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Strategies for a discontinuous future.










Wednesday, September 07, 2005
 


Let's Make a Movie About the Cult of Bush

Honestly, I've been trying to write something clever, but words cannot express my disgust and contempt for the murderous, racist, God-lovin' thugs that are running our government.

You know what? There are other places in the world where theocrats turn a blind eye to the suffering of their own people: Iran, Saudi Arabia, and Pakistan, to name just a few.

"...Bungling horse whisperers and campaign hacks.
Dead babies in the streets of America.
Jesus wept."

And yet, America still thinks Bush is a Great Leader. Cult of Bush, indeed. I don't think it's possible to break the bond between Bush and his Moonies, short of deprogramming them.

On a similar note, here's the the most astoundingly stupid post in the entire history of the Intarwebz:

"...Race has nothing to do with this � precisely nothing. The mobs of murdering Hutus and swarms of slaughtering Serbs are as different racially as it is possible to be, and they are cut from precisely the same cloth.

...Only a few minutes ago, I had the delightful opportunity to read the comment of a fellow who said he wished that white, middle-class, racist, conservative cocksuckers like myself could have been herded into the Superdome Concentration Camp to see how much we like it. Absent, of course, was the fundamental truth of what he plainly does not have the eyes or the imagination to see, namely, that if the Superdome had been filled with white, middle-class, racist, conservative cocksuckers like myself, it would not have been a refinery of horror, but rather a citadel of hope and order and restraint and compassion.

...My Tribe knows enough about how the world works to figure out ways to boil water, ration food, repair structures, build and maintain makeshift latrines, and care for the wounded and the dead with respect and compassion. "

OMG...my country has become a nation of blithering morons. Obviously, the point is that there was no food or water to ration, that agents of the law were bent on not letting people coordinate, that 90+% of the people affected most by Bush's incompetence are black.

Is it possible to share a society with people this colossally vapid? How long do I continue to subsidize their idiocy? Man, someone should make a movie about the Cult of Bush.

Actually, if anyone's interested, let me know and I'm more than happy to help kick it off.

-- umair // 3:39 PM //


 


Valuing Disruption, Part 1 (EG, Media 2.0)

A very interesting number: Gen Y consumers have about $2k of digital media stored. Now, there are obviously several caveats to take with this data: that not all of that media is valuable (in the sense that most people would never pay for all the stuff they d/l), that not all of that media is consumed, etc.

Now, let's first discount the number by 50% (because I don't have time to get into methodological issues), and take that number as (close to) the possible value of a next-gen Media/Web 2.0 consumer.

Does $1k of media/user/lifetime (or PV of $1k/user, if you like) sound realistic? Is it good, bad? Let's split the question up into new ventures and incumbents.

Now, I think, for incumbents, this is not such a great number. That's because $1k/user is the lower bound of value in most media markets. For example. the value of a newspaper subscriber is about $850. So $1k (or $2k, if you like) of value created per user is a relatively low number - compared to a world of rigid media with high switching costs and monopolized distribution.

How do we know? Well, we can add values across Media 1.0 markets to arrive at a total media value/user. I won't do it totally, but some examples are cable subs ($2-3k); satellite radio ($1-1.5k); mobile subs ($1-2k). The value of a media consumer across all these markets is on the order of $5-10k; and can be a lot more depending on how loosely we define "media".

So for incumbents moving to an everything-over-IP world, the pie shrinks dramatically - this is another datapoint for media hyperdeflation. Now, of course, the pie isn't gonna completely shrink to $1k/user levels - not everything will be hypercommoditized; some platforms will stay valuable because of distribution and content scarcity (viz the XM/Sirius wars; DirectTV vs Tivo, etc).

But in some spaces, we can see very vivid examples of how media value can erode so rapidly and totally - consider Skype + muni WiFi. In this EoIP world, you connect to the GoogleNet/YahooNet to connect to Skype.

Now, if we consider that a mobile sub is worth around $1-2k now, but a Skype sub is worth maybe $1-200, you begin to see how the shift to everything-over-IP can be disruptive, discontinuous, order-of-magnitude. We begin to see how media value can, in many spaces, just decay.

Where does the value go? Well, some of it's appropriated by consumers; but mostly, it's gone - EoIP and cheap production technology vaporize the old supply curve: much more media can be provided in a Media 2.0 world much more cheaply than ever before. So the story for incumbents is not so great (but the opportunities are huge for those who get it right)

Now, the market is currently valuing the most strategically succesful Media/Web 2.0 startups at around 1/3 of our $1k/user (when you discount this for venture/acquisition risk). Note that growth is already factored into these valuations. So what's happening here is that (if you accept my discounted survey figure of $1k/user) there's still plenty of room for value creation in the Web/Media 2.0 space. We can treat the $1k as a very loose kind of upper bound - if/when we go way beyond it, we should start looking for some other empirical support.

We don't need numbers to tell us this, really: for example, it should be intuitive when the value/user of a richly valued Web 2.0 content convergence play like MySpace is much less than Media 1.0 plays. In fact, low value Media 1.0 plays - for example, content providers like cable channels - are alone valued more highly than the richest Web/Media 2.0 plays right now.

