Friday, January 13, 2006
Post: Future of Net TV Coming Into View.
Bubblegen: Yeah, and it's a dominated future - check out the research notes
So a week or two back I predicted one of the 2.0 probs would be info cascades - and people are already talking about it in exactly that way. Very nice.
Media 2.0; Microchunks + Brands = Post-Branding
Fred vs Mark P on the future of media; Fred says microchunks, Mark says brands.
My take: In fact, they're both right. The problem is that this is a false dichotomy.
Branding has a big problem these days; social meaning is a commodity. We're drowning in social meanings. So smart brand strategists are shifting away from simple meanings to new things to associate with brands (more on that later).
The point is that brands themselves are going to evolve to become a kind of media that consumers choose to consume or not. Consider the rise of experience brands - your favorite masstige boutique, a la Sephora or Hollister. The brand becomes a kind of new medium in itself...
So I think what we'll - and are already seeing - is a kind of convergence of microchunking and branding. That doesn't mean microbrands - it means brands which leverage microchunked media to shift away from meanings and to newer, scarcer drivers of attention. Often, these new drivers are most efficiently leveraged at the edge - co-created with consumers.
I know this is a bit opaque; I'm working on a longer piece on post-branding, which should clear things up a bit (I hope :)
Replication Wars, Plascticity Edition
What Apple should be doing: automatic wireless music sharing. Real-time social reconstruction.
So is it just me, or is "MacBook Pro" just a really bad
name? I don't feel it - it doesn't exactly roll off the tongue; but more to the point, it's a bit contradictory, no?
Thursday, January 12, 2006
Hi folks, I know many of you have been frustrated with my incredibly obtuse explanation of edge competencies. In part, that's because I've been trying to reduce the econ to something much more practical.
I've updated the practice area link (below) with a new piece that I'm not entirely happy with, because it misses quite a few things, but hopefully makes a bit more sense. Enjoy - and do let me know if it clarifies the concepts.
What do Googleï¿½s use of markets to disrupt advertising, Lego harnessing prosumers to amplify innovation, and connected consumers self-organizing into networks on MySpace all have in common? Theyï¿½re all nascent examples of edge competencies.
Management thinkers and economists have long speculated that cheaper and cheaper information would disintegrate value chains into more and more highly specialized segments. Less often, theyï¿½ve considered the possibility that as value chains disintegrate, value creation might begin to shift outside the boundaries of firms themselves.
Yet this is exactly the world thatï¿½s emerging. Because coordination is becoming cheaper, the universe of value outside the boundaries of the firm ï¿½ the resources, activities, and skills external to it ï¿½ is beginning to explode: different organizational forms, like markets, networks, and communities, are beginning to emerge as powerful economic forces.
In this new world, strategy is shifting. Cheap coordination isnï¿½t just a commoditizer ï¿½ it offers radical innovators enormous opportunities as well. The same economics that give birth to a new universe of value creation external to the firm also make it possible for firms to leverage that value creation: to use it as a multiplier to the traditional activities of the firm.
Firms which can leverage cheap coordination ï¿½ the new market leaders ï¿½ are using the new economics strategically, to reshape their industries on their own terms. Theyï¿½re building new sources of advantage which are discontinuously more powerful than yesterdayï¿½s ï¿½ sources of advantage that can lead to not just supernormal returns, but sustained, explosively supernormal efficiency, innovation, or growth
In a world of cheap coordination, the edge - the boundary between the firm and the external - is the new core. That's because, counterintuitively, the strategy that dominates the shrinking core is to leverage the edge: not to simply build complementarities between internal sources of value creation, but between both internal and external sources of value creation.
That is, edge competencies are focused on learning how to utilize the universe of value outside the firm ï¿½ leveraging value creation external to the firm, and, in many cases, external to all firms.
Where core competencies are the firmï¿½s sets of deep learning about how to link internal sources of value creation, like resources, skills, and activities, edge competencies are sets of deep learning about how to link external modes of coordination, like markets, networks, and communities ï¿½ sometimes to the firmï¿½s resources, skills, and activities, and sometimes directly to each other. Edge competencies are about knowing how to most productively use cheap coordination ï¿½ often, by remixing and recombining these new modes of coordination.
In many cases, these newer modes of coordination ï¿½ and their offspring, as yet unseen ï¿½ can undertake many of the firmï¿½s key functions more efficiently at the edge, and so the dominant strategy is to leverage them to multiply returns to the firmï¿½s key economic functions. Itï¿½s these modes that are driving powerful new sources of value creation, like search, peer production, viral marketing, collaborative branding, social networks, connected consumption, and prosumption.
