Umair Haque / Bubblegeneration
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Design principles for 21st century companies, markets, and economies. Foreword by Gary Hamel. Coming January 4th. Pre-order at Amazon.

Wednesday, June 14, 2006

Industry Update - The People vs the Googleverse

We've talked at length about the ugliness and of a media industry dominated by Google. Scott K has a nice post today where he uses linkfarms as an example of exactly that.

Let's think about linkfarms for a sec. Why do they exist (really)? They're the equivalent, in the media world, of program trading in the financial world. In Scott's examples, entrepreneurs are finding ways to arbitrage Google itself: they are exploiting the fact that PageRank's expected value of attention and AdSense's financial value of attention are out of sync.

Let me try and make this explicit. Imagine a screen with zero or even negative real attention value - a picture of Donald Rumsfeld naked, for example. If this pic got a high PageRank, it would pay to put ads on it. In fact, since the marginal cost of AdSense is zero, it pays to put ads, well, everywhere. And that's exactly what linkfarms are.

But, of course, there's a loser in this game - there must be, since no attention value is created, but attention is being exchanged. In the end, it's consumers, and, to a much smaller extent, advertisers. Consumers pay by spending attention to which returns are essentially zero, and advertisers pay with clicks whose propensity to consume isn't very high (but not many of them will be so interested in that for another couple of years).

Put another way, It is the expected value of attention of consumers which PageRank is supposed to, somewhat accurately, compute. But as long as there's no real competition in search (and let's be honest - there really isn't), Google can keep shifting the costs of this arbitrage on to consumers.

As Scott puts it, "the media business has been reduced to pure transaction". That's a brilliant statement - he's exactly right. In fact, his statement parallels Mark Pincus's very nice analogy from a few months back - Google as Wal-Mart. The dynamics are very much the same: scale economies are achieved by shifting costs elsewhere; at the expense of consumers, quality, etc.

Though Silicon Valley - and now, increasingly LA and New York - are obsessed with the algorithmic, they are failing to understand the essence of media economics. The real opportunity for media players isn't in making the old value chain marginally more efficient by sucking the friction out of transactions.

The end result of the algorithmic path is ugliness and even more consumer alienation with media. Ultimately, those strategies devolve into phenomena like linkfarms - because they are predicated on purely technological notions of making obsolete value chain architectures and business models more "efficient" and "productive".

Rather, the real opportunity for media players - in fact, players across consumer industries - is in discovering that what happens at the edge - new resource transformations, like unbundling (and rebundling) - lets them fundamentally alter the basic economics of media itself.

Let me make that more concrete: Media is deeply personal, social, cultural, human, creative - and so it's economics aren't those of simple technological scale, because, more often than not, technological scale kills those things (think Clear Channel roboDJs). The real opportunity is in leveraging the new forms at the edges of the firms - markets, networks, communities - to explode just how personal, social, cultural, human and creative media can be.

It should be painfully clear that, in the Googleverse, media is none of those things - it's just a commodity filtered, sorted, and "processed" by machines. Which is deeply reminiscent of the 20th century's scale and scope driven Great Rationalization of consumer industries, where goods ultimately became "commodities" which were "processed" by machine, assembly line, and bureaucracy (think meat-packing, clothes, and cosmetics).

If there's a single lesson those industries yield today, it's that that entire way of thinking about business is deeply out of touch with the new world of consumption. And ultimately, that's the flaw at the heart of the Googleverse - consumers play almost exactly the same role in it that they did, suprisingly, in the industrial economy.

NB: No, I'm not saying that "empowered" consumers will begin composing sonatas and producing movies to rival Kiarostami's. Rather, I'm pointing out that the economics of cultural industries change when consumers connect, and we should see greater (returns to) creativity; not necessarily because consumers make them, but maybe only because consumers are better at helping choose them.

Of course, this is exactly what the Googleverse stops from happening - the Googleverse, if you follow my argument, implodes returns to creativity.

-- umair // 2:26 PM // 8 comments


Great article. This is why I think that once the Media2.0 hype blows over, we'll be staring at a far larger opportunity in professional services produced at the edge.
// Anonymous Anonymous // 4:12 PM

Perhaps you are missing one of the reasons why the Googleversal model has been so successful..people are lazy. Most content providers and ecommerce companies are satisfied to load up a website and trust that the raingods at GYM will shower them with traffic. Only now are they becoming aware that the optimizers, click farmers and PPCer's are much more adept at this game. Likewise consumers click where they're told to by the same crowd.

But how do you activate these so far inert consumers and producers? Will everyone create their own personalized MySpace page? Not likely. Besides have you seen how little personalization MySpace allows?

Somebody or something has to empower the masses on the edge. Any ideas about who or what that might be?
// Blogger phoneranger // 4:21 PM

How about the real/honest content producers? As advertisers learn the game they will be willing to put less of their money on content network (I am sure you know, they can select between search / search partners and content and edit different CPMs or not advertising at all). Little guys that rely on adsense are loosing a lot since they are put by google on the same bag as scrappers.
// Blogger António // 4:42 PM

The market may become perfectly efficient, but the players will never be - consumers, publishers, and sponsors are only human. Human to Human interface > Human to Computer interface. Community intelligence (the micro-chunking / plasticification of editorial) can help bridge the communication gap between humans and computers. This is the theoretical end-state. But in reality, community intelligence will be a large number of small firms and some hard-core enthusiasts who contribute the majority of the editorial value (e.g. ~5k people really keep Wikipedia going).
// Anonymous Anonymous // 6:22 AM


I agree with you - little guys are indeed "losing" at the moment.


I think that's pretty close to Bradley Horowitz's argument; that there will be a small number of producers in a given community at any given time.

That may certainly be true, but it's kind of irrelevant - certainly, people will have different production preferences in given domains, like I've talked about many times in the past.

But that doesn't mean across domains (and over time) that the number of prosumers won't be enormous.

That's why your metric is, IMHO, the wrong one. Cumulative Wikipedia contributors are closer to 100k. And bloggers, Myspacers, etc, are clearly an enormous number...
// Blogger umair // 1:47 PM

Oh Ya - Phoneranger -

The "lazy" argument is belied by the numbers - edge/prosumption is pretty clearly exploding...
// Blogger umair // 1:51 PM

If I get this right , it sounds like the economy of simulation that you posted a few days ago. No real value created but only simulation of it & cost passed off to the consumer. Is that right !

// Blogger Rajan // 4:43 AM

What's the threshold for determining whether or not a model is only transactional versus embracing your views of connection? For example, say that I consume a lot of content online and 10% of the time I give a "thumbs up" to something I read/watch/hear. I've created some content, with that feedback - is that an important step in the right direction or meaningless?
// Anonymous Anonymous // 7:17 AM
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