

-- umair // 7:00 PM // 0 comments

Saturday, November 19, 2005

Edge Competences: Plasticity

I don't have much time to blog today, but if you'd like some weekend reading, I strongly suggest you read this killer post my Michael P (again...nice one).

Now, I disagree with his take on what Joel Spolsky is saying almost absolutely - Joel's analysis is off. In fact, variable pricing is a great thing for media consumers (and producers; i discuss why here).

Michael's post is like a wrapup of recent developments in the growing plasticity of media - which is one of the edge competences that players should be developing, but instead, are getting disrupted by.

-- umair // 9:59 PM // 3 comments



Not to be harsh, but this is a quite pointless debate on Google Print. Read my research note for real insight.

-- umair // 8:13 PM // 0 comments


Reflections on Equity Research

An interesting blog on Equity Research.

-- Mahashunyam // 7:09 PM // 0 comments


R.I.P. - Peter Drucker

Trusting the teacher in the grey-flannel suit

B-schools around the world are mourning the loss of this intellectual giant. [email protected]'s tribute is here.

-- Mahashunyam // 8:04 AM // 0 comments

Friday, November 18, 2005

Edge Competences and the Post-Network Economy

The fundamental economic shift taking place in the 21st century is the shift from cheap information to cheap coordination.

In the second half of the 20th century, thing got digitized, and then networked - the cost of information itself dropped discontinuously. This made the dominant strategy hyperspecialization - to leverage this cheap info by building core competences, which are essentially, scale economies in specialization.

Now, new technologies are making coordination discontinuously cheap - it's now increasingly possible to do things with that information, without the need to build the huge coordination mechanisms firms employ; like bosses, managers, meetings, roles, and performance assessments.

At it's heart, this is why Web 2.0 is important - it's about going beyond cheap information; about dropping the costs of coordination. This is the shift to a post-network economy; where what we do with the stuff on the network is more valuable than just being part of the network.

This is why, increasingly, competences at the edge are more valuable than at the core - they let you learn how to leverage cheap coordination, to generate new sources of value; rather than leveraging cheap information, to which returns are dropping.

MIT's $100 laptop is a nice example of another driver of this stuff - it will help drop the cost of information, and the cost of coordination (assuming it can plug into the 2.0sphere). Which is why incumbents across industries should be actively thinking about edge competences, as their core competences continue to get devalued.

-- umair // 3:36 AM // 0 comments


Prices Make Markets

iTunes prices are going to get shaken up, it seems - with "multiple points" for different tracks.

This is a very good thing.

Why? It begins to make the music industry, well, obey the basic laws of economics.

As I argued a long time ago in a galaxy far away, one of the music industry's big problems is that prices transmit no information. This creates further incentives for consumers to buy insurance against the information asymmetry at the heart of the industry - file-sharing.

That is, the price mechanism itself has been a distortion in the music industry (which is amazing if you think about it). So prices will finally begin to reflect demand. Of course, the danger is that this will be used a strategic tool by the industry, just like radio playlists, which got gamed by payola. Let's hope not; they'd be shooting themselves in the foot (with a Plasma Autorifle.

-- umair // 3:00 AM // 7 comments



Michael P has a great post about bubbles in both the short and long run. Highly recommended.

-- umair // 2:41 AM // 0 comments


Media 2.0 @ 1996

Phil tracked down this killer article which talk about Media 2.0 in 96. Highly, highly recommended - it is an excellent (and illuminating, even today) read.

-- umair // 2:25 AM // 1 comments


Politics of the Day

Is it just me, or is the right in America now something beyond radical - hyperradical; something like an absurd caricature of Big Brother meets Bozo the Clown?

Check this out:

"...Keep a sharp eye on fresh developments in both Canada and Cuba, two countries with rogue, corrupt and repressive regimes that don't know when to cut their losses and leave town."

Canada and Cuba? Last time I checked, my repub buddies in the States didn't think Canada was a "corrupt and repressive regime". Maybe a little too permissive, and with better looking women. But "repressive"?

I understand that people on the right pride themselves on faith, not "reality", but isn't this just a wee bit much for any sane human whose brains have not been reduced to the consistency of ketchup by countless hours of guys like James Dobson to believe? Oh, wait...

-- umair // 12:57 AM // 2 comments

Thursday, November 17, 2005

Google + Riya

Yeah, I have heard the rumour too, a day or two back, I was pretty surprised (to say the least). I could understand <$5m for a nice tech, but it's the price that surprises me. If the rumour is accurate, $50m ish is an enormous sum for a play with zero beyond technology.

I think that tells us something quite interesting; the big guns are looking for cool ideas, but not finding anything that meets their criteria. When they do, they've got every reason to spend lots of $$$ - sitting on that much cash is not a great idea for long periods of time, especially when your expectations are being amplified by the market.

That, in itself, is a nice bit of evidence to back up the fact that they're increasingly behind the curve - I think there are plenty of cool plays around. Not a bubble, but certainly inflation...

You may also wanna check Peter Rip's blog - he backed and has posted a bit about Riya.

-- umair // 10:25 PM // 0 comments


Bangalore Pot Hole - Repositry of pot holes in bangalore.

A clue from media 2.0 to media 1.0....

From an excellent post on India-Uncut.

-- Mahashunyam // 5:39 PM // 0 comments


Research Note �
Edge Competences and Media 2.0: Newspapers Mini Case Study

There�s been a lot of attention focused recently on the plight of newspapers, in the face of falling circulation, and an exploded universe of competitors, both new entrants like startups, and lateral entrants like Google. But asking what decision-maker should do should do is to ask the wrong initial question.

Newspapers are canaries in the coal mine. The economic shift that is disrupting the structure of the media industry is deep and pervasive; within the next five years, it will touch all consumer-facing industries. What's happening to newspapers should serve as a warning signal to players across markets that the deep economics of consumer-facing businesses are undergoing radical change: change as fundamental as that which marked the shift from the industrial to the knowledge economy. To understand this change, let's define the problem the news market is facing.

The publishers, like the rest of the media industry, are facing a radical shift in industry economics; a structural disruption. Barriers to entry have been vaporized, as have switching costs. At the same time, the market power newspapers could exert over content creators and advertisers is eroding.

The fundamental reason is discontinuous drops in coordination costs, driving a micromedia explosion. Micromedia is driving ambient media consumption, bringing down iron curtains of distribution which kept media audiences segmented and advertising targeted. At the same time, the micromedia explosion has exploded the supply of content, forcing newspapers to compete for attention with entirely new kinds of media � blogs, podcasts, vlogs, machinima, and communities, to name just a few.

This is difficult industry in which to maintain profitability. But there is a relatively simple solution: to reshape industry economics, by leveraging new kinds of resources and competences.

What news execs need to do, then, is to not just adapt to a new set of industry economics, but to actively reshape them. How can they begin doing so?

Not by searching for new business models. The age-old models of advertising and subscriptions can � and are � generating strong revenues in the Media 2.0 industry. This point is intuitive; we only need to consider AdSense to understand why.

Newspaper publishers, fundamentally, must build and/or acquire new resources which can provide new sources of value creation. At the same time, they need to begin developing edge competences, to drive this value creation from those resources.

