Strategies for a discontinuous future.

Friday, May 20, 2005

Insult to Injury

Check out the Huffington Post's nice long 'user agreement', aka, clickwrap t&c's. If ever you needed evidence that the Huffington Post was a bad simulation of the real thing...

-- umair // 4:34 PM //


We Torture People

I'm ashamed that the sycophants I'm forced to call a government have such utter contempt for the great ideals our nation was founded on.

"...Several hours passed before an emergency room doctor finally saw Mr. Dilawar. By then he was dead, his body beginning to stiffen. It would be many months before Army investigators learned a final horrific detail: Most of the interrogators had believed Mr. Dilawar was an innocent man who simply drove his taxi past the American base at the wrong time."

Libery and justice, apparently, only for a very select few.

-- umair // 3:30 PM //


Network FX

I was supposed to link to a couple of sites a few weeks back, but never had the time. Here are the links:

Innovation Tribune - covering innovation, entrepreneurship, etc.

Moneyscience - tons of stuff of interest to the more quantitative among us.

Both are recommended, and off the beaten path of American biz/tech blogs.

-- umair // 9:39 AM //


The Problems with Free Culture (2): How Free Culture is Subsidizing Google

Google offers weak personalization, web hysteria results. I think this is mildly interesting, but misses the forest for the trees. So here's my take on the big picture (unedited...sorry, no time).

Now, before I begin, let me say that I'm a big fan of Free Culture. I'm one of a handful of people thinking seriously about the economics of peer production, for example. So this piece is not an attack - it's meant to point what I think is a potentially fatal flaw in the Free Culturites' thinking.

OK. Forget Google and personalization - it's kind of irrelevant. The really interesting dynamic, to me, is that the Free Culture movement is effectively digging it's own grave. Because they're only making half the value chain for culture free, they're effectively subsidizing publishers and marketers - the textbook example is evil record labels; the very guys that then go on to stifle investment in creativity and innovation.

I'll use Google as an example, because of the current hysteria and fandom that surrounds it's every move, and because Google isn't an evil record label (yet), so I can illustrate exactly how these dynamics generally evolve.

Now, if you think about it, on the www, The Free Culturites are effectively subsidizing Google - handing Google money - and they don't seem to have really considered what the consequences will be. But taken to it's logical conclusion, this dynamic means Google becomes the RIAA 2.0 - a monopolist exerting huge market power over a moribund industry of homogeneous producers - and the Free Culturites are the guys that made it possible.

How? It's pretty simple: Google is essentially a free rider on huge amounts of the content that it spiders and indexes. That's because, until now, property rights on the Net have been undefined. But now that huge amounts of capital are flowing into the www market (viz, ad spending), a minor property rights revolution is happening. The AP is starting to charge for syndication, the NYT is going to build (even stronger) barriers to access. Now, some of these decisions may be questionable (like the NYT's) - that's not the point. The point is that Google has, for a very long time, been a free rider.

OK. That's the context of my argument. Now let's think about what the Free Culturites are doing. They're making tools to decrease the costs of creativity - their hope is that a Creative Commons (etc) will result. Some of these tools are proprety rights (viz, commons licenses). Some of these tools are technological (CC Mixter, BlogTorrent, etc).

But all of them have the same economic effect: the unintended consequence is that a Creative Commons means fatter margins for Google. That's because it explodes both the quality and quantity of content that Google can free ride on. Google becomes an even more efficient free rider. And because search is a network market, it's a winner-take-all market - one monopolist wins, and appropriates huge amounts of value by exerting market power over the entire value chain. In this case, we're already seeing AdSense revenue shares to content producers fall precipitously.

Think about it this way: the free-culture guys' commons tools are a nice subsidy to publishers, and marketers (who enjoy monopolies in most media market anyways). This is because they make it cheaper and easier to create content - whose gains are then, of course, mostly appropriated by the publisher/marketer, because he can exert greater market power over more fragmented producers.

Put more simply, economically, 'free' culture is about much more than just free ideas - it's also about being able to easily find those ideas, and, in an ideal world, cheaply do stuff with them as well.

This is like the textbook example of how cool ideas can have perverse and unintended consequences. In a nutshell, instead of making the redistribution of value more equitable and raising investment in creativity, what the Free Culture guys are doing distorts it in favor of big business - not creative content.

I think that if Cory and Larry really want to make culture free, they have to help free the rest of the value chain as well - currently search is egregiously not free. Content is trapped without search - without it, players further down the value chain, like Google and the RIAA, will always appropriate the lion's share of it's value, starving investment in creativity and innovation. This is the lesson history teaches us - it's the reason why artists have starved.

So why give the monopolist even more of a free lunch? You'll have to ask Cory or Larry about that. What I can tell you is that things will get interesting fast when either the Free Culturites wake up and realize that they're effectively handing Google money, and decide to build an open-source/open-access/open-standard search mechanism, or when a clever kid with too much spare time decides to try the same thing.

Yeah, yeah, server farms aka scale economies and all that other Google magic notwithstanding. Let's discount the cost of technology, which jumps discontinuously when people have good ideas.

Ultimately, three forces - cheap/open access, cheap/open standards, cheap/open modularization - will deconstruct all media markets, because their economics are hugely advantageous (to those of mass media/Media 1.0 or even Google style Media 1.5).

For example, the circulation of the LA Times and Chicago Tribune just fell off a cliff. Why? It's easy to say technology - a better answer, I think, is pointing to the three forces above.

I read the paper a lot less, and blogs a lot more, because strong network FX in blogs offer me more value: I can jump from interesting conversation to interesting conversation. But these network FX only happen because of the above forces: blogs rely on cheap access, cheap standards, and cheap modularization.

