Slashdot Effect

PK on the end of the Slashdot Effect. Not sure if I agree - I'd wanna see more data.

My guess is that readership for Tom's Hardware has gone up relative to Slashdot, and that the reader overlap between the two has grown as well, which would explain the lack of SE.

Technorati, Bloglines, and The Economics of Feeds

Update: Got a lot of mail about this post. Like I pointed out, these are my notes - not the gospel truth. Original post follows.

Zawodny has a nice post about Intelliseek muscling into the blog intel market that Technorati opened up.

Although I've learned a great deal from it, it's been less than cool for me to watch Technorati's first-mover advantage eroding over the last few months, culminating in the Bloglines acquisition. I thought Technorati was incredibly cool from the day it launched, and I thought it had a very strong advantage.

Examining why, I think, reveals some pretty important strategic lessons about Web 2.0 (at least for me). It's a fascinating story, because it's about two players, (Technorati and Bloglines) with the same capabilities, but very different strategies - which led to very different outcomes. Here are my notes about it (based on some pretty strong assumptions - needless to say, YMMV).

There are three questions that hit me these days when I look at the blog ecosystem. First, why has Technorati stuck with a decayed standard - 'watchlists' - vs feeds? Second, why didn't it extend it's advantage to first-to-scale by locking in a user base? Third, why does Blogger continue to turn into Windows 98? Leaving number 3 aside, here are some thoughts on the first two.

Technorati, and I think most blog aggregators, have misunderstood the strategic landscape created by the economics of feeds. Just like most content aggregators are misunderstanding the economics of micromedia syndication. If I recall correctly, Technorati charged for feeds (beyond a certain minimal number). This was the first error, because the value equation is backwards.

Feeds realize network FX (because they're networked to each other - there are strong complementarities in feeds). Network FX grow exponentially. Think about it this way: on average, users realize greater gains the more feeds they can read. On average, I will get exponentially more value out of a service that offers 100 feeds than I will out of a service that offers 10 feeds.

Now, charging for feeds kills these FX. By limiting free feeds to a small number, users never realized the kind of increasing marginal utility that a large network creates. Put another way, I never used Technorati's Watchlists much because the complementarities offered by 8 feeds were tiny, and so the possible utility I could derive was bounded (Technorati limited to 8 Watchlists if I recall correctly).

So the value is not in owning the feed. That's by definition, because RSS is an open standard, and because, as I've pointed out, feeds realize network FX due to strong complementarities. So monetizing feeds is a dominated strategy.

In fact, the dominant strategy (and value) is in exactly the opposite - in owning the user, by building scale economies (offering the most feeds), creating network FX/increasing marginal utility, and offering this to the user at the lowest relative transaction costs. This locks users in to your solution.

When users read feeds mostly on your real estate, all sorts of wonderful things become possible. Profile-based ads - ads served on your info consumption preferences, as I've recently discussed - are one. But the point is much bigger than this.

The feedreader, I suspect, is becoming the browser 2.0. This is hugely important, but little discussed. Because someone else has control of your browsing,the value equation gets flipped on it's head. Now, the point of this is not that they can do evil with it. If they do evil with it, you'll switch, because evil is costly.

The point is that feed aggregators can do many cool things to create value for all players. That's because they can aggregate (your and others') private information and preferences, and use this to push info that has value to you back into your infostream. For instance, they could extend links to do cooler things, automatically add relevant tags, or offer context scraped and matched from other places, just to name a few possibilities beyond profile-based ads.

In fact, the universe of models opened up by aggregator control of browsing is absolutely massive. The value creation potential is huge. This is why funding of feedreader plays is accelerating (and why Bloglines got acquired). But, like Technorati, if you limit feeds, (or never even offer them properly, like many other would-be competitors) the user has little incentive to choose you, because his marginal utility never increases.

Now, that's the value prop. The second half of the picture is the competitive strategy. The second mistake was that Technorati (and many other blog aggregators) never developed a compelling feedreader, a la Bloglines. Simply aggregating info doesn't create protectable value unless either the info is rival (ie, others can't access it once you have; ie, not based on open standard like RSS), or you throw up imitation barriers - like adding a reader to control real estate. Otherwise, since market entry is costless, hypercommoditization is the natural result (viz the new crop of blog aggregators).

Bloglines, I think, figured this out quickly, went first-to-scale, created a superior content prop, and, critically locked users into it's real estate by creating an easy, hassle-free feedreader. So it not only outcompeted everyone else by understanding the source of value creation - network FX in feeds, and owning the consumer, rather than the feed - but also by understanding how to protect it - by offering a 'free' feedreader (whose price to the user, of course, is switching costs).

