-
Strategies for a discontinuous future.





Consulting & advisory, research notes, in the press, about bubblegen,
next wednesdays.





Friday, March 11, 2005
 


Link of the Day - the Software LT

Joe Kraus with an absolutely killer post on the LT in general, and for software specifically. No comment, just go read it:

"...That�s why, in the software business, the traditional focus has been on dozens of markets of millions instead of millions of markets of dozens."

The most lucid LT post I've read yet - essential reading.

-- umair // 6:00 PM //


 


Pricing Media 2.0

Kuro5hin discusses how to price prosumer on-demand TV. Mostly, fundamentally misunderstanding the economics of the media industry - but interesting if only to reveal what kinds of pricing strategies people will try, and fail with.

-- umair // 5:44 PM //


 


Media 2.0

Not a bad attempt at a first framework for prosumer media market spaces. Quite good, in fact.

-- umair // 5:36 PM //


 


Vlinks

Jarvis on cross-media links, ie, the need for links within video (and audio). To be sure, they're coming.

The interesting part is the disruptive effect massive link inflation will have on the Web. It will absolutely devalue links as we know them now, fueling not vertical search, but what's after that: horizontal search. If you don't follow, imagine searching a cross-media web for 'Jeff Jarvis' - in this case, you need horizontal aggregation, not vertical aggregation.

-- umair // 5:31 PM //


 


Living Room Wars

A nice summary piece.

-- umair // 5:15 PM //


 


2005 is 1984

On IP today:

"...Hi Dave,

As an attorney, practicing in the areas of international business and immigration law, it has come to my attention through discussions with other attorneys, that DHS is pulling aside "selected" aliens at entry checkpoints and bringing them into a separate room which contains a DHS computer connected to the internet. The aliens are told to bring up their various email accounts on the screen and enter their passwords. DHS then reads the emails for information pertaining to possible unauthorized work or other matters and questions the aliens on these findings. Of course, no attorney can be present at these interrogations! People travelling to the U.S. should be aware that a possible search of them by DHS now also means a search of their email accounts!"

If true, I am absolutely f*cking astounded. Welcome to your thought policed future.

-- umair // 5:10 PM //


 


HBS vs Hackers

In the wake of the HBS vs 'hackers' scandal, HBS has said:

"...Our mission is to educate principled leaders who make
a difference in the world. To achieve that, a person must have many
skills and qualities, including the highest standards of integrity,
sound judgment, and a strong moral compass -- an intuitive sense of
what is right and wrong. Those who have hacked into this Web site have
failed to pass that test."

I would like to (take a cheap shot and) point out that George W. 'Iraq set us up the bomb' Bush is an HBS grad.

-- umair // 5:06 PM //


 


Centerstage - a media center app for Macs (and Mac Minis).

-- umair // 4:50 PM //


 


Matrix

Comparing Sun's grid to IBM's grid. From a Sun blog, to be sure, but some interesting reading nonetheless.

"...Utilities aggregate demand. Aggregation isn't possible without standards and uniformity."

An interesting observation - I'm not sure I agree with this, and I think it reveals a bit of a blind spot in Sun's strategy. Utilities are not just aggregators (in fact, they don't even have to be aggregators) - more than that, they're commoditizers.

-- umair // 4:42 PM //


 


3G and Beyond

Push-to-view has all sorts of interesting (and actually relevant, unlike MMS) possible applications.

-- umair // 3:47 PM //


 


PR 2.0

Scoble points to this piece about being influence-able vs being an 'influencer'. This is the first vaguely insightful PR piece I have read in a long time. It's not revolutionary, but it nails the paradigm shift that must happen.

-- umair // 3:44 PM //


 


Marketing 2.0

You can now order pizza delivery through Everquest.

-- umair // 3:38 PM //


 


Distributed Economies of Scale

Just occurred to me that a measure of distributedness would be an extremely useful analytical tool. By that I mean we quantify, for example, capital intensity to refer the level of capital necessary to produce a given unit of output. This lets us classify and analyse industries and firms with different economics nicely.

A similar measure of distributedness - capital distributedness - would also be very useful, because it would measure the relative power of the distributed scale economy an open access business model has. This is not the same as simple network size, because it's a ratio of distribution to output - there are two variables involved.