Doing so is straightforward � even paradoxically intuitive. News executives must invest in the new media value chain. When the value of old resources is exhausted, smart players shift investment to resources that can generate new value. Those that fail to do so will, as their competences and resources are devalued, see near-total margin erosion and defection.
What are the segments of this new value chain? As we've outlined, microplatforms allow prosumers to create personal media. Smart aggregators syndicate and distribute it. Reconstructors build individualized �casts of media for communities of connected consumers.

At the same time, to maximize value creation from these resources, news execs must focus on developing edge competences. Consider the core competences of traditional newspaper publishers � finding, writing, and checking stories, publishing, and selling ads.

Both of these core competences are getting � and will continue to get � increasingly devalued as value shifts away from core competences � information-based specialization � and to edge competences � coordination-based specialization.

That is, the costs of building such core competences, by acquiring information that drives learning and specialization gains, have largely been atomized; and so, the returns that flow from them must necessarily decline. For example, consider how frictionless the information necessary to specialize in publishing content and selling ads has become.

Instead, the newspaper industry should focus on building edge competences � leveraging coordination to drive new sources of specialization gains � in the same deep sets of organizational learning: finding, writing, and checking stories, and selling ads. How? Fundamentally, by making the resources involved in these activities liquid and plastic � leveraging cheap coordination to drive new sources of value creation from new resources in the emerging Media 2.0 value chain.

Consider a newspaper industry player who had invested along the new media value chain � in a microplatform, and a reconstructor; and who had also developed strong edge competences in making ads, publishing, and finding, writing, and checking stories plastic.

Such a player would be actively reshaping industry economics. By controlling microcontent, they would be exerting strong market power over buyers and suppliers. By being able to leverage new kinds of distribution � individualized �casts of microchunked content � they would be able to massively raise switching costs, as well as entry barriers. The net effect of such a player would be to capture much of the value that is shifting away from the core of the value chain, and towards the edge.

This is not a revolutionary proposition. It is simply recognizing the changing nature of media itself; recognizing that as discontinuously new technologies and changes in consumer preferences reshape industry economics, so execs must invest in new resources and develop new kinds of competences.

At the same time, what�s happening to the newspaper industry is the writing on the wall; a sign of things to come. The tectonic structural shifts that it is going through are going to affect all consumer-facing markets in the next five years.

This is because those structural shifts are driven by a fundamental change in the deep economics of those industries: that coordination has become discontinuously cheap. Cheap coordination is what drove the micromedia explosion to reshape the economics of the media industry; but it is not confined to markets like newspapers, radio, and television.

In fact, it is a structural shift in the way we produce and consume goods � one with implications for players across consumer-facing industries. Edge competences dominate the economics of cheap coordination, by letting players leverage it � instead of getting hypercommoditized and disrupted by it.

You can find more info about Bubblegen�s Media 2.0 & Micromedia practice here, more info about Bubblegen�s Edge Competences practice here, or find contact details here.

-- umair // 4:10 AM // 7 comments


More Base

Michael has a very interesting take on Base, which puts things in a very different perspective to mine - highly recommended.

-- umair // 4:08 AM // 2 comments


Link of the Day

Essential reading - no comment, just read if you're bored with the usual.

-- umair // 4:00 AM // 0 comments

Wednesday, November 16, 2005

This Post is Also Not About G**gle

Not to go echo chamber style on you, but Fred has a point when he says Google is (increasingly) lame.

Consider things this way: there is a huge opportunity to leverage peer production to do disruptive things...and the best Goog can do throw the doors open to what's essentially just a gigantic, minimally structured database, pretty transparently designed to build inventory for the same old b-model?

That is lame. Really lame.

-- umair // 10:11 PM // 3 comments


This Post Is Not About G**gle

Google Base is live.

I think this is very interesting. It gives us the first hints of Google's coming strategy decay.

There's only one question that matters, strategically: is Base the AOL-style walled garden of the 00s?

That is, are returns to info owned by Google going to be lower than decentralized info?

I think, probably, yes. That depends on my assumptions; which are that communities and markets like and TIOTI are the future of efficient attention allocation - and that Google can't play that game.

What that means is that Google keeps indexing the world's information, albeit at increasingly costly factor prices; while superior returns begin flowing to reconstructors and smart aggregators. This scenario devalues centralized mechanisms/walled gardens, like Base - because they're not part of the attention ecosystem; they're part of GoogleWorld (we really do need a name for all the info Google owns).

In the short run, it will certainly be a nice incremental revenue stream (even if it's new name is likely gonna be Google Pr0n).

But I think what it does do is begin to point to a growing vital point competitors can strike, if they'd stop being so inept - I mean, Shoposphere has its intent in the right place, but the model is economically and strategically backwards; I'd tell you why, but I've discussed how to help Yahoo more than enough for free (and I'm sure most of you can figure out the basic flaw in the model).

Then there's Amazon, eBay, VCs, and media - all attention economy players, who seem totally intent on missing the tectonic shifts right under their feet, which are eroding all their returns.

Another, marginally related point - it also points to the uncooling of Google. I mean, Base? Can you get more Orwellian, lame, sinister, connected to all the wrong stuff?

EG: Al Qaeda means "the Base".

The only name I can think of in recent memory that's more corporate is "XBox".

Man, I am so falling off the GYM bandwagon!!

-- umair // 7:18 AM // 6 comments


Bush is Jesus Mugabe, Special Macropocalypse Edition

So, remember last week, when it was curiously noted that oil industry execs weren't being sworn in for their statements? Presumably, so they could avoid perjury charges?

Well, now we know why!

"...A White House document shows that executives from big oil companies met with Vice President Cheney's energy task force in 2001 -- something long suspected by environmentalists but denied as recently as last week by industry officials testifying before Congress."

Let me skip the rhetorical questions (How is it possible for these drooling idiots to be such transparent tinpot dictators? Is this not just a little too much like a Satanic episode of Yes Minister meets Nascar?) and get straight to the point.

Like, what else could it possibly take to clue you in that Dubya, Dick, and Condi want to help their agenda and their buddies at your expense?

You've seen: a vicious terrorist attack (horrible), a war on the wrong country (amazing), the devastation of an American city (unbelievable), systemic corruption at the top (disgusting), the total mismanagement of the country's money, rendering the US a future pauper (almost inconceivable) and now, almost every day, more and more evidence of the kind of cronyism this country hasn't seen since 1929 (stupendous; congratulations should surely be in order).

Oh, wait, I figured it out.

The rest of us may want to note that cronyism like this kills economies dead.

-- umair // 5:23 AM // 0 comments

Tuesday, November 15, 2005

How Not To <3 Media 2.0

Let me tie up some lines of thinking about recent developments.

What are Media 1.0 players saying to 2.0, viz the recent moves to distribute TV programmes over the www? Basically: incremental revenue streams for old business models, meet new distribution channel.

Now, I share Michael's enthusiasm, to an extent. It's a nice first step. But...

I think it's also a killer example of strategy decay; a fatally flawed approach which digs 1.0 players deeper into their competence traps.