The really crucial bit to note is that all of this flows from the same capability Technorati developed first - aggregating and indexing blogs. The difference in outcomes is due to the difference in how this capability was expressed in strategies, products, features, and pricing. Two players, same capability, different strategies - different outcomes.

So what can Technorati (and the rest of the blog aggregators) do now? Clearly, favelets and tags cannot a scalable business make. Blog search on it's own has a bit of a difficult b-model. One option is to get into the ring and compete as feed aggregator - just because Blogline has been acquired, the market is by no means locked up by a dominant design. In fact, no one's even really perfected profile-based ads yet.

I am also a huge fan of micromedia and peer production these days, and I think it would be really cool for Technorati to look at those areas. There are lots of interesting and relevant ways to extend a micromedia search capability into peer production - across media (horizontal), up and down the value chain (vertical), across time vs space, etc.

Note, none of this is to say that Technorati's not a nice acquisition candidate, it's out of the gam, etc. Far from it. It's capability is still clearly valuable - the point is that that value is eroding as the markets shifts and gets closer to a dominant design for micromedia consumption.

OK. I'll end it there - this post was not meant to turn into War and Peace (really). I wanted very much to talk to the Technorati guys about this last fallish, but I just had so much to do, I never got around to it. Anyways, I wish them luck...they have huge opportunities in front of them, and I think they will grab them.

He Hate Me

So, in an irony to outdo my earlier irony, Blogger just lost a nice long post I wrote - and the 'Recover post' function is gone...!!!

God, Blogger really, really, really sucks.

Virtual Monopoly

"...Two entrepreneurs on the Elune server of World of Warcraft have recently purchased the entire auction house, then re-listed everything at prices 2 or 3 times higher than normal."

Link. Of course, as the entry notes, it takes deep pockets to beat the market, and competitors are going to bid prices down. The more interesting bit is that players are turning games more and more into arbitrage platforms, which I find a little strange, because I find playing games much more interesting than playing the market.

How to Not Analyse Econ, pt 19294

Gene Epstein, the econ editor of Barron's, responds to this piece about Wal-Mart's hidden costs at NYbooks. Not to pick on him, but his response is a great example of how to misuse econ.

"...Finally, Head's analysis leaves a great hole. A few back-of-the-envelope calculations reveal how Wal-Mart lifts the living standards of ordinary people by offering them goods at bargain prices.

In 2004, the company's domestic sales ran $210 billion. How much more would these items have cost if Wal-Mart were not selling them? According to a recent study (not mentioned by Head) from the National Bureau of Economic Research about the company's influence on food prices, Wal-Mart offers "identical food items" at prices that run "15%�25% lower than traditional supermarkets."

Assume the midpoint of that range (20 percent less) for all items sold by Wal-Mart; if the $210 billion were 80 percent of what consumers otherwise would have paid, their annual savings comes to more than $50 billion. For some perspective on that figure, after-tax income of the poorest three fifths of households runs about $1,400 billion. So $50 billion boosts their nominal income by more than 3 percent."

Let me point out just two quick flaws in this thinking.

1) The implicit assumption underlying Epstein's response is that people always buy the same amount of food regardless of price - that demand for food is inelastic. Is this a fair assumption? Obviously not - as food prices fall, people buy more food, and get fatter. The demand for food is elastic.

This is actually a point that could work in Epstein's favor. Except that, as we all know, buying cheap mass-produced food has huge hidden costs. And except for point 2...

2) Let's assume, as Epstein does, that there are no demand elasticity effects. In that case, his response is a perfect example of Bastiat's Broken Window Fallacy.

American consumers realize savings from Wal-Mart. But this does nothing to defeat the original argument that Wal-Mart's efficiency is based largely on arbitraging poor Chinese labor standards. In this case, the analysis above ignores completely the fact that each dollar American consumers save is a dollar lost by Chinese workers. Standards of living don't rise - they merely get distorted and redistributed.

This leads to a hidden cost which is, as previously argued, borne by Chinese workers, whose incentives are distorted by Wal-Mart's market power and China's currency dilution and lack of labor standards.

Because of these distorted incentives, workers' largest short-term payoff comes from working in sweatshops, rather than investing in education, technical skills, or other things which ultimately boost capital stock, productivity and total welfare across China and the US. So everyone is worse off than they would be without Wal-Mart.

Now, I go to the trouble of pointing all this out because I think the argument against Wal-Mart is intuitive, and it should be listened to. And because I think just because you've quantified your analysis, doesn't mean it's rigorous.

a9

Udi Manber chat transcript at the Post. Recommended.