-- umair // 2:10 PM //


 


Disruptions

Using Bluetooth mobile viruses to create mesh networks (to carry useful data) as alternatives to MNOs. Now that is a cool idea.

Of course, calling p2p a 'new mode of civilization' may be taking things a little too far (!).

-- umair // 2:01 PM //


 


Blogosphere Hysteria

Part 1, Technorati vs Technorati - I'll go with Russ's comments on this one. I think it's not a great move for one of the prime movers of the blogosphere to be seen as effectively censoring the blogosphere.

Part 2, Apple guy vs no one in particular.

-- umair // 12:37 PM //


 


Publishing 2.0

/. discussion about open-access publishing is well worth a read.

-- umair // 12:12 PM //


 


Verticalization, Pt 2

I think it's important to be clear about what verticalization means. It's not rebranding the same model across different domains - it's tailoring and remixing components of the dominant design for maximum efficiency within each domain. It's a game of recombinative innovation.

Peerflix, I think, demonstrates how. By remixing the market-making component of the switchboard model (ie, by replacing auctions with simple matching), Peerflix achieves a model which is inherently more efficient than eBay (etc).

Now, whether we're talking about search, as Battelle does, or b-model economics, as I'm doing - the point remains that verticalization implies tailoring the model to a specific domain.

If this seems obvious, I'm only going on about it because I can feel a lot of entrants who don't do much more than rebrand an old model - which is a surefire recipe for failure.

Next verticalization entry will discuss why industries fragment...

-- umair // 12:03 PM //


 


Innovation Killaz

"...But the bill also fits into the broader context of what Jacob Hacker, a political scientist at Yale, calls "risk privatization": a steady erosion of the protection the government provides against personal misfortune, even as ordinary families face ever-growing economic insecurity."

Says Krugman about the new bankruptcy bill. Risk privatization is a nice term that concisely expresses Bushco's strategy - to shift risk from the corporation to the average Joe.

This has the unsurprising effect of, on average, boosting earnings. But it also has a nasty secondary effect: increasing industry concentration, because risk privatization is a monopoly power mechanism. That is, it increases the market power of aforementioned evil corporations as well.

All of which means two things are likely. First, innovation takes an even bigger hit than it already has. If people are heavily penalized for going bankrupt - if they bear proportionally more damage for the same amount of risk - their preferences will become more and more risk averse.

Second, people will arbitrage risk privatization. By this, I mean bankrupt people who want to start over will simply move to India, China, or somewhere with opportunities. God, Bush is so like a 3rd world tinpot dictator it never ceases to amaze me...

-- umair // 11:23 AM //


 


nicheBays

The Beeb on Zopa, talks a bit about p2p verticalization.

-- umair // 10:49 AM //


 


Speaking of India, do not mimss the excellent survey on India and China in a recent issue of the Economist.

-- Mahashunyam // 7:09 AM //


 


India's pre-eminent scientist talks about the growing R&D prowess of Indians. Fascinating.

-- Mahashunyam // 7:06 AM //


Thursday, March 10, 2005
 


Art of the Day

GI talks to Nobuo Uematsu, who's the composer of the Final Fantasy soundtracks, which are usually incredibly good - in fact, just reading this had me humming Bugenhagen's Theme (which I haven't heard since 98!).

-- umair // 2:17 PM //


 


Google vs Google

The Autolinks debacle actually made it into the J - with the hysteria meter now on red:

"...What if you had worked hard to design a Web page, carefully placing links just where you wanted them and carefully selecting the Web destinations to which those links led? And then, what if a company with great power on the Web started adding its own links to your page, drawing visitors away from your page to other sites of its own choosing?"

From debacle to fiasco - Google's first strategic error? A tactical mistake, let's say.

-- umair // 2:13 PM //


 


XBox 2

Details revealed (sub) - getting past the performance hype, the most interesting thing is an integrated micropayments system. Nice idea, given the hypergrowth of virtual economies - all of which has been begging for an integrated, ubiquitous, universal platform. Performance wise, we'll have to wait and see what the Cell can do...

-- umair // 2:10 PM //


 


Advertising 2.0

This ad from the J caught my eye - a popup advertorial?! Strange.

