Saturday, January 28, 2006
The Big Picture
Straight.com Vancouver | Features | Immigrants claim that Canada conned them
Canada continues to shaft qualified professional immigrants. I have analyzed this earlier
Policy fixes? Stop the gatekeepers, i.e., the provincial professional accreditation associations from erecting barriers to entry against these new competitors to theinr members in the labor market. It's clear that they have a conflict of interest : their existing members want to restrict labour supply and reduce competition, while the Canadian society and the new immigrants themselves need to find jobs that efficently deploys the skills pool. Professional associations prevent this from happening by making it virtually impossible for new immigrants to get certified for doing equivalent jobs in Canada.
Research from University of Toronto shows that the cost to the Canadian society due to inefficient skills absorption is about $15B per year. Of course, the human costs to immigrants such as Dr Bhatti from Pakistan mentioned in the Straight article are just enormous.
It's such a pity that for a society that is so caring, tolerant, diverse and livable otherwise, Canada continues to fail miserably on this issue. Note to Canadian policy makers: if you can't fix this, please stop professional immigration into Canada. It is horrendous and cruel to inflict a life of pain and misery on foreign-qualified professionals whose dreams are shattered and economic well-being ruined.
Diseconomies of Scale and Edge Competencies
Two articles I saw recently started a chain of thought.
Seeing Fakes, Angry Traders Confront EBay - New York Times
How Click Fraud Could Swallow the Internet
(Hat Tip: Paul Kedrosky)
First thought that came to my mind was that just as network economics has allowed suppliers to scale their business, it has also made them exposed to massive leverage of their own network by their users. More often than not, this leverage is a good thing but if (and when) a vital weakness in the business model is exposed, it can quickly snowball into a major strategic threat. This is another evidence of Umair's key thesis that the boundary between the firm and external world is being obliterated : the world is no longer neatly divided into you the producer and joe the consumer. Now think about what happens when you are learning to live with 100 million Joe Consumers every day. This is when a lightbulb went off : if you can leverage your network, so can your customer - and for whatever purpose they want - because, now they are part of you!
Yes, the camel is in the tent and living with you : deal with it. This also illustrates how the firm will need to develop very different competencies in future to work with networked business models - learning to live with your customers every day and working with them is very different from seeing them as passive buyers of your stuff some of whom may be criminal. However, I don't see any realization among web businesses that their businesses have, perforce, internalized
their customers. They still think of them in old terms, as in "a few bad apples and fraudsters who need to be policed" (or not, in the case of EBay). Here's the new way to think about it: remember the old adage from David Ogilvy, talked about in every Marketing 101 class at any self-respecting b-school? "The customer is not an idiot : she is your wife". Well, the new adage for the networked business today would be "The user is not the scammer : she is your customer".
The other thought that followed from this is, well, how do we solve such problems? Start thinking of this as a strategic judo, where first you leveraged the network to build your business and now the network is leveraging you to make some money for itself. The natural strategy that follows from this is to once again leverage the network. How? Yes, you guessed it : by developing edge competencies. This is again where Umair's thinking is very useful : once you realize that the boundaries between the firm and the market have evaporated, you realize that all action has shifted to the edge and that's where you should be playing.
Let me elaborate: EBay has a massive strategic weakness due to its exposure to fraud. Where is this happening? At the edge - fraudulent users are also traders and consumers of EBay's service. What mechanism does EBay have to deal with it now? Ratings and user feedbacks, which can be gamed easily. What else is going on? Observe that there's an emerging band of users such as Ms Rogers in the NYT article that are self-organizing to tackle this problem.
This is the inflection point : that's a clue right there for EBay to develop a competency at the edge and leverage such users to solve the problem. In other words, EBay must deploy resources to help such users self-organize, open its corporate gates so to speak and give all help to such users. The community will find a way to solve this problem, if only EBay would let them.
. All EBay needs to do is let them work with EBay's engineers and managers to come up with tech and non-tech solutions to this problem in partnership with the community. If they could do it, that'd be a killer edge competency.
What are the chances of such enlightened strategic thinking at EBay? Zilch, of course. The lawyers will spread fear, uncertaintly and doubt about legal liability for EBay if it tried helping its users. The preferred strategy, driven by lawyers and beancounters, would be to 1.pretend that there is no problem 2.litigate this all the way 3.cash in their stocks and get out. The old MBA types, if they were really trying to be good strategists, would talke about developing a "core competence" in battling fraud. The CTO would be given a $100M budget every year to develop internal solutions for this problem and his MBA buddy will talk about how EBay can "differentiate" itslef against competition by having the best anti-fraud solutions in the universe. The firm would work with the cops and the CEO would lobby the congress to have scammers jailed. Of course, if you've followed Umair's work up to this point, you can see that none of this will work.