Link of the Day

Killer NS piece - evolution's ten greatest inventions. Essential reading.

This piece about the eye does a nice job of explaining how small innovations in components can reshape the architecture of complex systems. Replace 'eye' with 'information' (or 'Net') and 'organisms' with 'firms', and you have a nice analogy for how the competitive landscape of production has been, and will continue to be disrupted.

"...THEY appeared in an evolutionary blink and changed the rules of life forever. Before eyes, life was gentler and tamer, dominated by sluggish soft-bodied worms lolling around in the sea. The invention of the eye ushered in a more brutal and competitive world. Vision made it possible for animals to become active hunters, and sparked an evolutionary arms race that transformed the planet...

And what a difference it made. In the sightless world of the early Cambrian, vision was tantamount to a super-power. Trilobites' eyes allowed them to become the first active predators, able to seek out and chase down food like no animal before them. And, unsurprisingly, their prey counter-evolved. Just a few million years later, eyes were commonplace and animals were more active, bristling with defensive armour. This burst of evolutionary innovation is what we now know as the Cambrian explosion.

However, sight is not universal. Of 37 phyla of multicellular animals, only six have evolved it, so it might not look like such a great invention after all - until you stop to think. The six phyla that have vision (including our own, chordates, plus arthropods and molluscs) are the most abundant, widespread and successful animals on the planet."

Micropocalypse

Largest Marburg outbreak ever is happening now in Angola.

Stepford Flies

An experiment in hacking wing and leg ion channel receptors in flies to respond to UV light, triggering complex feedback loops in motion. Gruesome, I think, although it lets us map complex autonomic motor control activity sequences.

Peer Production

The G on peer-produced cartography. Kind of misses the point of peer production - that it's hyperefficient under certain conditions - but at least they're trying.

Podcasting, Tube Version

On the tube this morning, I saw an ad for the Indepedent that was a gian picture of an iPod, with Rock, Jazz, etc menu options...and an Independent menu option at the bottom of the list. Obviously, both a reference to podcasting and capitalizing on the cool factor of the iPod

I thought it was cool, but also kind of strange - Londoners are not big podcasters.

Apple & Alphamosaic

Apple chooses Alphamosaic for mobile multimedia silicon.

Meanwhile i Tunes interoperability discussed in Congress, no doubt due to a lil help from Real.

You can check my Apple post from last week and the nice comments I received, I've been arguing that Apple has little to lose and everything to gain from pursuing a platform strategy.

Adding mobile/multimedia functionality is nice, but, just like Apple 1.0, having the coolest products does not equal having a sustainable advantage. As much as I'd luv a connected, multimedia iPod.

Reading of the Day

Didn't have time to waste this morning, but ended up doing it anyways - this Richard Preston article about mathematicians having to use their homemade cluster supercomputer to work some magic on a massive digital photo is absolutely killer reading.

Viral Economics

So I wrote a nice piece about viral econ about 9 months ago, and never posted it. This piece, (which is actually somewhat cool) outlining tactics for viral advertising, made me remember it. I'll try and dig it up.

Micromedia - Value Drivers

The cheapening of music is a nice post that gives some insight into what micromedia value drivers are gonna be.

Profile-based Advertising

Tacoda CEO talks a bit about it, but you'll have to read between the lines.

Ha ha

So after months of Blogger pain, there's now a 'Recover post' function, obviously because Wired *finally* picked up that Blogger's about as reliable as Windows 98 (ouch).

I lose about a post a day (and it's usually a good one). And you've been hearing me moan about Blogger for months. So this is a nice step for users, but the real point is that my switching costs are very low because competitors have added tons of fun new features.

Next time I have a free weekend...

Update

So I just hit 'Publish'...Blogger crashed, lost this post, it ended up taking half an hour to publish. Oh, the irony.

Free Culture

A nice post looking at various pricing tactics with free components - the comments are worth a read as well. Thought-provoking in tracking the evolution of 'free' models.

I enjoyed this comment, from this guy:

"...This discussion is rather pedestrian. It seems people are trapped in some naive 20th century, transaction-oriented time warp. The exploitative tone is unsettling� Relationship economics accounts for a growing percentage of value. The discussion may be leaning in that direction, but is way too cluttered and obtuse to be of much use.

A good example of relationship economics are the legendary 'mic farms' found at Grateful Dead concerts. Tacit endorsement of recording and sharing of concerts led to the group routinely ranking in the top $$$ grossing category for years. Why would a supplier allow/encourage widespread capture (recording), duplication and sharing of its product w/o direct economic gain? Simply to encourage the psychological self-determination of individual stakeholders, and to nurture relationship with its customers, which, of course, is the source of all value and wealth creation.