The point is that the shift to Media 2.0 - media in an EoIP world - fundamentally inverts mass media economics. It disrupts the structure of the media industry.

Why? Because attention becomes scarce at the margin. Attention used to be like water for the media industry - cheap, plentiful, and available pretty much ubiquitously. Now, it's like oil - expensive, scarce, and subject to more and more severe shocks.

Put another way, barriers to entry have fallen; the market power incumbents could once exert is eroding; and the universe of possible substitutes, which was once nicely walled off by iron curtains of distribution, just exploded. The Berlin Wall just fell, because you can (and do) consume all your media at once.

What that means is that the www is emphatically not just another distribution channel. It requires new ways of thinking, new strategies, and new business models. Ones which are focused on allocating scarce attention - not redistributing old episodes of Welcome Back Kotter (for God's sake).

All of which brings me back to TIOTI. Why is TIOTI cool? Well, because it threatens to be the first video reconstructor. It's a lot like, which is one of the few real audio reconstructors - it can allocate your attention eficiently by giving you individualized 'casts.

This is where 1.0 players should be focusing. This is where smart venture money should be flowing. It is a huge (huge) gap in the market, which is only narrowly met by guys like (the excellent) Memeorandum.

Think about Revver for a sec. Now, I think Revver is cool. But do you think the market size is bigger for a simple microplatform like Revver, or for a reconstructor like TIOTI? Which one can exert more market power over suppliers? Which one makes media plastic and liquid? Which one controls and can extract rents from increasingly scarce attention resources?

Pretty clearly, I think the answer is for reconstructors. Now, interestingly, the real money is in vertically integrated models - a Revver plus a TIOTI, if you like. But that requires thinking about media and technology - not just either/or.

Now if I could get reruns of Manimal or Automan, then I'd be telling you how this was teh disrutipon.

-- umair // 7:42 AM // 11 comments


The Great Disruptive Web 2.0 Search

So much for that. I haven't found any (that I can tell you about, anyways).

Honestly, the closest so far is TIOTI (scroll down). And that's not saying much, considering all they've got is four screenshots and a cool name!!!

-- umair // 7:29 AM // 0 comments


G**gle Print is Not a Library

OK. I don't wanna jump off the GYM meme, but I keep seeing this anti-argument: "but...G**gle Print is just a library".

Guys, there is a simple reason Google Print is nothing at all like a library - it's an enterprise, a company, a firm. Its only purpose is to make $$$ (sad, I know).

That means that it has every incentive to behave very differently than a library - to think strategically about how to maximize it's returns.

-- umair // 7:17 AM // 8 comments


Next Big Things - Stop the Tagging Edition

Just when you're convinced that the next 5 trillion plays you see are gonna be exactly the same thing (help me stop the tagging, won't you?), along comes something so retardedly cool, it's sure to be more than a little disruptive.

I think TIOTI is awesome, in ways that YouTube (etc) can never be (read: the social, efficient attention allocation, blah, BLAH, you know the score).

Why is it that all the cool stuff happens when I'm not in London?

Interestingly, TIOTI does something else the Valley's not - it's targeting a place in the media value chain. Imagine that.

I know, these days, in the Valley being a "media company" is something that's met with more than a little disdain. But guys, just like software, more often than not, it takes an ecosystem to help make new ventures successful. And like it or not, most new 2.0 plays are very squarely media plays - just like Google and Yahoo are.

-- umair // 6:56 AM // 1 comments

Monday, November 14, 2005

Out of Commission

Dodgy curry = mild food poisoning = me out of commission.

Had a ton of emails to send this weekend, haven't been able to - sorry if you're someone I was supposed to reply to. Hopefully, by tomorrow (or, yell at me in comments below).

-- umair // 9:10 AM // 0 comments

Friday, November 11, 2005


So I was just talking to Om, we got to talking about built-to-flipness as an anti-strategy, and he said something you can take to the bank..."GYM is the new AJAX".

That's hilarious.

So, related to my post from yesterday saying no more .0 anything, let's all try and talk about more interesting things than GYM for a while.

-- umair // 8:52 PM // 9 comments


Yahoo, Google, and 1.0 vs 2.0 vs 0.0

Today, a lot of discussion kicked off about Google becoming Yahoo 2.0, aka the next portal.

It's an interesting discussion (and I think Michael has the best summary), but I think it misses the point.

This is a product-centric discussion, centered in part around this matrix.

While that's certainly informative, let's take a step back from the product-level view of the world. Just because two firms make the same products, it does not necessarily mean they're competing with one another.

What's really happening in this space? Google has become one of the world's hyperefficient market makers. All these products are just ways to create goods (aka "inventory") to sell on that market, and, by doing so, to raise switching costs on both sides of the market).

Yahoo is not nearly such an efficient market maker. It has struggled to build a market like Google; while it's had some significant wins recently, these have been premised largely on price competition - the fact that Yahoo is a bit cheaper, not that it's market is more efficient.

What backs up the above? Google's market cap is twice Yahoo's, on roughly equal earnings. That means the market is expecting to Google to create twice as much value in the long run than it's expecting from Yahoo.

Why? The best indicators we have right now are growth and profitability. Not only is Google growing faster, but it's significantly more profitable.

Now, this is an interesting thing the market is telling us. Why is the market so favorable to Google? Is it irrational?

I don't think so. I think the market's valuation reflects the relative hyperefficiency of Google's market-making competence. It also reflects the fact that most of these product markets are dominated by first-mover advantage (as I've demonstrated). The first-mover ends up owning a dominant share of the market.

This implies something pretty important. While Google and Yahoo may continue to release similar products, Google is likely to not be worried about being Yahoo 2.0. What it's really going to do is much bigger, as we discussed last week, is index "all the world's information" - that's much broader than 1.0 or 2.0 portal style services, although this information could certainly be delivered through a portal - so it effectively becomes the world's information monopolist. That is, the single matchmaker between buyers (consumers) and sellers (advertisers, content creators, publishers, etc) of information.

Think about Google's recent moves to unbundle and sell print advertising. This requires a competence in what I've termed plasticity; it has little to do with Yahoo style portal plays.

Now, this leaves a very interesting market space for Yahoo to target, which it continually refuses to do: to be the world's attention monopolist. For Google, a world of hyperefficiently allocated attention is costly, because clicks get vaporized. Yahoo's not in this trap, and it has a huge, rich gap to exploit...

...but don't ask me why they don't do it :)

PS I know I am as (more) guilty of it than you guys, but let's please not say anything .0 for a while.

-- umair // 1:28 AM // 7 comments

Wednesday, November 09, 2005

The Trillion Dollar Web 2.0 Matrix

Nivi has come up with The Trillion Dollar Web 2.0 Matrix, which I am abbreviating to the $$$!!. It's about creating value in search. He thinks there's a trillion bucks of value in this matrix (and he's only half-kidding :).

It's got peer produced stuff on the Y axis (OPML, RSS, blog posts, links, etc), and the scope of these inputs on the X axis (just yours, you + your friends, your community's, everyones, etc).