Now, some of this is because of venture risk; but, very realistically, part of it is because Web/Media 2.0 is going to destroy a great deal of value for many incumbents along the value chain.

Of course, part 2 of this story is about how plays like del.icio.us, Blinkx, Zazzle, and SecondLife are going to create entirely new sources of value in place of the old, hypercommoditized ones.

-- umair // 11:53 AM //


Tuesday, September 06, 2005
 


Malaise

The A:C talks about the neverending malaise in VCland; viz, the IPO window staying closed, despite a pickup in valuations across the board; linking to Fred talking about the possibility of a recession, and it's impact on venture investing.

You know, from my POV, despite all the buzz surrounding Web 2.0, Media 2.0, and all the cool new disruptive technologies/startups that are germinating, all the great discussions I have, etc...it's hard to be a young person in this ecosystem these days.

What exactly is wrong with this picture? Is it the beancounters vs the geeks? Is it risk-averse VCs unwilling to capitalize whole sectors of emerging techs the way they need feeding? I don't know, but it's certainly something that's been on my mind more and more the last few months.

-- umair // 4:27 PM //


 


Simulation Economy

Nice NYT piece about WoW, illustrating continuing growth of MMOGs. Complete with famous-last-words style quote:

"..."I don't think there are four million people in the world who really want to play online games every month," said Michael Pachter, a research analyst for Wedbush Morgan, a securities firm. "World of Warcraft is such an exception. I frankly think it's the buzz factor, and eventually it will come back to the mean, maybe a million subscribers."

I've read Pachter's research, I think it's pretty good. So I'm totally mystified by this quote - Lineage I + II have something like 2.5 - 3m subs combined alone.

You don't need numbers to prove this - just think about, for example, PSP penetration. It should be totally intuitive.

The other thing to remember is that the price of access to MMOGs is about to drop exponentially as ad-based revenue streams become more and more viable. If anything, the data that we've got right now tells us that potential MMOG consumers are highly price sensitive - viz Habbo Hotel's hypergrowth - so when prices are slashed, subs will likely explode.

And, final thing - remember, as subs explode, the best MMOGs are platforms for (really) strong network FX. Value to be gained from signing is gonna explode (think about how your incentives become unstoppable when all your friends are on SecondLife instead of MySpace or TheFaceBook) - there will be serious increasing returns in this space. Which is why we see venture investment beginning to ramp now.

Argh, one more thing I've gotta mention. A big reason for hypergrowth of MMOGs in Korea is the phenomenon of bulk sales to, for example, Net cafes. That is, the Net cafe buys seats/licenses - and then you buy an account at the Net cafe. This is a simple risk/cost sharing mechanism that makes it possible for kids to play games at a very small incremental cost (instead of a relatively large fixed cost). Something you might wanna keep in mind.

-- umair // 12:40 PM //


 


Fresh Thinking

In the next few weeks, I am going to try and dig up some fresh stuff - I think a lot of the discussions about media/web 2.0/innovation are, well, getting kinda stale. Here's something I liked a lot: 7 Challenges to Our Mobile Future, from Nokia's Design Strategy Director - essential reading, huge opportunities for entrepreneurs in every 'challenge'.

-- umair // 12:29 PM //


 


Umair vs The Economist

I have a lot of respect for the Economist guys, but sometimes they really get tech wrong. Case in point, the latest article about the digital home. The argument (it's hard to follow) is essentially that consumers don't value the digital home, but incumbents do, so they'll try it, and it will be a big, costly error.

I think this is a specious argument. Let's take a bigger picture look at what's happening in this space.

First, 'security' is being built in at the hardware level, and being extended to all components of the platform. By now, you've heard the stories about the Wintel disabling your monitor/Blu Ray player if you're doing something naughty. This is gonna be round 2 of the good ole replication wars.

Second, in opposition, incumbents (and startups alike) are waking up to the fact plasticity is going to be one of the fundamental sources of value in a Media 2.0 world. What does that mean? Well, in simple terms, letting consumers unbundle and rebundle their own personal media. Viz, Akimbo, Tivo-->software play, Blinkx, Current, Last.fm, etc...

Third, the model that's emerging across the industry is something like buying a household license for your media - and then sharing stuff across your network. Will consumers go for it? I think the edges of the model will be pushed a bit - sharing with your friends, etc, will be possible. The marginal benefit (switching costs explode) is much greater than the marginal cost (a tiny amount of marginal revenue foregone) to Hollywood (labels, etc).

Fourth, micromedia continues to be the big unknown. Lots of players are starting to wake up to the fact that 'consumer-generated content' can give a quick hit to essentially their valuations, if nothing else. So there's going to be a lot more experimentations with different kinds of micromedia, and micromedia business models, which I think will really start bubbling up in the next year or so.

The point of all this is that the Economist, of all pubs, should know that incumbents almost always fail to push technology to the market (unless they're evil monopolists)...because doing so creates huge strategic gaps and arbitrage potential (viz, region free DVD players, Playstation chips, blah blah).

So the digital home that's being pushed by incumbents is one thing...but the one that's being created here and now by startups and micromedia visionaries is something they really should have considered, because the real digital home is going to be a synthesis of the two; a recombination of the factors above.

-- umair // 12:11 PM //


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