Strategies for a discontinuous future.

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

Friday, November 11, 2005


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

That's hilarious.

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

-- umair // 8:52 PM //


Yahoo, Google, and 1.0 vs 2.0 vs 0.0

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

-- umair // 1:28 AM //

Wednesday, November 09, 2005

The Trillion Dollar Web 2.0 Matrix

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

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

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

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

-- umair // 7:29 PM //



Apparently oil industry execs aren't being sworn in:

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


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

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

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

-- umair // 7:18 PM //


The TV Show Download Bunkum @ GigaOm.

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

-- Mahashunyam // 7:40 AM //


Next Big Things - Pull Models

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

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

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

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

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

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

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

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

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

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

-- umair // 7:14 AM //


Search is Not a Commodity Because Oil is Like Attention

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

-- umair // 4:04 AM //


Politics of the Day

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

Link. Yeah, I know you know.

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

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

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

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

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

-- umair // 3:38 AM //


Replication Wars

Insider's view of Napster - highly recommended.

-- umair // 3:19 AM //


Viral Revenue Chains

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

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

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

-- umair // 3:14 AM //



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

-- umair // 12:57 AM //

Tuesday, November 08, 2005

The Attention Economy

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Is efficient attention allocation on my list of priorities?

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

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

Can I leverage edge competences to efficiently allocate attention?

-- umair // 11:28 PM //


Network Economics & Web 2.0

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

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

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

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

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

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

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

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

To get started, ask yourself:

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

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

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

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

-- umair // 11:27 PM //


Peer Production

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

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

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

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

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

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

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

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

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

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

To get started with peer production, ask yourself:

Is information relatively cheap or expensive in my value chain?

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

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

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

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

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

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

-- umair // 11:24 PM //


Media 2.0

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

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

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

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

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

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

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

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

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

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

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

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

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

To get started thinking about Media 2.0, ask yourself:

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

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

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

-- umair // 8:18 PM //

Monday, November 07, 2005

Replication Wars

Is the AP joking?

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

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

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

-- umair // 8:43 PM //


Inflation, Risk, and 2.0

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

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

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

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

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

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

-- umair // 7:08 AM //

Sunday, November 06, 2005

Morgan Stanley

Morgan wakes up to the rise of the Indian Consumer.

-- Mahashunyam // 8:04 PM //


Slashdot | Google Patent for User Targeted Search Results

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

-- Mahashunyam // 7:17 PM //


Media 1.0 vs Media 2.0

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

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

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

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

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

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

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

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

-- umair // 9:19 AM //


Missing the forest for trees and Google vs Evil

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

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

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

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

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

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

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

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

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

-- Mahashunyam // 3:07 AM //



Recent & upcoming sessions:

Supernova 2007 (video)




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

chicago fed
dallas fed
ny fed
world bank
nouriel roubini


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


atom feed

technorati profile

blog archives