In this case, the enterprise enjoyed many-fold increase in revenue from new customers, merchandise, album sales, more sold-out concerts, personal projects, etc., etc., for "giving away stuff for free." Too many people confuse the evolutionary purpose of altruism with the social science of economics.

The traditional/academic preoccupation with scarcity has been supplanted with economic conditions of unlimited abundance. When shared, these monetizable assets increase dramatically in value, turning contemporary transaction-cost economics (TCE) and this discussion on its head."

OK, the argument has many holes, but the sentiment and points are well-taken - there are gains to 'free', or sharing, and the analysis it outside the bounds of neoclassical econ (but TCE is exactly what can explain it).

Advertising 2.0 = Advertising 1.0

BBDO CEO sez:

"...the way forward for advertisers to reach consumers would be to use wireless devices such as mobile phones, laptop computers and the BlackBerry e-mail devices favoured by travelling corporate executives on the go

...To reach them, agencies will have to develop content so engaging that mobile phone users will it seek out - a tall order.

�You have no way to interrupt because they can choose what they can do,� Mr Robertson said. �The opportunity is if you can create some content that they want to engage with, they can do that all of the time from anywhere."

Close, but no cigar. This thinking will lead to agencies having virals wars. What users will actually want, I suspect, is content they gain benefits from - not just that they engage with.

If you don't get the distinction think about seeing a plug for a viral on MeFi vs seeing profile-targeted ads tailored to your info consumption preferences in your favorite RSS aggregator.

Which is it more likely that you will gain benefits from? I strongly suspect the latter - it will point you to info, services, or products you are interested in. Whereas the former may just be, well, all style, but little substance.

Put another way, the value-prop of the latter is more efficient, not only because it's cheaper to produce, but also because you (and so the advertiser) realize greater benefits. (Via Unmediated)

Jobster vs LinkedIn vs HR

Jobster just launched - it's a referral based service targeted at 'passive' job seekers (ie, those who already have a job). It's kind of like the inverse of LinkedIn jobs - in this case, employers mail job specs onto their 'trusted networks', viral effects happen, people are recommended. So push vs pull.

I like Jobster - I think it's an innovative, fresh approach to an industry in dire need of revolution, and so a fair bet to make. But I do have a couple of concerns.

Some quick thoughts:

1) This space has seen almost a decade of failed models (and serious investment). No dominant design has emerged. Risk and return: the value of the arbitrage in this space, by increasing the efficiency of HR and eliminating headhunters, or increasing the efficiency of hiring, and eliminating HR, is massive. But so, as we've seen, is the risk.

2) Most of the models meant to disintermediate HR (or headhunters) have ended up as complements to, rather than as substitutes, for them.

3) It looks like Jobster targets HR, not decision-makers. My intuition is that gains will flow from connecting job-seekers directly to decision-makers. But I could be wrong, and Jobster could be learning from point 2.

4) I think, in general, the market gap that X vs HR solutions target is misidentified. It's not contacts that HR lacks - those are important for high-end, not mass-market, jobs - it's technical skills: they don't depth of knowledge in the fields they're recruiting for.

So the reason for HR's inefficiency is that it often doesn't have the right knowledge to make accurate hiring decisions. Will giving HR more contacts eliminate this knowledge gap? I doubt it, because it recreates the same old real-world incentive not to acquire knowledge (ie, by handing it off to others) that broke HR in the first place.

5) Which leads to my main concern about Jobster. Jobster, like LinkedIn, addresses the contacts issue via referrals from 'trusted' contacts. But in Jobster's model, competition for referrals could feed (and I tried to find a nicer term for this) HR spam wars. Of course, this depends on Jobster's referrals effectiveness rate, which depends on network size, etc...

Update: So I got a nice email from the Jobster guys, who point out that their solution is not spamworthy. They've clearly thought hard about this issue, and it looks like what they've got under wraps is gonna be pretty cool.

So, to revise what I wrote earlier - the key question in this space, IMHO, is who will begin to actually plug the gap in the market by creating incentives (and slashing costs) for HR to acquire specialized knowledge. This is when the dominant design will emerge, and I think it will be more an implicit market than a network - because markets allocate resources more intelligently more cheaply.

In fact, the way to do this might be to do the inverse of most of the current models - let job-seekers build detailed contact and verified knowledge profiles, which HR can then leverage to slash the costs discussed above. This is an implicit auction for access to HR - which creates incentives for HR to become more efficient, because the transparency of the auction will reveal inefficiency. It wouldn't be a stretch for Jobster to extend it's architecture this way...