Why are these modes of coordination hyperefficient? There are several reasons that obtain under the right conditions. First, they can build and maintain resources and undertake value activities far more efficiently than firms can. Second, they can allocate the firmï¿½s resources more efficiently than execs, meetings, and memos can. Third, they can build and store capital thatï¿½s difficult for firms even to access, like social capital.
The bigger reason is that this hyperefficiency is difficult to achieve internally because many of the sources of value creation they enable are deeply at odds with the firmï¿½s relatively inefficient coordination. Most of these sources of value creation wither and die when theyï¿½re traditionally ï¿½managedï¿½: they are regulated by kinds of coordination that simply canï¿½t be achieved within the traditional boundaries of firms. Rather, they self-organize and self-regulate outside the boundaries of firms.
Edge competencies let firms internalize the manifold gains from these new modes of coordination, which are traditionally beyond the firmï¿½s horizon ï¿½ players who have built edge competencies have learned to marry, remix, and recombine markets, networks, communities, and, crucially, the firm, in new, radical ways.
Sometimes, these gains can be simply economic ï¿½ discontinuously powerful productivity, innovation, or growth. Because edge competencies let firms achieve internal as well as external leverage, they let firms tap productivity, innovation, and growth emerging outside the boundaries of firms. That is, they often let firms discontinuously more powerful productivity, innovation, or growth than they can simply by internal leverage.
More powerfully, these gains are strategic ï¿½ edge competencies let firms achieve a kind of judo, leveraging cheap coordination to build new, durable entry barriers, switching costs, and market power, in their value chain segments, while slower, older, intertia-ridden players trapped upstream or downstream continue to get hypercommoditized by fallen entry barriers, vaporized switching costs, and eroding market power.
Edge competencies donï¿½t mean that firms will vanish, as their key economic functions shift to the edge. Rather, itï¿½s that the universe of value outside its boundaries can multiply the firmï¿½s returns. For many of the new market leaders, this has meant integration across the value chain ï¿½ not disintegration.
Edge Competencies in the Real World
In practice, then, edge competencies are about realizing complementarities between the firm, and the newer, relatively hyperefficient modes of coordination cheap coordination makes economical ï¿½ like markets, networks, and communities: about leveraging complex combinations of markets, networks, and communities, to create value in new, hyperefficient ways.
Consider search. The dominant design for search, like Googleï¿½s PageRank ï¿½ essentially citation analysis ï¿½ depends critically on networks of connected consumers linking to and citing others. Methods of search that were solely focused inside the firm ï¿½ like Yahoo through the 90s, having centralized editors annotate each and every corner of the web ï¿½ were dominated by this new design, which leveraged external resources ï¿½ the value created via links by connected consumers themselves.
But in isolation, this network wasnï¿½t a powerful source of value creation. Googleï¿½s key insight was to combine the network with a market; because both were complementary forms of coordination, discontinuous, explosive growth was the result.
Or consider social networks like MySpace. Networks are revolutionizing marketing, letting smart marketers and brand strategists not get commoditized by consumer hyperfragmentation, but to leverage it instead ï¿½ achieving huge efficiency gains by boosting marketing returns, achieving huge innovation gains, by co-creating brands with connected consumers, and shifting to new models of branding entirely, achieving supernormal growth.
But networks donï¿½t exist within the boundaries of firms. Though firms may own the infrastructure, like Fox owns the technology behind MySpace, and itï¿½s relationships with consumers, and so it may capture a share of the value created, that value is still created, organized, managed, and regulated by connected consumers themselves.
While these examples make building edge competencies sound simple - after all, many firms are slowly realizing that markets, networks, and communities can multiply returns to their key economic functions - doing so is, in practice, more complicated.
Many firms are simply diversifying into the edge - collecting scattered markets, networks, and communities. But Bubblegen's research has shown that this strategy is dominated; Yahoo, who exemplifies this strategy, is seemingly always a distant second. Yahoo isn't building edge competencies; rather, it's simply acquiring more and more space at the edge.
Rather, as the examples above demonstrate, building edge competencies requires firms not to simpyl diversify, but to actively learn how to create complementarity at the edge - to learn how to create and capture value through the deep synergies that can be realized from unique, carefully chosen combinations of markets, networks, and communities (and, often, the resources, skills, and activities of the firm).
Building Edge Competencies
What concrete steps can players take to develop edge competencies? Bubblegen has distinguished between three edge competences driving explosive success: plasticity, liquidity, and knowledge pools. They, and Bubblegenï¿½s edge competencies practice, are outlined in this presentation
in more detail.