It's a nice way to organize thinking in this space, although I think there's a fair bit of definitional confusion in the axes.

We sat down for a few minutes last week to try and fill it in, and soon discovered it was a lot harder than it looked. Nivi's opened it up for everyone to take a crack at, so, if check out the $$$!! and help kick off a discussion around it.

-- umair // 7:29 PM // 2 comments



Apparently oil industry execs aren't being sworn in:

"...Senate Commerce Chairman Ted Stevens rejected calls by some Democrats to have the executives sworn in, saying the law already required them to tell the truth."


Whose ideas was this? Certainly, not the politicians'. So I think it's pretty clear who's calling the shots here.

And having politicians obey the whims of industry so transparently can cause a kind of economics chain reaction.

You might wanna recall that (how can I say this) cronyism makes capital go to all the wrong places, which makes really nasty things happen; like Japan's decade-long funk, or many of the Asian crises in general.

-- umair // 7:18 PM // 2 comments


The TV Show Download Bunkum @ GigaOm.

I loved Om's snarkiness in this post. I can't decide which bunch of companies are worthy of more scorn: telcos or Big TV.

-- Mahashunyam // 7:40 AM // 0 comments


Next Big Things - Pull Models

John Hagel has been developing a very powerful and cool idea lately, which I highly recommend you check out.

Before I get into it, here are the links - an introductory post at his site, a lightweight article at the McK Quarterly, and the biggie, the working paper itself (PDF).

Now, I've been reading quite a few papers lately, and was recently thinking how big ideas have been few and far between. John and JSB's latest idea is killer. It's the kind of big idea that you can literally think for a looong time about, and not exhaust the ramifications. It's beginning to inform a huge amount of my new work.

It's about how pull models - models that let resources be pulled through the value chain, or more complex ecosystems, like what John calls global process networks, rather than pushed through them - are emerging as dominant designs in what I would call a world of cheap information and cheap coordination (or what John calls a world of abundance and uncertainty).

This is hyperefficient for many reasons. Pull models naturally evade traditional sources of friction, like transaction costs. Because they rely on minimal coordination - coordination is ex post, not ex ante, huge specialization gains are unlocked (ie, you pull a learning module you need, rather than having it pushed to you by a costly training manager).

This is a huge concept, that ties together many, many threads of emerging thought for me. For example, pull models help me understand why I've been so preoccupied with the evolution of cheap information to cheap coordination for a while now: cheap coordination can enable resource transformations like pulling, which unlock huge amounts of value.

Alternatively, pull models have emerged naturally across the decentralized Media 2.0 space, because the efficiency gains are simply too high to ignore. That is, they're so high that prosumers have been able to easily set them up in spaces where firms continue to fail (P2P, communities, MP3 blogs, micromedia in general).

On a bigger level, it even nicely unifies all this stuff with another idea I've been thinking about lately - something I call the Demand Singularity; which is that most strategically crucial costs are shifting to the demand side of the economy (which is a big deal, because it blurs industry boundaries, etc). Now, for one idea to unify all this stuff so elegantly is pretty cool.

That said, I wish there was a more game-theoretic (aka, dynamics of pull models used strategically) analysis in the paper, because, honestly, I can't do it. I'd also like to hear pull models related back to more econ lit - cheap info, the boundaries of the firm, transaction costs, etc.

John has been one of my biggest influences for ages. I think that if you're playing in 2.0 markets, this paper is essential reading - be sure to check it out.

-- umair // 7:14 AM // 1 comments


Search is Not a Commodity Because Oil is Like Attention

Don't will all make sense in a few paragraphs :)

I came across Nick Carr's recent piece on search becoming a commodity today. As you'd expect from Nick, a cracking read - but ultimately, I think, no cigar.

Let's distinguish between two uses of the word commodity. The first is the way Nick intends it; the way economists sometimes use it - to refer to a pool of largely undifferentiated goods.

The second is the way it's used in the biz world - to mean a good which offers little return.

Now, there are times when the two overlap - when goods which are undifferentiated will earn few returns. But not always. And this is where Nick's argument falls down.

Nick is conflating the two meanings of "commodity" - arguing that since search is becoming undifferentiated, it will also necessarily become less valuable. Does this hold?

I don't think so. Let's think strategically for a sec to understand why.

Consider another example: oil. Oil is a commodity, in the sense that it's undifferentiated. But that hasn't stopped oil giants from reaping enormous windfall profits lately.

Why? Oil is scarce. But that doesn't equal profits. The reason there are big profits for a small number of players is that there are huge barriers to entry, which means that not everyone can afford to extract, refine, and produce oil. In the real world, that means oil is not just scarce, but it's a concentrated industry, where, when there's a demand shock (read: China), a limited number of players divide a big pie.

Now, search is kind of similar. Like oil, markets set prices for search: the price of a keyword, or a chunk of attention, is set by auction mechanisms, on, for example, AdWords. Like oil, Google benefits disproportionately from a demand shock (read: ad money flowing massively to the www) because advertisers bid up keyword prices.

And crucially, like oil, attention is becoming increasingly scarce at the margin.

But more importantly, it's also a capital and knowledge intensive business. It costs a great deal to turn inputs into outputs. This creates strong entry barriers. That the industry is concentrated - there are only a handful of players, each with significant market share - is a testament to this.

So even if search is a commodity - that is, players are becoming less and less differentiated - it by no means necessarily follows that it will be devalued. The structure of the industry tells us that quite the opposite should be true.

Of course, the litmus test is reality: Search makes a 30%+ (and growing) margin. Barring some kind of discontinuity, I think it's safe to say it won't erode anytime soon.

What this means is intuitive: returns to GOOG/YHOO/etc won't likely fall until entry barriers fall. When they do, search might be commoditized, in the sense that returns will fall. If so, however, we will certainly see the structure of the industry change drastically, and concentration will decrease.

That said, I do somewhat take his point about relatively low switching costs. In fact, we just discussed it to death last week...scroll down.

Short version: switching costs are relatively low for consumers, so by building scope and scale, incumbents are trying to maintain market power. At the limit, completing "indexing all the world's information" makes switching costs irrelevant, and means you will probably only search at Google.

-- umair // 4:04 AM // 0 comments


Politics of the Day

"...In addition, the board rewrote the definition of science, so that it is no longer limited to the search for natural explanations of phenomena."

Link. Yeah, I know you know.

But if you have a sec, let me share a story with you. At my Grandparents' place, in the 3rd world, there is a kid who they have hired as kind of a night watchman. While he's on duty, he studies incessantly (which is cool with us). Then he sleeps during the day; except on those days when he has classes and exams.

He is putting himself through college this way. He is sacrificing a great deal; but when I talk to him, learning is, in itself, something incredibly powerful for him. It is not just giving him new opportunities, but it's letting him find an identity and make sense of an increasingly turbulent and technical world.

I'm amazed at kids like this. I'm amazed that there are kids across the world who would (and do) makes enormous sacrifices to learn, so they can be productive, and do cool things.

But I'm also amazed at Americans. How is it that we can - with all the advantages in the world, security, stability, education, etc - still let people deny kids the chance to learn how to learn, by voiding the scientific method itself?