Leapfrogging

Ed has a nice post about startups pre-empting nasty competitive dynamics from big incumbents by using a leapfrogging strategy - and how to manage the sales & marketing risks leapfrogging entails. Note, this is 90s Intelesque, but without going to Grovian 'only the paranoid survive' extremes.

Neurome Economy

A nice piece about recent work by Sony to develop a cheap, noninvasive neural interface that works by ultrasonics. I'm not sure, intuitively, if this would be commercializable - what's notable is that the momentum in this space continues to accelerate.

Media 2.0

Joe Wikert is a publisher with a blog. Interesting reading if you're trying to understand Media 2.0 vs Media 1.0, like I am.

Micromedia & Peer Production

Boosman vs Scoble on Flicker vs Webshots. I don't think Flickr and Webshots are really competitors, their strategies are vastly different. At the risk of repeating myself infinitely, I'll just say: Flickr is a platform for building on and sharing with, and Webshots isn't. I'm sure you can fill in the rest...

Art of the Day

Best video games screen caps ever: Super NES endings. Very nice.

Google vs Google

Rubel argues that Google's fallen into a competence trap, which explains why it won't embrace feeds. ie, what makes feeds work commoditizes the competences Google's worked hard to build. It's an interesting argument.

Strategic Innovation

Brotman's got a nice post on strategic innovation startup style.

Micromedia & Peer Production

Another piece on mass-media to peer produced micro/personal media, in a media industry rag, which, unsurprisingly, misses the point that micromedia works not because of technology (it's cool), but because of economics (it's more efficient).

The media industry should be worried because of the latter - not the former!

Dot Com 2.0

Consumerpedia - Wikipedia meets product reviews. You knew this was coming...

Choice Economies

Kevin L. thinks that psychic costs create choice diseconomies - that having too much choice is costly. This reminds me of Shirky 'mental transaction costs'. Kevin points to behavioral econ experiments covered by Gladwell.

I don't think we need to resort to behavioral data to make sense of this. Simply assuming bounded rationality and limited info-processing capability will yield choice diseconomies as well. If you can only process so much info, you'll reach a point after which each new choice makes decision-making progressively more inefficient.

Note, this is all essentially a restatement of the 'post-scarcity economy' question (ie, attention/info-processing is the scarce resource in an economy where tangible goods are all free/zero marginal cost): psychic costs/disutility dominate, by definition, when financial costs don't.

The interesting bit is the strategic impact. Kevin says he thinks it's important for aggregators to limit choice in the niche. That's the implication of the above. But how do you limit choice?

For example, I visited Les Senteurs over the weekend. Their choice is very limited, relative to a Selfridges or a Harrods. They are a boutique - they limit choice by quality, which is a very old-skool way of playing the game. Conversely, Harrods and Selfridges way of reducing the costs of choice is to offer relatively hassle-free exchanges and refunds.

The implication is that choice-limiters can either limit in time or in space. If you limit in space, you have to be a boutique - you have to create choice economies by already filtering out the highest quality goods (and, by implications, dimensions of quality), and let consumers assume your risk. If you limit in time, you have to be a mass-marketer - you have to let consumers create their own choice economies by filtering out their own highest-quality goods over time, and you assume their risk.

Now, the point of this overly long and confusing post is that I think the boutique model is dominated by the mass-market model on the Net, because smart players can leverage sharing mechanisms to let consumers help other consumers eliminate choice diseconomies. Conversely, you can use network FX to create choice economies more efficiently than boutique-owners can create them.

Note that in this context, sharing mechanisms are not just Amazon style book reviews - that's simple info-sharing. To let consumers create their own choice economies, you would have to simplify this information to allow them to costlessly search it. Another nice market space for tags...

Advertising 2.0

Received a couple of mails essentially saying 'you're right, contextual targeting is so over, behavioral targeting is next'.

In response to my post arguing that contextual advertising is likely to be disrupted this year, because it's value prop to both advertisers and audiences is decaying (growth of click fraud, web spam, etc).

This is intimately related to the emergence of vertical search/ecommerce, which partly is due to innovators seeking incremental efficiency gains in search costs, but also partly due to general search value prop decay. It's becoming less economical to use general engines as the web grows, because the growth of the amount of crap (spam, dead homepages, blogs no one reads, etc) is still accelerating. This gap in market space makes verticalization a dominant strategy.

So what's next? I don't think it's gonna be behavioral targeting.