One could leverage the same dynamics for search - tags are a nice start. I'm sure people much smarter than me will come up with much more elegant solutions. The point I wanna make is this: by only making one segment of the value chain 'free', the natural result is that other segments benefit, monopoly dynamics are worsened, and investment in creativity/quality/all the nice stuff we want to see suffers, because the monopolist pockets all the value.

But by making the entire value chain free - in this case, by deconstructing/disintermediating search engines, their fat margins get handed back to consumers and producers alike, unleashing huge amounts of investment in new creativity - isn't that the point of Free Culture?

-- umair // 8:55 AM //

Thursday, May 19, 2005

Everyone Luvs the Beeb - Bandwagon Edition

Cory luvs the Beeb now too, pointing how it's been quick to embrace this round of media tech, in contrast with Hollywood's ultra-protective approach.

I think that's true, but I think the real insight is that the Beeb is probably one of the world's only true public broadcasters - independent of political influence. Consider how political PBS is in the States - Bush and his drones have given the WSJ's editorial board their own 'news' program.

The Beeb, on the other hand, can blow it's relatively ample cash any way it likes - and lately, it's been focusing on tech.

Now, there's an equally interesting point here related to content. The Beeb's content is, on average, pretty good - but I like Channel 4 better. The Beeb still plays to the mass market - Channel 4's programs are interesting to me because they play to less well served market segments.

The reason is that Channel 4 essentially has a mandate to innovate - it was chartered with the express purpose of embracing 'non-mainstream' programming.

The bigger point: I'm usually a laissez faire guy, but I think media industries call for content regulation - not in terms of obscenity, but in terms of creativity and diversity. The inevitable result, otherwise, is Fox News, Charmed, and Clear Channel - because the dominant strategy is always marketing economies of scale, and never investment in production.

Another point worth thinking (I've been thinking about it a lot lately): free culture is nice, but it's essentially a subsidy to players up or down the value chain. In this case, free culture is subisdizing a monopolist in an already enviable position - Google - because it has even cheaper access to resources it already monopolizes.

If the free culturites a la Cory and Lessig really wanted to make culture free, they'd stop subisidizing by making the entire value chain free - in this case, that means free search and distribution.

-- umair // 8:44 AM //

Tuesday, May 17, 2005

"Mission Accomplished"


-- dhd // 4:45 PM //


How Not to Strategize, Special NYT Edition

The NYT is gonna start charging for access, essentially to op-eds and columnists. Long rationale here.

I'm pretty convinced this is going to be a textbook error of the case study kind, so let's have a bit of fun examining exactly why the deep economics of Media 2.0 dicate so.

The rise of micromedia (ie, blogs, podcasts, vlogs, etc) and connected consumption have turned the NYT's content into networked goods, which realize strong network FX, which translates into much, much greater gains for consumers than traditional print media. Put another way, micromedia expands the pie for everyone, by making media consumption in general more attractive. For example, if I comment on an article, you're more likely to read it.

One could even make an argument that the goods which have the strongest network FX are the NYT's columns and op-eds. Now, charging for access kills these network FX before they begin, because consumption is never connected, and so I can't share any info with you - network FX never emerge; and the value proposition collapses.

Note, this is not a case of dot com style free build-it-and-they'll-come strategies: it's a case of never building the value prop at all.

Here's another way to think about it: business strategy is a game of value capture and creation. How do you create the most value, and then capture the lion's share? In this case, instead of maxiziming value creation, the NYT is minimizing it.

This is an error, because such a strategy is almost sure to be dominated by one which maximizes value creation, but captures a smaller share of that value, because percentage growth is proportionately larger in the latter case.

There are many innovative ways for the NYT to capture more value from it's content. But I think they all flow from the very, very basic understanding that it's goods are networked goods, they realize network FX, and micromedia aren't substitutes for the NYT's content, they're complements to it - the source the aforementioned network FX - and this complementarity is how new value is created.

That's where they should be looking to capture value, by co-opting key bloggers or otherwise indirectly monetizing their heavily-discussed content - exactly the inverse of what they're planning on doing.

Of course the real heart of the matter is that by charging for access, the NYT destroys this complementarity and forces consumers to choose: it turns micromedia from complements into substitutes in media consumption. Instead of co-opting micromedia, they're competing with it.

That's a really bad idea, not least because increasing competition for yourself is generally not a great strategic move. But it's doubly bad because there are plenty of substitutes for the NYT's op-ed and (especially) columnists, because the price/value ratio of their offering is collapsing - so, the obvious unintended consequence of such a strategy is growing irrelevanace, and declining ad dollars.

In other words, I'm fairly sure not that many people derive as much value from Nick Kristof, Tom Friedman, and David Brooks as the NYT's strategists think. I certainly don't, because the micromedia explosion means I've got many great substitutes like Juan Cole and Nouriel Roubini, who aren't just columnists - they're experts.

-- umair // 7:30 AM //

Monday, May 16, 2005

Guardian Unlimited | The Guardian | Behind the hedge fund facade - the usual herd

-- Mahashunyam // 6:18 PM //

Sunday, May 15, 2005

Big Brother is an Idiot

Not to belabour the obvious, but for a company accused of acting in an Orwellian fashion, mounting a PR campaign called 'Thought Thieves' is monumentally, hilariously, idiotic.

Because it sounds suspiciously like truth becoming stranger than fiction, since 1984 is a book about, well, what Orwell calls thoughtcrime.

Note to MS UK marketing guys, read Orwell, note to MS UK - hire semi-literate people. (Via /.)

-- umair // 10:58 AM //




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