The Ugly American : Net Edition

Outsourcing outrage

Sometimes, in the midst of talking about edge competencies and low-cost coordination, we tend to forget about how economic forces are affecting the lives of millions of people around the world. The more the world shrinks, the more we see the ugly reality of life in different societies. I can't remember who it was that articulated this profound and counterintuitive viewpoint that globalization and cheap communication will *not* lead to a more homogenized One World utopia, but in fact, create even more sharply defined boundaries among people as they get first-hand experience of other societies and cultures. Communication is not the problem, we are. Sad, but true.

Update: it was McLuhan, one of my ATF thinkers. As with so many other things, he was right on the money on this one too.

Four More Paragraphs on Edge Competences

Recently in my comments:

"... AdWords are very plastic, and that's an edge competency.

I wonder what kind of video prosumers are creating. Even though you can buy an HD cam and editing software cheap, it's going to be hard leverage cheap coordinating and have liquidity."

If you're going to make an error in strategy, make a small one. Do not underestimate the power of cheap coordination.

I keep highlighting it for a reason: because I think it is the defining economic discontinuity of today and tomorrow, like cheap information defined the second half of the 20th century, and the rationalization of production and supply defined the first half of the 20th century.

Like each of those discontinuities required their own new dominant strategies - respectively, core competences/disintegration, and vertical integration - so cheap coordination calls for entirely new dominant strategies: edge competences.

The signs are everywhere. Here's the most recent example:

"..."Star Wreck: In the Pirkinning" is a full-length feature in Finnish with English subtitles. It was made by a group of students and other amateur film makers with a bare-bones budget and a few home computers to create elaborate special effects."

The point is simple: edge competences let smart players leverage and internalize things like Star Wreck - and the much broader universe of more deeply disruptive possibilites cheap coordination makes economical - instead of fighting against them. Which is futile, because you can't fight economics; strategy decay in a world of hypercompetition is a very, very bad move.

Four Paragraphs on Edge Competences

The XBox 360 is an important move for Microsoft. But I'm not sure the buzz, recognizes why: because it lets MS begin to build edge competences.

Consider core competences. Core competences were expressd through core products - products that embodied the essence of the deep, inimitable, and valuable learning these competences were composed of. Think the Walkman in the 80s and 90s, or HP printers, or the iPod in the 00s.

Now, core competences - and core products - are getting devalued. Why? Simply, because both information and coordination are cheap. Manufacturers in China can easily obtain the information necessary to build core products, and can also now coordinate efficently enough to manage production.

This means firms should shift away from core competences to edge competences. Rather than fighting against cheap coordination, edge competences let firms leverage it. How? Core products fight cheap coordination. But edge platforms leverage cheap coordination, by letting prosumers and other parties external to the firm coordinate to build value for the firm.

Think AdWords and AdSense - it's a kind of judo on Google's part. Rather than fighting cheap coordination - by locking up distribution channels Media 1.0 style, or even using nasty tactics like popups and popunders, Media 1.5 style - they've leveraged it, creating a market where nearly anyone can buy and sell ads. This, in turn, has disrupted the core competences in ad selling Media 1.0 players have spent the better part of a century building. Contrast this with Yahoo's stuck-in-the-middle approach; developing competences neither at the core, nor at the edge. If MS can avoid errors like this - if MS recognizes it must shift intent from the core product to the edge platform - potentially, the 360 can bring a similar disruption to the games industry.

Intelligent Design

No comment, check the (hilarious) link (warning: extremely childish humour).

RIP Link Wray

A giant and radical innovator in a bland, homogeneous culture industry.

Research Note - Two Sentences on Thinking Strategically About Micromedia

If I can make a suggestion: perhaps it's more useful to think resources and (edge) competences, rather than features and technologies. I think you will find it much easier to find how and where to create powerful sources of new value creation by doing so.

...Like It's 1999

Check out this Post article about avatars. Forget the 2005 = 1999, I just want an Automan avatar.

Edge Competences: Plasticity

Fred talks about why the edge is important, and details many new plays leveraging plasticity - the ability to arbitrarily unbundle and rebundle resources; in this case microchunks of content with new content/distribution. Highly recommended.