There are many reasons for this. Remember, we saw early (relatively inefficient) versions of behavioral targeting during the bubble. But ad networks on the Net were clearly a winner-take-all market if ever there was one - and Google won.

Why was contextual advertising superior? The economics of behavioral targeting don't make any sense. The benefits are clear for advertisers, but not for audiences. Since behavioral targeting imposes greater costs on users (cost of privacy loss, cost of lost attention from more invasive ads) than contextual targeting does, it must offer audiences greater gains as well.

How could it do this? Well, the most straightforward way is to push ads that consumers want to see. Unfortunately, behavioral targeting can only be marginally better (if that) at this than contextual targeting can. Assuming behavioral targeting can't offer consumers gains, consumers have great incentives to disable behavioral tracking systems - and they do. What this, in turn, means, is that behavioral targeters have the incentive to hide their actions from consumers - it's a classic case of moral hazard. This is how adware/spyware emerged.

So contextual targeting has, and I think will continue to, be more efficient at advertising to consumers the stuff they're searching for.

What this means is that behavioral targeting will continue to stay locked into the (profitable) niches that it's been successful in: serving ads in places where consumers spend a lot of time (and so can be costlessly tracked). Think NYT. In other words, behavioral targeting will pick up where contextual targeting stops. You search for 'Ferrari Dino' (and see contextual ads), and then visit a car review site (and see behavioral ads). This is the thinking behind the funding of plays like Revenue Science from fairly heavy hitters.

So what will disrupt contextual ads? Well, the important bit to note is that the bits of the value prop which are decayed are not contextual targeting: they're the open access mechanism, which enables click fraud, and the general search mechanism, whose efficiency is growing less slowly than web spam/noise growth.

I've talked about insurance and/or risk-sharing mechanisms before - my money's on this reducing the costs of click fraud: solutions that allow the risk of open-access contextual ads to be massively shared or insured. I expect this solution to be implicit, not explicit.

As for search efficiency, there are two solutions. The first is vertical search. The second, I've argued, is going to be horizontal. The first glimmerings of this are beginning to emerge in RSS aggregation.

The natural trajectory is to extend standards like RSS across media, so you can have feeds of all the stuff you like aggregated horizontally. This allows profile-based targeting, which I think has the potential to be the aforementioned disruptive tech - it can be superior to both behavioral and contextual targeting on value-driving attributes, but inferior in others.

This is why FeedBurner's recent B round is a good bet - though I'm not sure whether this line of analysis fed Feld's investment rationale, which equates RSS to SMTP, or Dick's strategy, which centers around being a simplicity magnifier.

Connectivity Wars

AOL to enter VoIP market. Interestingly, it's not bundled with net connectivity. You'd think bundled pricing would be nice way for AOL to exert pressure over telcos.

Makes me wonder when Google/Yahoo/etc will get into the voice connectivity game, and begin building a cross-media platform that would create huge switching costs and potential for lots of fun new services.

There are a few startups plugging along at this (whose names elude me at the moment) - I don't mean Skype, I mean guys leveraging voice as an access channel to build more functionality into what are essentially web apps - some have been around during the bubble - no one's really made it work so far.

U-MAGAZINE - UM's Multimedia Magazine | UNIVERSAL METROPOLIS

Cool Canuck magazine produced entirely by the community.

Skype's platform strategy seems to be working as a number of applications seem to be using its API.

Macropocalpyse

There are many reasons why appointing Wolfowitz to the World Bank is a very bad idea. Global Halliburton capers at the expense of the world's poor is the obvious one.

A much more serious one I haven't talked about is retaliation by emerging markets who are financing our massive consumption.

This line of thinking is being advanced by a very well-known former IMF economist, and you should take it very, very, very seriously. If this kind of retaliation occurred on a serious level (ie, foreign central banks dumping dollars/not buying T-bills)...the ramifications would be enormous - the dollar would plummet, rates would spike, liquidity and credit would dry up, investment would stop, job creation would crash, and wages/productivity would fall through the floor. Think Great Depression 2.0 and you're not too far off the mark.

Private vs Public

One of the key drivers of next-gen everything is the blurring of the line between public and private info, as we've discussed numerous times before. Snap's rolled out a boatload of new features, by far the most interesting of which is fine-grained real-time financial stats (for itself). Highly recommended - this kind of transparency could prove to be revolutionary.

Verticalization

Nice Gate piece on search verticalization moves in recent months.

Connectivity Wars

Cable industry to begin adding Net-centric features (downloads, IM, etc). Blah, blah, blah.

Yahoo is the New...

A semi-speculative piece on Yahoo's coming entry into the video market.