-- umair // 2:09 PM //


 


P2P Verticalization

Another example from today: Academici launched today - a networking service for academics. Strange idea?

"...Something which is not communicated, is nothing; the more something is communicated, the more it becomes....academici invites you to communicate!"

Says one of the testimonials - nice one!

No Peerflix, but interesting nonetheless.

-- umair // 2:08 PM //


 


Startup of the Day - eBay 2.0

Peerflix lets you trade DVD's (and, in the future, other stuff) you don't wanna watch anymore. Peerflix takes $1 per trade. Good idea? Great idea.

OK. This, I think, is a big deal. It's innovating p2p economics - what we sometimes call the switchboard model - in three ways. First, via simple price competition (eBay's average is a 7.3% per sale commission). Second, leveraging higher search value in the niche to make the value proposition viable. Third, most important, by slashing transaction costs wherever possible. On Peerflix, you don't have to bid, etc - you just trade. This means, in theory, Peerflix can be inherently economically superior to it's competitors.

I think attacks from niche players are going to increase, because they can tailor their models to provide greater efficiency within the niche than players who've grown up on a scale-centric vision of the world (ie, eBay, Amazon, Google, etc). You could check out Clockspeed by Charlie Fine for my reasoning behind this. Just like Battelle thinks vertical search is gonna ignite, I think the verticalization of p2p is gonna be a Big Deal for the next couple of years.

In fact, if you remember my previous discussions about things like SoulSeek, it's been happening, but under the radar, for quite a while now.

Now, I can level a few criticism at Peerflix. First, $1 per trade is *really* high given the relative price of the good being traded. Second, I hope they have a bit of a war chest for the inevitable MPAA shock troops that will descend on them very soon (used CD stores got hammered by the RIAA in the 80s). But I think it's a killer idea with huge potential.

-- umair // 1:52 PM //


 


Abundance Marketing

Jonesing for Soda

A friend pointed me to this Canuck-grown success story. A few brilliant pearls of wisdom for the marketing droids out there.

-- Mahashunyam // 6:30 AM //


 


A whole new ballgame in grocery shopping

This is brilliant. Strategic innovations are not a monopoly of the tech industry alone. In fact, many of the best strategy ideas we see theses days are in old and boring industries such as steel or retail. Evey now and then, an innovation like this comes along and turns conventional wisdom upside down. Such innovation can then turn into a solid source of competitve advantage.

The huge lesson for me personally is that sometimes the best strategy is contrarian in nature that goes fundamentally against the prevailing industrial structure. Think about this : here's retail, as old and boring as it gets. Accepted wisdom is that the industry is characterized by relentless competition and price pressure. The only players who can win are those pursuing a low-cost strategy through economies of scale and scope, and squeezing profits off their suppliers and labour. However, someone like Whole Foods carnves out a niche by focusing on a completely different set of value drivers : replace the "shopping for cheap grocery" with "be entertained by indulgent consumption of food". Brilliant! There is no way that the Wal-Mart's and CostCo's of the world can compete against such a player who is going after focused differentiation rather than low-cost.

Historically, the cool counterpart to this is SouthWest. Airline industry was all about comfort and full-service where each airline tried to out-do all others on selling a differentiated flying experience. Remember that this was back in the days when air-travel was seen as a luxury service. However, SouthWest came in, turned the conventional wisdom upside down and utterly focused its energies on providing a low-cost flying service focused on saving money and time. No airline in the US has been able to compete against that. In fact, SouthWest has become the model for no-frills, low-cost airlines around the world such as WestJet in here in Canada and Ryan Air in Europe. Goes to show that strategic innovation can take you a long way, especially if it's based on a contrarian vision of an industry structure.

-- Mahashunyam // 5:58 AM //


Tuesday, March 08, 2005
 


Macromedia vs Micromedia

So I received a couple of emails asking me why I was being nice to Macromedia etc, after all, it could just be FUD.

It's an interesting point. I suppose the reason is that my underlying assumption FUD doesn't scale. Now, let's leave aside the example of 72% (or whatever) of us believing that Saddam = Al Qaeda, because politics has a different set of drivers.