To get started thinking about edge competencies, ask yourself:
What sources of value creation are emerging outside the boundaries of firms in our industry?
What forms of coordination - markets, networks, communities, others, or hybrids - are these sources of value creation embodied in?
What gains could we realize from remixing and recombining these modes of coordination?
For example, can we leverage a market, network, or community to atomize the key resources and capabilities of upstream or downstream players? What are the costs and benefits of making this move?
Competition at the Edge vs the Core
A quick note on how competing at the edge can dominate competing at the core - note that many of you will fundamentally disagree with my premises...
Apple is switching to Intel largely because Viiv builds "media" (read: lockdown style DRM) into the chip. Without, Apple's long-term strategy - to be the Media 2.0 monopsonist - is defused; new sources of market power enter the game. Hollywood and other content guys will defect to DRM heavy platforms.
So rather than change the rules, Apple is playing the game - leveraging it's core competencies in cool hardware to new markets (Media 2.0).
Contrast with Google. Google is taking the opposite approach: betting that the best way to be a media monopsonist isn't to worry about the core; but rather to build markets for everything at the edge. If Google's right, DRM won't matter so much - the market will simply set a price for goods with it, and goods without it.
That is, Google's leveraging new modes of coordination to change the game; if it's right, it won't just dominate an old value chain: it will have created an entirely new one, with the huge returns that doing so generally entails.
What is Media 2.0?
Lots of noise lately about what is Media 2.0 exactly.
Simple answer: not a subset of Web 2.0, where that's Ruby, Ajax, lamp, etc.
Rather, the eventual shift to media as service in an EoIP world. This is "2.0" because the structure of the industry gets disrupted.
Simple example: 50 years ago, most media markets were heavily protected by massive entry barriers; today, anyone can produce and publish almost any kind of media nearly frictionlessly.
The "2.0" is economics - not technology.
Wednesday, January 11, 2006
Edge vs Core
So a commenter just said something to the effect of "I don't believe peer-produced XYZ will replace everything the firm does".
I agree wholeheartedly. The point of going to the edge is to leverage value external to the firm wherever possible. That is, to realize complementarities between the internal, and the external.
This doesn't mean firms disappear. Consider peer production - the edge between firms and consumers. On the one hand, there's an explosion of new firms trying to leverage it. On the other, incumbents are integrating, so they can get to the edge to leverage peers.
The point is that firms don't vanish: they shift focus. To dominate the new economics of cheap coordination - to create and capture value from the external - they have to learn to focus externally.
Dave Hornik on aggregators and reconstructors as models that dominate the Long Tail.
Another point to note: the battle between the walled garden - Apple - and the open market - Google - is about to kick off.
I think it's straightforward that the market is going to be dominant; leveraging markets is a textbook example of an edge competence, because it's pareto efficient: we're all better off (yes, even you media execs).
But I could be (totally) wrong...
Tuesday, January 10, 2006
Thanks for all the comments last week to my request for what you'd like to see.
I have been working on revising the reference pieces in the practice area links - I know they're obtuse and tough to read.
On the definitional side, I think the best solution isn't a glossary, but a Bubblegen wiki.
I don't even remotely have the time to set this up, though. If someone can set this up, there's plenty of room on the Bubblegen server...and you'll earn my (and everyone else's) undying gratitude.
Getting in Touch
A number of you have complained that it's difficult to get in touch. The reason is that my mobile network here in SF has really crap coverage, and my inbox is beyond swamped at the moment.
If you really wanna get in touch and just say hi, just Skype me...umair.haque
Glancing at TechDirt, I see response to Google Video is mixed. Interesting.
Though the product may suck, the strategy is still dominant: leveraging cheap coordination to utilize a market to allocate resources more efficiently than TV stations, Hollywood, etc, can.
At the same time, if you're worrying about DRM...don't. This is the real test of DRM
. Google's market, if it's efficient, should show the DRMafia that the marginal cost is far (far) greater than the marginal benefit.
This is the only argument they'll listen to, and though I've made it in boardrooms often (ironically, to most of Google's big competitors...why don't you guys listen!?), I never had what Google Video will provide: millions of bucks of evidence.
Edge Competencies Case Study
OhMyNews director: "the audience is
Edge competencies: leveraging the universe of value external to the firm.
If you only read one link today, do not miss this.
Bubblegen vs Apple
Hey, look, Clay Christensen also thinks Apple's about to blow it (except I made the argument almost a year ago).