I think plays like Brightcove are gonna take this market, because incumbents are likely to fall into competence traps - the capabilities that sustained advantage in Web 1.0 (dumb aggregation, easily gamed contextual matching, community building without peer production, scope/demand-side network FX to increase stickiness) don't work well for micromedia, which will be fundamentally about speed and recominbation - getting more people to peer produce faster. These depend on new mechanisms, like supply-side network FX...more to come on that later.

Publishing 2.0 - Peer Production

Amazon acquires BookSurge - an on-demand micropublisher. I talked about these dynamics emerging a few weeks back. You don't have to be a genius to see Amazon's coming peer-production play...

Corpocracy

Man kills innocent cop, incorporates, and claims actions are protected. Oh yeah, he's also probably schizophrenic:

"...But Mickel sent his friend Poston a copy of a story he had written, titled "The Just Barely Short of Holy Bible (The Story of Uz) by Andy Mickel." The text is a jumble. Biblical. Hectoring. Violent.

Over the 20 pages, the "Author" puts the "Character" through anguish and torment -- attacked by monster birds "with their giant razor beaks," the protagonist covered in boils and blood, "castrated and paraded before lovely women."

At one point, the Character says, "I have been sent by ANDREW, Author of the Story. Thus saith He -- Let My People Go!"

Then the Author Andrew becomes God.

Later, the text breaks into large print, capital letters: "JEHOVAH!!! YOU IDIOTIC WHORE!!! YOU MAGGOT!!! YOU CAN'T UNDERSTAND THIS, DOWN HERE!!! YOU DON'T KNOW WHAT YOU'RE DOING, YOU TYRANT!!! YOU DON'T LOVE ME!!! YOU DON'T LOVE ME!!!!! BUT I DON'T CARE, BECAUSE I HATE YOU!!!!!"

Toward the end, the Character is hanged on his "new age" crucifix. "That's how the story ends -- Character went to Hell," Mickel wrote.

But there is a coda, where the Character enters a kind of Heaven "without boredom, without depression." On the last page of his story, Mickel scrawled a crude, sad-eyed cartoon face with a screaming, open mouth, and in the back of the figure's throat, Mickel inked, "I'm finished with exams."

Google

Paul Allen has a nice piece in which he discusses how Goog can leverage it's capability in contextual matching to other media - in this case, print.

Note that the real power of the capability is that it's media-neutral: it can (and will) be extended to video, audio, print, etc, etc. Unless, of course, the contextual model gets disrupted this year by a nice combo of tags + micromedia + ... ??

I know you already know, and I'm also bored with discussing Google, contextual ads, Media 2.0, etc - send me some interesting books to read in my off-time!!

Infoverload

Lately I've been noticing that the more blogs I read, the dumber I feel (and the worse my writing and thinking get). Are blog - like a lot of journalists and editors argue - info junk food?

Last week, I had a bit of a hiatus, after working for a solid month on 2 big presentations, researching multiple sectors with >50 firms each, and trying to analyse the economics of 3 new technologies. It was a heavy month, and I found that relying on blogs did raise my productivity...

...In the sense that I got more stuff done faster. But in few days off, I noted that:

1) I don't feel a deep knowledge in the stuff I worked on, like I have done with other forms of media
2) My brain hurts from all the crapfiltering I had to do
3) I found it really difficult to trawl the latest econlit, because it felt like I had a pseudo attention ADHD.

I might be exaggerating a bit, but I am gonna change my info diet this month and see if thing work out differently. Needless to say, short-term productivity at the expense of long-term knowledge is a Faustian bargain.

Consumer Surplus in the Digital Economy: Estimating the Value of Increased Product Variety at Online Booksellers

Looked at this very interesting, if somewhat old, paper once again after a long while over the weekend as I have been wondering about the profitability of Long Tail business models. This paper was the first one to start putting a value of increased variety of offerings at online bookstores, and it embeds some of the ideas of all things Long Tail as we know today. It addresses a key point : economic value is created by more choice, which results in creation of consumer and producer surplus. Profitability is determined by how such surplus is split between the producers and consumers. But how sustainable is such profitability?

The question I am specifically wondering about is the impact of competition on a Long Tail business. What will happen when the inevitable supplier rivalry starts into the Long Tail space? Suppose you are someone like Uglydolls (from this post on Long Tail) , what will happen to your profitability if a number of rivals spring up to compete for your piece of the Tail? Let's think this through.