In this case, I don't think hiring flacks to deal with every (or even most) bit of micromedia firms don't like is in the least scalable. What that means is that, on average, FUD will be found out, and firms will get even more egg on their face. Simply put, bloggers etc can devote more aggregate resources to crapfiltering than firms can to FUD.

I think this is pretty intuitive, so I think Macromedia did something cool.

-- umair // 6:26 PM //


 


Connectivity Wars

If you have no idea what the post below is about, or want a bit of review, here's a very nice context piece via NW Venture Voice.

-- umair // 3:40 PM //


 


Google Vs Google

You know, every time I try and log into Blogger these days, it's a half-hour ordeal of crashing servers and other niceties. Macromedia leaves me a comment after one post; the Blogger crashworthiness has been going on for months. You do the math.

-- umair // 3:33 PM //


 


Connectivity Wars

Om's been talking a lot about VoIP quality falling off the proverbial cliff. This is going to become a bigger and bigger competitive driver. In fact, interestingly, Cringely confirms something this week that I've heard anecdotally:

"...Here's how they plan to cripple the Vonages and Skype's, according to friends of mine who have spent 20+ years in engineering positions at telephone companies, cable companies and internet service providers. As the phone and cable companies begin offering their own VoIP services in real volume, they plan to "tag" their own VoIP packets so that at least within their own networks, their VoIP service will have COS (Class of Service) assignments with their routers, switches, etc. They also plan on implementing distinct Virtual Local Area Networks (VLANs) for the tagged packets."

So, on the one hand we have an emerging problem - on the other, the network operators' potential solution. And it's just as tricky as you'd expect. Of course, in the long term, it's a dominated strategy, because all it does it exert massive selection pressure on the Vonages of the world to radically innovate and develop discontinuously more efficient VoIP mechanisms. But you wouldn't expect the incumbents, with decades of strategic myopia behind them, to think of the long term game. Competition in this space is gonna be messy, and probably equal parts fun and frustrating to watch.

-- umair // 3:11 PM //


 


Connectivity Wars

Om's been talking a lot about VoIP quality falling off the proverbial cliff. This is going to become a bigger and bigger competitive driver. In fact, interestingly, Cringely confirms something this week that I've heard anecdotally:

"...Here's how they plan to cripple the Vonages and Skype's, according to friends of mine who have spent 20+ years in engineering positions at telephone companies, cable companies and internet service providers. As the phone and cable companies begin offering their own VoIP services in real volume, they plan to "tag" their own VoIP packets so that at least within their own networks, their VoIP service will have COS (Class of Service) assignments with their routers, switches, etc. They also plan on implementing distinct Virtual Local Area Networks (VLANs) for the tagged packets."

So, on the one hand we have an emerging problem - on the other, the network operators' potential solution. And it's just as tricky as you'd expect. Of course, in the long term, it's a dominated strategy, because all it does it exert massive selection pressure on the Vonages of the world to radically innovate and develop discontinuously more efficient VoIP mechanisms. But you wouldn't expect the incumbents, with decades of strategic myopia behind them, to think of the long term game. Competition in this space is gonna be messy, and probably equal parts fun and frustrating to watch.

-- umair // 3:11 PM //


 


Dot Com 2.0

Firepoll: get free iTunes, ringtones, etc in exchange for taking surveys.

I think this is a great model - it combines the ambition to define entirely new kinds of economic exchange that was so prevalent during the bubble, and leverages the dot com (and mobile) 2.0 infrastructure to achieve it. Excellent stuff.

Except there's a big problem. You have to download and install the Firepoll client to your machine. I think this is a strategic error - a big mistake. If members are only taking surveys, why make them d/l and install an app? Why not just coordinate through a secure site?

OK, I understand the reasons why - largely that the value prop to marketers becomes much less compelling (I don't think the technical hurdles to making this realtime over the Web are huge, given Ajax, etc) - but I think the tradeoff is too great. I think this puts it kind of over the spyware/adware/malware line. It may not actually be, but the perception will fall towards that end of the spectrum. This is a significant barrier to consumption - that's the error.