I am so disgusted by this I can hardly express my contempt. These American mullahs should move to Saudi Arabia or Iran - the only other two places in the world where people actually spend so much time and energy institutionalizing fear, ignorance, and stupidity.

-- umair // 3:38 AM // 0 comments


Replication Wars

Insider's view of Napster - highly recommended.

-- umair // 3:19 AM // 0 comments


Viral Revenue Chains

The pressure continues to mount, this time it's Mark Cuban who notices the huge market gap.

As we've been discussing for ages, viral revenue streams are almost a foregone conclusion, because they are a dominant solution for the public goods problems the radically decentralized and open economics of the www creates. They're, pretty simply, the most rational and efficient solution to what people think is a messy problem - dealing with digital property rights.

Interestingly, Topix is working on a primitive version, which I think has quite a bit of potential.

-- umair // 3:14 AM // 0 comments



...Involving about five posts that are meant to be placeholder intros to Bubblegen's competences. Regular readers will probably want to skip most of today's stuff; they're topics we've already discussed a great deal.

-- umair // 12:57 AM // 2 comments

Tuesday, November 08, 2005

The Attention Economy

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Is efficient attention allocation on my list of priorities?

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

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

Can I leverage edge competences to efficiently allocate attention?

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


Network Economics & Web 2.0

As the reach and functionality of the Net grow, more and more industries are becoming network industries. Network industries are dominated by network economics, which are radically different from the industrial or knowledge-based economics of traditional industries.

Network economics are not a bubble-era figment of analysts� and economists� imaginations. Bubblegen�s recent work shows quantitatively that value creation in network industries is closely tied to the ability of firms to realize network scale economics in the real world.

This should be intuitive: the very real $200 billion plus in market cap made up of the collective incumbents of today�s consumer internet market is real-world value that has been created according to and obeys the laws of network economics. Google� emerging dominance of the advertising market, in a very short 5 years, is largely due to it�s deep understanding of how to leverage network economics to maximize value creation through hyperefficient market mechanisms.

At the same time, new technologies and models � lightweight standards like RSS, and the rise of open-access and open-source peer production models � are creating revolutions in network economics itself. They make new kinds of network scale economies possible, which deliver even stronger forms of increasing returns to players who can leverage them.

Translating a network-centric competitive position to realizing network scale economies in the real world is a formidable task. Even incumbents with strong resources and capabilities have recently struggled to maximize the potential of their business models and position themselves to realize strong returns to scale. For example, eBay is in fact realizing no network scale economies, and that Yahoo is only realizing mild returns to scale.

What are some of the key issues players in network industries must successfully resolve to realize strong returns to scale? Fundamentally, they must make sure that their operating models generate network effects, and that their business models capture a share of these returns.

Neither of these tasks is straightforward, even for resource and capability rich players � as the eBay example demonstrates. For example, on eBay, users realize the lion�s share of value from the network, leaving eBay with little.

Creating and capturing network value requires a deep understanding of both industry structures and economics, transaction models, and network models. Bubblegen�s leading-edge work on network economics is detailed in this presentation.

To get started, ask yourself:

If you are competing in a network industry, are you demonstrably realizing simple network scale economies?

If you are realizing simple network scale economies, how are your returns scaling? Are you realizing weak Metcalfe economies, or stronger Reed economies?

Are these the optimal returns aligned with your strategy and business model? Can you reposition to realize stronger network scale economies?

If you are competing in the markets touched by 2.0 technologies and models, can you leverage them to realize 2.0 network scale economies, and amplify increasing returns? How can you operationally achieve this kind of demand-side leverage?

-- umair // 11:27 PM // 4 comments


Peer Production

Peer production, sometimes called "consumer-generated content" � communities of prosumers collaboratively producing goods and services � is fundamentally reshaping industry economics and structures across markets. Its implications are as radical as are the opportunities it offers.

Peer production is a mode of production distinct from firms and markets, combining elements of both. It is premised on a fundamental economic innovation that 2.0 technologies make possible: cheap coordination.

Firms arose because information � the costs of negotiating, monitoring, and enforcing contracts in markets � is costly for many kinds of goods and services; particularly high-value or high-frequency goods and services. But firms face an internal tradeoff of their own: it is only economically efficient to specialize in value activities to the point that specialization gains are not outweighed by the costs of coordinating the labour necessary to achieve those gains. That is, firms trade specialization gains against coordination costs.

This is one reason why so much thought and innovation has gone into models of next-generation organizational and management techniques: reducing coordination costs is an extremely powerful means of unlocking specialization gains.

But unlike in the real world, 2.0 technologies offer the potential to let virtual communities of connected prosumers self-organize and almost vaporize coordination costs altogether. This unlocks hyperspecialization gains: gains that aren�t possible for real-world firms to realize.

These specialization gains are accelerated by a supply-side network effect. Because communities have permeable boundaries � anyone can join them � your joining the network of prosumers increases my value to it, because it is nonlinearly more likely that together, we can complete an activity whose output is valuable. These supply-side network effects are a powerful component of value creation which firms cannot realize, because their structures are hierarchical and their boundaries are closed.

2.0 technologies allow production to be atomized - to be subdivided into arbitrarily fine microchunks of value activities. Prosumers can self-select and manage their own interactions with these microchunks, rather than incurring the real-world coordination costs of managers, meetings, and red tape.

Because these microchunks of prosumer-contributed information can then be recombined and reused, the community realizes a second network effect: the total value of the network of microchunks is greater than the additive value of each individual microchunks.

All this implies that peer production is an extremely powerful and hyperefficient way to organize the production of goods and service that meet certain criteria. Recently, investment in peer production models has hit an inflection point: Kleiner Perkins� recent investment in Zazzle is a bet on peer production, as are the new breed of social search startups, such as JetEye, Squidoo, and, as are vertical communities, such as, Flickr, and Basenotes.

Bubblegeneration is recognized as one of the preeminent advisors on peer production strategies, economics, and business models � Bubblegen�s peer production competence is detailed in this presentation.

To get started with peer production, ask yourself:

Is information relatively cheap or expensive in my value chain?

If it�s cheap, is your value chain dominated by layer specializers with strong core competences?

If it�s expensive, what is the fundamentally scarce resource in your value chain?

How can you leverage 2.0 technologies to allow consumers access to transform this information or other scarce resource into outputs?

Is it possible to let prosumers atomize this scarce resource or information into arbitrarily fine microchunks?

Will your model realize supply-side network effects? Will marginal productivity increase in network size?

How will you capture a share of the value your network of prosumers will create? Is your business model aligned with the community�s value drivers?

-- umair // 11:24 PM // 7 comments


Media 2.0

The media industry is changing. Radical technological, management, and business model innovation is reshaping all segments of the value chain. This is the result of nothing less than a fundamental inversion of mass media economics, as well as the strategies that dominated those economics.

This inversion offers huge benefits for incumbents and new entrants alike to derive superior returns through new and strategically powerful sources of value creation. These new sources of value are laying the groundwork for an entirely new media value chain; one which leverages micromedia to deliver personalized, post-branded attentionstreams of chunked and microchunked disposable and essential media to communities of connected yet ever more hyperpolarized consumers.