The Madness of Crowds
One of my 06 predictions happening already...that the problems with the manifold new modes of production would be revealed.
Here's a related example: Digg's top 100 stories of 05...kind of suck. It takes a lot of scrolling to reach a truly significant story of the year.
The real point, though, is that despite the problems, they're still hyperefficient - what the problems point to is the new role editors will play; something more like DJs (which was another prediction :)
Monday, January 09, 2006
Media 2.0 vs Media 1.0, pt 1 - Strategy Decay at the Core
What!! Are you kidding? No, really - you must be kidding. Wait - you're not kidding? Oh..uh...
AdAge: Time Inc's Ann Moore: Core Competency is Editing
Probably the biggest reason media sucks is that it doesn't even know
it sucks. Now, I don't mean that in the way you probably think I do.
Certainly, the media industry is fully of brainy, even intellectual people who can quote Baudrillard and snigger and tell you that they know media sucks. That's not this problem, that's another problem (a kind of systemic inertia, or what we might simply call a lack of internal balls), which we'll discuss later.
I mean that many in the industry think that it can go on still
sucking: they think that their strategy decay is just a minor misstep; that there are no substitutes for the resources, skills, and activities that go into media. Like, clearly, Ann Moore does.
The point I'm trying to make is that the industry doesn't - and rarely has - thought strategically. Right now, the assumption is that local monopoly effects are still enough to insulate media from strategy decay. In fact, at the limit, that means that the way for media to make more $$$ is for it to suck more
- this is Clear Channel, Fox, etc, etc.
Now, that was true even five years ago. Today, the rise of the edge has made that assumption lethally obsolete. But because the industry assumes that it can
go on sucking, they don't see the universe of value at the edge exploding. You'd be surprised how many media heads have no idea what Last.fm or Memeorandum are (lots).
What this is all really about is the decay of the core. It's trivial to note if editing is your core competence, you are, how can I say this nicely, sooooo dead (and it will be painful death, too). That's because editing at the edge - reconstruction - is orders of magnitude cheaper and better: it's a discontinuous jump in value creation.
You may have a core competence - editing - that creates core products - newspapers - but today you're possibly better off not having one. That's because you might, like Time, fall into a competence trap: your competence becomes a rigidity - it's the only thing you really know how to, so you keep investing in it; even when the market's collapsed it's value completely.
What media players - and players across consumers industries - need, in a world where value shifts to the edge, are, unsurprisingly, edge competencies: ways to leverage the edge.
Time don't need a core competence in editing; it needs an edge competence in something...anything. Time has to - has to
- leverage the edge, because that's where the value creation has shifted. To focus on the core is to double down - to go from strategy decay to competence trap.
Research Note: Media 2.0, On-Demand, and Strategy
"..."We have growth options, and I think we're going to surprise a lot of people," Moonves says. "Our future success will depend on maximizing the use of our great entertainment, news and sports content everywhere and being paid for it.
...Like its rivals, CBS is making rapid-fire content deals with every kind of distributor: Verizon's V Cast video, Comcast video-on-demand, iPod audio and others. In most cases, CBS receives the lion's share of the on-demand user fees for providing select program clips (as for Verizon cell phones) and full-length series with TV commercials intact (as with Comcast VOD), well-placed sources say. CBS also gets a critical first read on the impact new-media options will have on its core businesses, consumer and advertiser behavior and its balance sheet."
Today, the strategy media incumbents are slowly reaching is to shift to ï¿½on-demandï¿½ distribution ï¿½ to slowly end the tyranny of the blockbuster. The intent is admirable ï¿½ blockbusters result in damaging competitive dynamics.
The problem is that ï¿½on-demandï¿½, without market power, is really an antistrategy. It's not a strategy at all ï¿½ it's trivially dominated; it's a recipe for domination. Because the media industry still doesnï¿½t understand why or how itï¿½s deep economics are changing, it canï¿½t build new strategies to dominate those economics ï¿½ and so is about to get dominated instead.
Why are incumbents choosing this route? Because today, they can earn short-term, incremental revenues by doing so, as the costs of distributing media online fall, while the benefits continue to multiply ï¿½ as online ad spending continues to explode, and consumers become more and more willing to pay for unbundled media.
But Bubblegen has long argued that a short-term focus on revenues is the most strategically toxic thing media ï¿½ or any kind of ï¿½ incumbents can do in industries where fundamental economics are shifting tectonically. Itï¿½s more important to understand why and how industry structure is being disrupted; without that understanding, finding new, durable sources of advantage becomes a matter of luck.