First of all, what will be nature of such competition? Basic strategy premise is that it can be based on cost or differentiation. Given that the niche that an LT business operates in is very specific and the customers are loyal only to their very narrow taste, such users would actually be more likely to switch to a rival that offers price competition. However, from the viewpoint of such a competitor, cost-competition may be the only option as the opportunities for differentiation in a very narrowly defined niche are likely to be very limited. If you think about it, the niche itself is the differentiator but that applies only at the overall "industry" level, if you will.

Secondly, let's think about the buyers' switching costs. Given that the niche is narrow, the addresseble market size and the number of potential consumers is small. It means that creating high switching costs based on network FX will be harder too.

So, does this mean that an LT business can only be based on a low-cost strategy? The small size of addressible market and number of potential consumers makes it difficult for a player to drive costs down on the basis of economies of scale or scope. Where else can low costs come from?

This leaves me with only one possibility : a weak competitive advantage based on a first mover advantage. This advantage is primarily based on quickly spotting a niche and setting up a business to serve it. But just as Umair points out in the del.icio.us debate, the question of creating entry barriers and/or buyer switching costs will continue to nag such businesses.

This leads to my aha moment : LT businesses fundamentally belong to two cateogries. One is those that accumulate huge customer base, and then create a number of micro-niches. Classic example is, of course, Google and its advertising revenue model. The other category is businesses like Uglydolls, which actually find a micro-niche to serve and then aggregate a customer base around it. These two businesse models are mirror images of each other : aggregate customers and then create micro-niches or create micro-niches and then aggregate a customer base.

Hmmm....so, what next?

Peer Production

IndiTV - cable channel as distribution medium for peer-produced content. This is an important point in the evolution of the model and the market - a classic inflection point if ever there was one.

Tagonomics, Pt 2: Whuffie vs Tags

Lots of buzz about whuffie going on these days. And tags continue to accelerate - her's a dating by tag site, and a piece in BW. I'm gonna argue that whuffie is a bad idea because it misunderstands resource allocation, and that tags are a far superior mechanism to allocate resources. The resource in question, is, of course, attention.

OK. Whuffie is a long way to describe computational reputation, with all the fun things that entails - it's essentially giving people cool points.

I have a big problem with whuffie. First, we have to critique the trivially contradictory notion of a 'post-scarcity economy'. The premise is that no good is scarce in the near-future fabconomy. Of course, there is a scarce resource even in the fabconomy - attention. So whuffie is a way to allocate attention via quantized reputation.

The problem with this setup is that it ignores history. History tells us that markets are much more efficient (read: fair) resource allocation mechanisms than networks are. You only have to look at the Magna Carta, the Soviet Union, or the Confederate South to understand why: throughout history, networks as resource allocation mechanisms have led inevitably to violence.

Diffused networks and cool points are excactly the wrong way to allocate attention, because they'll give rise to all sorts of inefficient (and nasty) dynamics, like cliques, violence, and wars, etc - because when it comes to scarce resources and open networks, people engage in massively opportunistic behavior to either grab the resources and run, or to win and maintain control over them.

How does this happen? Networks, unlike markets, magnify information asymmetries. Magnified information asymmetries lead to all sorts of hidden behavior and action: you tell someone one thing, but do another. Why does this happen? Because it's much more difficult to lie in a market than it is a network. There's a simple reason why: in a market, you only have one way to reveal your expectations and preferences - via the price mechanism. Lying or hiding information - by bidding on something you don't value, or by not bidding on something you do value - is costly (assuming liquidity).

Put more simply, hiding information/lying is instantaneously costly in markets - either you forgo gains, or directly realize losses. But in networks, the costs of lying can often be deferred, diffused, or externalized. So incomplete or bad information revelation is ex ante costly in markets, but ex post costly in networks. In the real-world, what this means is that lying is less risky in networks than in markets - which increases the relative cost of information in networks a great deal.

So compared to networks, whose dynamics can increase the costs of information, pushing them up to the point where all the info in the network never gets processed, the price mechanism works better because it's a cheap and hyperefficient massively distributed information processor.

Sure, we can argue about the evils of capitalism versus the goodness of networks. Markets do have their own problems - herding, information cascades, and, eventually, bubbles. But, at least in the medium-long run, they're far more efficient than networks at allocating resources - just imagine trying to use a giant LinkedIn to allocate grain futures. The transaction costs, info asymmetries, and opportunism you'd encounter would be stupendous.

What you'd really want, and this is where I think tags come in, is exactly the inverse of whuffie: not cool points for people, but attention points for objects. Which is exactly where tags are heading. Which is why I wrote this post!

Note, I won't call tags folksonomies not least because I think the word is really awkward, but because I think they have the potential to be much more than taxonomical mechanisms (as the above argument should make clear).