What is micromedia? Micromedia is media produced by prosumers (or amateurs; sometimes, it's called "consumer-generated content"). Micromedia differs fundamentally from mass media. First, it�s usually microchunked. Second, because it's microchunked, it's plastic. Third, micromedia is liquid: prosumers can trade info about it � via ratings, reviews, tags, comments, playlists, or a plethora of othes. These are also micromedia; micromedia whose economic value lies in its complementarity with other micromedia.

Consider blogs. Their microchunking into posts is frictionless; lightweight standards like HTML and RSS coordinate it. This makes blogs plastic: posts can be cheaply linked to, syndicated, remixed, or otherwise filtered and tweaked. The open-access platforms that bloggers use to produce blogs also allow others to contribute complements, like comments, tags, and ratings; making micromedia liquid. Other kinds of services can then access, aggregate, and filter this micromedia, and, for example, individualize streams of content for communities or individual consumers.

Three acquisitions demonstrate the emerging segments of this new value chain: microplatforms, communities, and reconstructors. Fox�s recent acquisition of MySpace, largely for it�s community, illustrates the potential of Media 2.0 to reshape the way media is traditionally marketed and branded. Yahoo has already begun leveraging its recent acquisition of Flickr, which was driven by Flickr�s deep microplatform insight, to begin refocusing many of it�s properties, as well as to begin building a new competence in community-building. And although TiVo is in dire straits, it is not going down without wreaking havoc on the traditional broadcast value chain, forcing cable operators to incorporate DVRs with program guides into their core offerings � in effect, simple reconstructors which are already upsetting the delicate balance between networks and advertisers.

Conversely, it is not just that Media 2.0 offers new entrants alike the potential for economically compelling and superior returns. The costs of not entering the Media 2.0 market may simply be too high to ignore. At the limit, by ignoring Media 2.0, players may be ceding not just near-term financial gains, but also long-term strategic control of their industries to competitors. Two recent examples illustrate why.

For the last several years, the music industry has experimented half-heartedly with business models designed more to protect their decaying strategies and business models than to leverage the potential of new media technologies to revolutionize their value propositions: models fitting 1.0 economics essentially into 2.0 clothing. The list is long, extensive, and well-known Listen, Rhapsody, and the post-acquisition Napster are just a few names on it.

Now, the music industry finds itself suddenly confronted by a competitor whose competences, in the past, have only been tangentially related to music: Apple. As the dominance of the iPod & iTunes platform grows, Apple is increasingly able to dictate terms to suppliers like record labels � and is also increasingly able to command a greater and greater share of revenue from digital music sales.

Similarly, book publishers have recently been confounded by a new threat from a competitor whose competences, in the pat, have only been tangentially related to print media: Google. Google�s Print initiative, whose modest aim is to index all the books ever printed, threatens the print media market in almost exactly the same way that iTunes threatens music industry incumbents: that Google, by acting as the monopoly distributor of books over the www, will be able to dictate terms and command the lion�s share of revenues from digital book sales.

That two traditional media industries find themselves in such remarkably similar (and remarkably problematic) competence traps is no coincidence: both situations are the result of the media industry�s ongoing reluctance to fully embrace the possibilities that 2.0 technologies offer, and experiment with new business models focused on creating new value, rather than protecting old strategies and ways of doing business.

The iTunes and Google Print examples are a mini case study writ large: because very few traditional media players invested in building edge competences, a huge market gap was left open. Economics � the rich margins and scale and scope economies offered by 2.0 models � attracted new competitors from outside the industry itself, who had, in contrast, invested a great deal of capital in building exactly such competences.

These new entrants into the media industry, in effect � players such as Apple and Google � are now busy reshaping the way business is done on their own terms. Invariably, these terms are bad for media incumbents.

Bubblegeneration's pioneering and influential work on Media 2.0 and micromedia (we coined the terms) is detailed in this presentation.

To get started thinking about Media 2.0, ask yourself:

To what extent are microplatforms, micromedia, and aggregators and reconstructors a substitute or a complement for production, publishing/marketing, and distribution in my value chain?

How can I use micromedia platforms strategically, to build resources and capabilities which drive a sustained competitive advantage across my products, services, or businesses?

To what extent is increased micromedia penetration likely to erode the power of publishers, distributors, and marketers in my value chain, and shift value to the edges?

-- umair // 8:18 PM // 9 comments

Monday, November 07, 2005

Replication Wars

Is the AP joking?

"...Grokster Ltd., a leading developer of Internet file-sharing software popular for stealing songs and movies online, agreed Monday to shut down operations to settle a landmark piracy case filed by Hollywood and the music industry."

Now that is sparkling journalism. No axe to grind there, huh?

Journalism focused bubblegen readers might want to highlight this absurd, terrible, stupidly written article, which misses the whole point of the debate, and is clearly coming from not-so-objective sources (read: the RIAA).

-- umair // 8:43 PM // 0 comments


Inflation, Risk, and 2.0

One of the sure signs of bubblism is inflation in ventureland; that is, a growing pool of money chasing a shrinking pool of great ideas; this can lead to riskier deal terms, inflated valuations, or both.

Yelp just snagged a $3m A round from BVP. Now, the interesting bit is that Yelp only has 100k users.

This time last year, or even 6-8 months ago, the bar was much (much) higher - at least 500k, if not more, users.

Now, this is not inflation in valuation terms. Yelp's value/user is still pretty close to the average for all 2.0 plays.

But is inflation in terms of risk. I've heard rumblings lately that many of the risk-minimizing criteria folks were holding on to until very recently were about to go down the tubes, as they essentially become more risk-seeking, and look more aggressively for Next Big Things.

I think this a nice example that the (now) old criterion of 750k-1m users just got vaporized, and it's a nice datapoint to keep in mind.

-- umair // 7:08 AM // 3 comments

Sunday, November 06, 2005

Morgan Stanley

Morgan wakes up to the rise of the Indian Consumer.

-- Mahashunyam // 8:04 PM // 0 comments


Slashdot | Google Patent for User Targeted Search Results

More evidence to support the analysis in the recent Google-related posts on b-gen.

-- Mahashunyam // 7:17 PM // 1 comments


Media 1.0 vs Media 2.0

"..."Marketing costs are just skyrocketing, and if we don't address this we are going to put ourselves out of business," said Dawn Taubin, the president of Warner Brothers Pictures' domestic theatrical marketing, speaking about the industry.

Consider this: the average cost to market a film domestically in 2004 was $34 million, roughly half the $64 million average price tag to make one, according to the Motion Picture Association of America. Blockbusters cost even more to market: as much as $60 million domestically and $125 million worldwide.

On Wednesday, Time Warner announced that operating income before depreciation and amortization for filmed entertainment - which includes New Line Cinema, Warner's sister company - was down 30 percent, in part because of movie marketing costs.

These are confusing times for marketers like Ms. Taubin, who have found that spending buckets of money on traditional advertising - including newspapers and television - doesn't corral moviegoers the way it used to."