Consider what's really happening here, from a deep economic point of view - not just from the perspective of numbers on a spreadsheet. If weï¿½re rational, weï¿½ve got to think not just about what revenues we can gain in the short term ï¿½ but how value will shift in the longer term, and what share of it we can capture.
In the long-term, value capture is a function of industry structure ï¿½ and so any strategy is dominated unless incumbents also invest in sources of market power. But, incredibly, media incumbents are arenï¿½t just failing to invest in future sources of market power ï¿½ theyï¿½re actively subsidizing the future market power of others.
How? In the media industry, the resources of the firm are being unbundled at the edge. Why? Market power has shifted to the edges of the value chain: to consumers and to platforms.
Why? Barriers to entry and switching costs have been vaporized by hyperefficient modes of production, publishing, and distribution ï¿½ Microplatforms, Smart Aggregators (aka search), and Reconstructors. The universe of media is exploding, and the value chain is atomizing ï¿½ and attention is now the scarce resource in the value chain.
Why? The root cause of the media industryï¿½s problems is economic ï¿½ the price of coordination has dropped discontinuously, enabling the rise of these new models. New sources of advantage in the media industry must leverage cheap coordination ï¿½ not fight it.
What the ï¿½on-demandï¿½ ï¿½ AKA media 1.0-as-service ï¿½ strategy amounts to is a bet on investing in production: that by investing in (and creating) the ï¿½bestï¿½ shows, traditional media will retain a higher market share ï¿½ a higher attention share, essentially.
But this is a bet on the wrong kind of production. This kind of production investment is necessarily dominated, because, relative to other kinds of production investment ï¿½ in Reconstructors, Microplatforms, and Communities ï¿½ it creates less market power, realizes more risk, and realizes no sustainable attention scale and scope economies.
Where does market power come from in the new media value chain? From either edge: Microplatforms and Communities, which let consumers produce and self-organize around media, and Reconstructors, which reconstruct personalized ï¿½casts of media. Both of these will gain increasingly dominant attention share, because they realize natural economies of scale and scope to attention.
Reconstructors and Microplatforms are the right way for incumbents to invest in production ï¿½ they shift incumbents away from the obsolete media economics of diminishing returns, and to the new economics of increasing returns. Increasing returns, are, in an atomized value chain ï¿½ one where anyone can produce, publish, and distribute media almost frictionlessly ï¿½ the only sustainable new sources of entry barriers and switching costs.
What simply shifting to ï¿½on-demandï¿½ without investing along the new value chain does is simply subsidize Reconstructors and Smart Aggregators ï¿½ like Google and Apple. Content, in the near future, wonï¿½t be a source of market power ï¿½ it will be commoditized. Value chain atomization means that the average return to content is already decaying fast across media markets. Focusing on content ultimately gives new models more and more leverage to realize attention economies of scale and scope.
By focusing on the short-term, as itï¿½s done so many times in the past, the media industry is mortgaging the future. This time, though, the price of antistrategy will be steeper than ever before; like Ford and GM never recovered from their inability to understand and dominate the economics disruption of the 70s and 80s ï¿½ cheap information ï¿½ so it will be difficult for media incumbents to recover the market power incumbents are about to cede to Apple, Google, and a clutch of new startups.
Case study: Creative Zen.
Presumably, the name was chosen to reflect the "zen" of the iPod. Except Creative's brand guys forgot something fairly obvious: that calling something "zen", well, kind of defeats the entire point.
Now, this may sound minor - but brands have very little space to express themselves; a few words, images, ideas - that's it. Getting this much wrong at the beginning means that the whole brand is an exercise in contradictory recursion - and so it can never have any coherence.
Then there's the Zen Neeon - an even better example of contradiction. Anything that's Zen almost, by definition, can't also be neon (perhaps a single neon light, but...in general, no); they have exactly the opposite associations. Another exercise in contradiction.
Let me not forget the Zen Sleek. Again, using a word like "sleek" contradicts the point of zen - not to have to express ideas explicitly in the first place. Not to mention the fact that something may be
sleek; it's branding should leverage that property, not just parrot it (otherwise, what's the point of the brand?!).
This lack of coherence feeds through to the product design, which is about as Zen as a lawnmower - rough edges, strange ridges, out of place lines, unbalanced shape, bad display, etc.
Of course, Creative would argue that they're targeting market segments who don't care about these issues. That's a thinly veiled way of saying that they think people that can't or won't spend iPod money on MP3 players are stupid. There's an existence proof against this: Zen is a dominated product, and a dominated brand.