Part of the battle in this space is to educate marketers, who have been tech-phobic for a very long time - the geeks and the droids separate out when they're kids, and seemingly never get back together again. So I think Firepoll would do better to focus on a consumer, rather than marketer, friendly model. Because marketers are slowly waking up to the rich possibilities of tech - but the inverse is unlikely: consumers are not gonna give up huge amounts of privacy (on average). The consumer is king maybe should replace the content/distribution dichotomy.

So: great idea, great model, but strategic error IMHO.

-- umair // 2:36 PM //


 


Dot Com 2.0

Zopa - p2p (retail) finance - ie, p2p lending & borrowing for individuals. Killer idea - like an open-access Lloyd's for retail finance.

Things to note:

1) Two very big potential Achilles heels. First, Zopa attempts to diversify lender risk by spreading borrowing across 50 lenders, who then establish a price on the Zopa exchange. This means the rate will be dynamic, but probably not hugely volatile.

The bigger problem is the underlying one: that Zopa's rate is likely to be higher than the market rate even for the same level of risk, because Zopan lenders still can't competitively scale (even at 50x), because they still simply have less relative resources than, for example, HSBC. A 2k hit to a Zopa lender is much more costly than the same 2k*50 hit to a financial institution. This means Zopa's real target market is finance retail banks won't handle - either microloans or junk loans.

Second is the problem of adverse selection - lemons selecting themselves into the market. This is less of a problem, because I think lenders will intuitively feel this. But this problem could reduce Zopa - which could be really cool - to the equivalent of CheapLoans4U.com, where, sure, you can get a loan to buy a new Porsche even if you're only making 20k a year - but you'll be paying it back at 142% for 30 years. In fact, Zopa's already being spidered by guys like badcreditworld.

Both of these issues are related. They could be addressed by creating incentives for risk-seeking in lenders, and by creating mechanisms to deal with asymmetric info at a very good price/quality ratio (ie Equifax is not going to be a great solution for Zopan lenders, as Zopa probably knows).

2) Open-access, radical innnovation, industry revolution, post capitalism...tick all the boxes.

3) The retail finance industry has really been asking to get deconstructed for almost as long as I can remember.

4) Bad name, guys. Not because it sounds bad (it actually sounds cool), but because ZOPA's an acronym for 'Zone of Possible Agreement' in MBA-land (which is likely where the name came from), and so Googling 'Zopa' reveals much noise and little signal.

5) I think this is the most important: Zopa is only half the paradigm. By this, I mean that the model that's revolutionizing entire industries has two parts. Open-access production/distribution on the supply side, but equally important, some form of sharing on the demand side. That sharing can be explicit (file-sharing) or implicit (links to torrents, playlists, etc). The point is that Zopa is not exploiting demand side effects, which I think could revolutionize it's value prop even further.

-- umair // 11:18 AM //


 


Markets are Discussions

So I've been too busy to blog for the last few days. I'm just catching up now, and I find this comment from Macromedia in answer to my post viz the Yahoo bundling thing:

"...Hi,

Sorry if we haven't communicated about this well.

We are not actually bundling the Y! toolbar with the Flash Player. We always have the Flash player install as small and transparent as possible. 95%+ of people get it through the transparent install process. A few percent of folks choose to come to our website. On our website we make the optional offer for folks to get the Y! toolbar.

So, while we didn't make this clear enough and have to make sure we do...the story is: this is a website offer, not a bundle with the Flash Player. We are working to make this much more clear and feel pretty dumb for sending such the wrong message.

BTW, Y! is one of the top users of the Flash technologies in the world, and is doing some very cool stuff (see Yahoo Instant Messanger, and much more to come). This is a multifaceted partnership that I think will be really cool.

Regards,
David
Macromedia"

Now, I haven't had time to check out the details of David's reply. But they don't really matter. What's waaay cooler is the response itself.

Not because I particularly wanna talk to Macromedia, but because it's the opening of the channel so information can flow in both directions. Finally, we're getting beyond the false dichotomy of push vs pull to real conversation. That's where cool things like radical innovation happen - so big, big kudos to Macromedia for the comment. There aren't many firms with either the stones or the sensors to be able to do it.

-- umair // 10:58 AM //


Sunday, March 06, 2005
 


The New Radio Revolution

Businessweek has a nice summary of the turmoil in radio land (via /.).

-- Mahashunyam // 6:41 AM //


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