Link. A nice, intuitive datapoint for my fundamental hypothesis about media economics: that attention is becoming increasingly scarce at the margin, because of the micromedia explosion, and so returns to marketing are going to erode, causing the old dominant strategy in many markets - the blockbuster - to fail (you can check this ppt for more).

This is nothing less than an inversion of mass media economics, where attention has traditionally been the most abundant resource in the value chain. The new economics of media - Media 2.0 - require new dominant strategies.

Incumbents, however, find themselves in competence traps, as illustrated above - big marketing is more a liability than an asset, as it's returns fall below the point of newer competences competitors are developing: edge competences, like search, plasticity, and liquidity (you can check this ppt for more).

If you're affected by this tectonic shift in industry economics, want to find out more about 2.0 dominant strategies, or edge competences, you can contact me to arrange a workshop or seminar about Media 2.0.

-- umair // 9:19 AM // 0 comments


Missing the forest for trees and Google vs Evil

I don't know if you have been following the dialogue between Umair and others (including yours truly) on the Google Print thread, but it contains a pretty cool insight. People smarter than me may have got it rightaway, but here's my notes on what I learnt.

Briefly, here's the discussion: Umair asserted that Google is creating network FX by indexing infromation across different domains (websites, books, videos...etc). A reader and I didn't agree with it. I compared GOOG with a phone network, a classic example in network econ, and said that a phone network creates network FX for its users by connecting their consumption and thus increasing the marginal utility for each new member. Put it simply, the value of network increases for me if my friend joins it too because I can then use the network to talk to them. In case of GOOG, this is not readily apparent: if I can find a book on Google Print, it does nothing for my friend who still needs to use Google search to find the book she wants.

Umair's insight is that the network FX in this case are indirect, the real consumsers here being the advertisers. Essentially, Google attracts common users like you and me. As the number of eyeballs increases, the value of the network to the advertisers increases. This, of course, makes the network more valuable for an advertiser's competitors because they are trying to attract the same eyeballs. Thus, there are three actors here: Google, users, and advertisers. Therefore, the network FX are indirect because the utility of the network increases to advertisers through the increase in the number of common users. The network's value to common users (searching) is very different from that to the advertisers (buying attention).

It is very easy to see that the network FX created here lead to a natural monopoly dynamics in the advertisement market. However, there is one caveat: notice how Google depends upon capturing the eyeballs to create network FX. What if those eyeballs were lost? Clearly, this will destroy the network FX and make GOOG's business model useless. After all, we know that Google is still not a search monopoly: web search is pretty well an oligopoly among GOOG, YHOO and MSN. If I were a strategist for Google, what would I do to prevent the defection of the eyeballs I currently own? Where would I be speanding my dollars to attract more and more common users to my network? Thinking about this leads us to understanding GOOG's strategy.

The key to defending a strategic position is erecting a barrier to entry. Umair mentions in the thread that GOOG is indexing ever larger data cross domains which is more and more capital intensive, thus creating a finanical barrier to entry. However, this is not the whole stroy because AMZN, EBAY, MSFT and YHOO also have substantial economic resources as well as large user bases. For example, MSN+YHOO+AOL IM networks can create a huge user network. Search, by itself, is not a "sticky" service, people will quickly switch to another website if it can search stuff better. Let's not forget that GOOG itself was a fairly late entrant into the search market but it successfully competed against YHOO, Altavista and Infoseek to become a market leader.

So as he further elaborates , there is more to it than Google's searching prowess as well as the resources it takes to develop it. GOOG's indexing plus search algo's work on creating the barrier to entry on supply side. How'bout demand side? The answer to that is, as always, increasing the buyer's switching costs to reduce their power. So how does Google take its competence - indexing + search algos - and use it to increase the user's switching costs? By applying it horizontally across different vertical domains and creating linkages among them that create unique value for its users. My hypothesis is that it is this integration across domains that will be the key to Google's competitive advantage. This explains all of their recent efforts ranging from deep integration of GTalk with GMail to leverage common user ID to Google Print and Google Desktop Search.

However, the beauty of GOOG's strategy, as I understand, is that while it locks in consumers by creating these switching costs, it is the advertisers over whom GOOG exercises market power, not the consumers themselves! This is really quite cool : the traditional aim of a firm's corporate strategy is to increase its market power over buyers so that the firm can extract more profit from them through pricing of its goods and services. GOOG, however, does not directly charge anything to its consumers, rather, GOOG exercises its market power to extract something even more valuable in this economy : attention. GOOG then monetizes this attention through the money it charges to its advertisers.

Think about this scenario a few years from now: I am roaming in downtown Vancouver one saturday afternoon and using my mobile to find the exact location of a shop carrying a rare copy of an old Sanskrit text that I had found by searching on an Indian university's library archived using Google Print. Who's the ONE company that can find that shop for me? Of course, GOOG. Why? Because it has integrated vertical domains: web, languages, mobile, mapping imagery, geographic locations, businesses and print archives. How? It has applied its competence in searching across domains. Why? To increase the switching cost for a user like me and buy my attention for zero marginal cost. Why is that important? To sell my attention to GOOG's advertisers for profit and protect such advertising revenues.

If this really happens, GOOG monopoly will be more powerful than any other in known history, including our resident evil empire de jour from Redmond. The sheer scope of GOOG's ambition is breathtaking. Think of how valuable the access to Google' s network will be for the aforementioned shop which not only has its location, but also its entire inventory digitized and stored in Google's databases. Then think of how I'd ever be able to wean myself away from that network. Talk about being qwned!! Oh yes: it WILL be evil. It just has to.

-- Mahashunyam // 3:07 AM // 7 comments

Friday, November 04, 2005


...unlocks new value:

"...In a race to become the iTunes of the publishing world, and Google are both developing systems to allow consumers to purchase online access to any page, section or chapter of a book."

No time to explain the econ, but this example should make it intuitive.

-- umair // 6:08 AM // 0 comments

Thursday, November 03, 2005

Research Note - Google Print, The Economics of Being Evil, and What Eric Schmidt Won't Tell You

Google Print is dividing opinions in almost every corner of the mediaverse. So much so, that Eric Schmidt recently took the time to explain in the WSJ, that the fuss is, really, much ado about nothing.

Is this really the case? Despite all the hoopla, almost no one has taken the basic trouble to understand Google�s latest initiatives from an economic and strategic point of view - especially not the tech community, which has been the most vocal in the belief that Google Print will be less evil than the alternatives. So let�s try and understand whether Google Print is something that content creators should rationally support.

The premise of this argument is, as Tim Wu has nicely recently delineated in Slate, whether authors should prefer exposure or control. This is, indeed, a restatement of Google CEO Eric Schmidt�s central point in the WSJ: that authors stand to realize, essentially, marketing economies they could not realize without Google.

Why, then, should content creators be nervous? If they�re essentially getting something for nothing, are their fears irrational? Shouldn�t they jump on this arbitrage for all it�s worth?

I think that Google Print is classic example of a strategy with unintended consequences. I think that content creators� fears are not just highly rational, but also, in fact, are deeply rooted in the history of their industry.