Also, you may want to think about the fact that plasticity is just one edge competence. I've detailed several others; liquidity, blur, and search, to name a few. Contact me if you'd like to chat more about edge competences.

Spam

So is it just my Gmail spam filter that's stopped working all of a sudden...?

Media 2.0

A very interesting catch by PSFK about remixing movies, related to yesterday's post about different endings. Recommended.

Why Variable iTunes Pricing Means the Music Industry Knows It's qwned

OK. I have taken no small amount of flak recently for saying that variable pricing on iTunes is a very, very, very good thing.

I think it's amazing that people are arguing the opposite, in fact (no, this is not about signaling- it's about trying to maximize profits). Look, I am the guy that wrote the original "file-sharing is economically cool" article. So let me explain my thinking on this for a sec.

Think about what's really going on here. This is the first concrete sign that the market power record labels used to hold is shifting to consumers. Strategically, it's great news for consumers.

But let's go deeper. In fact, this is (finally) the reflection of a radical shift in music industry economics: the atomization of the core, where publishers, and labels sit, and the shift of value to the edges - to consumers, artists, and aggregators/reconstructors like iTunes. It's an admission by the industry that it is indeed deep in strategy decay.

Think about the economics of fixed pricing. Essentially, it meant that something incredibly backwards, and quite strategic, is happening: essentially, unpopular artists subsidize popular ones.

That is, the Metrics of the world subsidize the Britneys and Xtinas. Why? Simple: it costs a huge amount more to create a Britney or Xtina - marketing deals, etc are the most significant cost driver for blockbuster artists. Those higher costs should be reflected in higher prices.

So prices for popular artists should be higher than prices for unpopular ones, to reflect their higher costs. That they're not simply means that popular artists are relatively underpriced, and unpopular artists are relatively overpriced. And that, in turn means, that unpopular artists are effectively subsidizing popular ones.

Think about that for a sec. That's a big deal - it's really why we all think the music industry sucks, to be blunt.

Why? Producers can get away with mechanisms like this that create economic inefficiency when they have market power. In a situation of monopolistic competition, the music industry could enforce this - and use it to boost revenues (at the expense, essentially, of consumer surplus). But that's the point: the fact that the industry recognizes those days are long gone is a great thing for consumers.

That's because when unpopular artists don't subsidize popular ones, the industry loses a key economic component of the blockbuster model. It has less incentive to invest such huge amounts in marketing Britneys and Xtinas. Conversely, it's incentive to invest in less popular artists increases, because, counterintuitively, capital is freed up to invest more in artists, and less in marketing.

And that, in turn, means that the market is becoming more efficient: the industry is finally slowly being forced to begin producing music people want to hear (versus what gets marketed) - because this whole thing is an admission, really, that returns to marketing economies are eroding fast in a world of scarce attention.

Now, will the industry try to use this a tool, to prop up it's decaying strategy? Of course - you didn't really expect otherwise, did you? But it doesn't matter - you can game mechanisms, but not your own industry economics. And that's the point: this is a reflection of deep shifts in industry economics, which are shifting power to the edges of the value chain. And that is a great thing.

Media 1.0 vs Media 2.0 vs Edge Competences

"...IT was perhaps a little embarrassing to learn that the British producers of the latest "Pride and Prejudice" released a different ending for American audiences: a swoony moonlit scene of Elizabeth Bennet and Mr. Darcy in dishabille, kissing and cooing in a post-coital clinch.

...The different endings caused a trans-Atlantic stir, but also a backlash. The film's director, Joe Wright, chose to cut the final kiss for the domestic market after test audiences in England complained, but kept it for the American market, figuring, not wrongly, that Americans are saps with a lighter allegiance to literary accuracy. Or as he put it, "I guess, in America, you just like a little more sugar in your champagne."

Interesting. Edge comepetences begin to deconstruct the boundaries between firms and consumers. This is what plasticity and liquidity really are; firms leveraging prosumers. If the industry was building edge competences, it wouldn't have to make errors like this.

Weekend Reading

If there's one thing you shouldn't miss, it's Baudrillard in the NYT.

Google <3 Bubblegen

A recent comment points out that Google is now sharing ad revenue with authors/publishers in Google Print aka Book Search.

That was exactly one of the points of my recent note. Very interesting, no?