Let me explain why, by following the dynamics of Google Print to their logical conclusion, and adding a few points Eric Schmidt has (rather conveniently) left out of his exposition of Google Print�s costs and benefits.

Schimdt says:

��Indeed, some of Google Print's primary beneficiaries will be publishers and authors themselves. Backlist titles comprise the vast majority of books in print and a large portion of many publishers' profits, but just a fraction of their marketing budgets. Google Print will allow those titles to live forever, just one search away from being found and purchased.�

Of course, that�s true. But to really understand potential costs and benefits to content creators, what�s much more important is what Schmidt, in a not-so-huge coincidence, leaves unsaid: the fact that Google Print is a network good. It�s value to Google increases disproportionately with the number of books indexed. Because of this simple network effect, the benefits to Google of indexing such huge amounts of books are, well, bigger than huge.

So the question we really have to ask is this: do authors also stand to gain disproportionately from the size of the network? If not, it is Google who is the primary beneficiary of Google Print � not publishers and authors. If so, Google must tie their share of revenue to the size of the index. One way to do so is to share ad revenues with content creators.

In this case, not only is Google going to share no advertising dollars with content creators � and make no mistake, ad revenues from Google print are going to be significant � it is going to take essentially a marketing fee as well. That�s pretty cheeky.

In fact, Google doesn�t share revenues to fully reflect the network value of your good in any of it�s services; for example, in its AdSense service, you may receive 70-80% of revenues generated by ads on your blog, but the reality is that your blog increases the value of the Google ad network by a greater amount than the revenues you generate (much less 70-80% thereof).

At the same time, Google Print is also a killer example of an edge competence based strategy. Like core competences in the 80s and 90s, edge competences are going to dominate the post-network economy of the 21st century. By making info about books more liquid and plastic, Google atomizes upstream and downstream segments in the value chains. For example, it dilutes Amazon�s market power directly, by massively reducing switching costs � and, in general, the market power of anyone on either side of it�s value chain segment. Value shifts away from the core, and towards the edges.

The problems with Google�s revenue sharing arrangements, as well as the strategic implications of edge competences, bring us some way closer to the real strategic issue with Google Print: network effects create natural monopoly dynamics in this market. Just like there�s only economic room for one eBay, BoingBoing, or, well, Google, there�s only economic room for one global index of books. And this is the real heart of the problem.

Where else do we see similar dynamics? Well, in the currently evil media industry, which is an oligopoly dominated by a handful of players in each market. There, marketing economies of scale and scope mean bigger and bigger players invest greater and greater amounts in more and more homogeneous blockbusters. This is bad for consumers; it�s terrible for content creators.

This is the reason why so many content creators are fed up with the current state of the media industry. Whether it is record labels, film studio, or newspapers � the structure of the industry means that content creators have almost zero power to negotiate fair deals with publishers.

But remember, in it�s current incarnation, the media industry is, for all it�s manifold sins, at least an oligopoly. Content creators do have some power � but the structure of the industry means only if you�re you�re fortunate (or unfortunate) enough to be Tom Cruise.

From my discussions with content creators, many of them intuitively understand these historical dynamics, and apply them to Google Print. As they point out, Google Print essentially makes Google a monopsonist � the monopoly buyer and marketer, or publisher, of books over the www � and this is, in fact, (something most of them find unbelievable) one of the few things that threatens to make them even worse off than before.

When they ask whether Google Print really offers a fairer deal, they have to balance losses to a monopsonist to gains from marketing economies they couldn�t realize alone. Now, certainly, the latter gains are potentially nontrivial � revenues may double, triple, or, as Schmidt points out, more.

But the former losses to the monopsonist are potentially catastrophic � the monopsonist can essentially buy your good at as low a price as he or she wants, because he or she has all the market power behind the transaction.

So the real problem isn�t whether Google�s evil or not. It�s that it is almost too efficient at what it does; it�s ruthlessly brilliant solution to rationalize the books market also positions it as, paradoxically, an even bigger threat to content creators than their current worst enemies; the marketing droids who publish their books and demand the lion�s share of revenues in exchange.

At least content creators have some market power in today�s industry; in a Google Print world, the economic implications are that they will have none. From that perspective, to put simply, sometimes, you�re better off with the devil you know.

-- umair // 9:08 PM // 13 comments


USV Sessions Feedback

Tom Evslin is very, very, very, very, very smart (and very cool). I don't say that about many people.

Over the course of one dinner and one 5 hour long conference, Tom said about 4 things related to topics I thought I'd mastered that made me write about a page of new thoughts each.

If you get the chance to meet him, I strongly recommend you take up the offer. If you don't, I strongly recommend you read (and reread) his blog.

Thank your lucky stars he's writing books instead of playing in the 2.0 space - you would be so qwned if he was (really, I am not kidding). OTOH, it would be seriously cool to see what Tom would come up with...

-- umair // 3:48 AM // 1 comments


USV Sessions Feedback: Data vs Data

One of the topics we tried to tackle at USV Sessions was the value of data in 'open' architectures/open access models.

I had a point to make, which I didn't, because Tom Evslin said something kind of mind-blowing, which totally derailed me.

So here is my point. The context was that data can't be valuable, by definition, if it's totally liquid - if everybody has open APIs, or can scrape everyone else, etc.

OK. To people that study value, like economists, "data" is by definition a commodity. What's valuable is information.

Now, bear with me. I am not making the typical cog/comp sci distinction between data and information. And this is not pointless semantics.

What is information, in an economic context? Well, it's stuff that informs production or consumption decisions. That is, we can say it's "data" that affects the risk and reward that characterize different transactions (transaction costs), or "data" about people's propensity to consume: about their expectations, preferences, and utility.

This is important. The distinction here is strategic: it should let you think more clearly about the value of information in a network economy.

Information about people's expectations, preferences, and utilities, then, is valuable "data"; but information about, say, things, is probably not.

Let me make this concrete. What are tags? Well, if we know who tagged with what, tags become expectation and preference info about different people. The value of this is intuitive; it's what lies behind the upcoming tag advertising models. It also implies that you don't wanna share your tags, unless you're getting a lot back with little risk.

On the other hand, things like job postings are just "data" - not information. They may have some marginal information value - the name of the company might give a potential job-seeker info about how high transaction costs are likely to be - but the bulk is just "data".

This is why scraper models for jobs, like Indeed, create economic value: they transform "data" into information - in fact, they do so at the moment you do a search. Conversely, this is why Craigslist is getting devalued - it's more data, and less information (ie, I can personalize it less/receive less stuff that matches my preferences, expectations, etc, than elsewhere).

The fundamental point is that data is the wrong context in which to think about any kind of network business model. If you think about them in the context of information, it's very intuitive where value lies, and to what extent you should open and close gates to this information.

-- umair // 3:34 AM // 3 comments


Recent Tweets


    due diligence
    a vc
    tj's weblog
    venture chronicles
    the big picture
    bill burnham
    babak nivi
    n-c thoughts
    london gsb

    chicago fed
    dallas fed
    ny fed
    world bank
    nouriel roubini


    uhaque (dot) mba2003 (at) london (dot) edu


    atom feed

    technorati profile

    blog archives