The other thing that I find interesting is that edge competencies seem to be of two kinds : those involving humans vs. those involving algorithms. While the EBay solution outlined above is human-centric, I think Google will repose its faith in algorithms and only invest in tech solutions to tackle click fraud. Will it work? Remains to be seen, but for now, humans seem to be winning. Personally, I'd always bet on the ingenuity of the human to outmanouver any computer or algorithm. Why? Because humans can coordinate and cooperate many orders of magnitude more effectively and efficiently than algorithms. As I learnt in my CS grad school, while we have done pretty well with sequential uniprocess algorithms, the state of the art in distributed algorithms is not really that far out. The profound significance of that understanding is only beginning to dawn upon me now after my groping in the dark attempts to try relating that with network econ and strategy.
Friday, January 27, 2006
Sony to kill Aibo and Qrio.
Now, I <3 Aibo. I got one for my kid sis a couple of years ago (and soon discovered that apart from just being ultracool, it was actually a better way to get girls than either a real puppy or
a kid sister, but that's another story...). So, take this with a grain of salt.
I think this is a colossally myopic error:
1) The destruction of brand authenticity. Sony is about "digital dream kids". That's summed up nearly perfectly
in bleeding edge products like Aibo and Qrio. Killing them instantly devalues the coherence of this carefully chosen (and very well chosen) set of meanings.
2) Positioning blur. Sony's biggest threat is Chinese and Korean CE players. The biggest weak spot of these players isn't engineering or quality - it's marketing. That's why they're investing so heavily in branding (and making huge errors) - to begin learning about how to brand, and feed that learning back into innovation. This move converges Sony into the same position as them - strong technology, weak marketing.
3) This is the beginning of the death of a nascent competence in tomorrow's highest growth CE market - social robotics. Selling your seedcorn is usually a very bad idea.
This is a tragic move, driven by short-term pressures to maintain profitability. It would be much, much better for Sony to accept a few quarters of negative earnings - but to continue investing in innovation, break wide open entirely new markets, which it has huge first-mover and brand advantages in. This move devalues the very DNA of Sony.
Politics of the day
If I ever needed an evidence against Intelligent Design theory, here it is. Let's get acquainted with the Flaming Morons That Disprove Intelligent Design theory : Gerald Kesler and his cronies at the Nutritional Health Alliance.
Here's the main story:
Muslim bashing seemingly in vogue
Here's the poster made by NHA to rally its troops against Congressman Durbin.
Turban = terrorist, get it? Brown-skinned furriners with their weird cults, funny accents, towels on their heads and smelly food are America's enemies. So let's slap on a turban on an old white dude and call him a terrorist. Urrrrgh!!!
Words fail to describe how monumentally bigoted and idiotic this is.
Here's the kicker : since Kesler and his band of dipsticks can't even get their hating right, the turban in the picture is actually done in the Indian - Sikh style, not an Arabic/Middle Eastern one. Therefore, the Sikh American Legal Defense Fund has joined hands with the American-Arab Anti-Discrimination Committee to protest this.
Makes me sad to see how far the US has fallen and how deep the socio-cultural dysfunction in the American society is. Whatever happened to the America of Lincoln, Jefferson and Washington? Today, as a brown-skinned Hindu who actually happens to like many things about America and have many loved ones living there, it's unfortunately me and my brown-skinned brethren with roots in the Indian subcontinent who end up paying the price for such racist shiite in the US. After all, it's not Kesler who's going to be strip-searched at the airport : me, my cousins, and my brown Sikh and Muslim friends will.
Thursday, January 26, 2006
Google testing a new interface, complete with graphs?
Verrrrry interesting. Recommended.
I would be really surprised if the rumour is true and Yahoo acquired Digg.
There are many reasons, all of which are fairly obvious...probably the most important is that it's a bit early for Digg to sell, if nothing else.
The Problems With 2.0, pt 345314
I luv Memeorandum and all it's reconstructor cousins. It's one of the first things of my reading list. It's hugely slashed my search costs in finding new stuff.
But there's a problem. Ever since I've started using it to the point where it replaces many of my other sources, I have gotten stupider.
I can feel it - I don't think as fast, flexibly, or freely.
This is a well-known phenomenon in psych and econ - I've been locking myself into a diet of reinforcing information. Nothing really challenges my beliefs, and so I get hyperpolarized, or echo-chambered, sure - but the deeper effect is that I also get stupid, fast
Part of the reason is that all the attention markets, reconstructors, etc push all the same stuff
to the top - they all converge to the same equilbirum. Paradoxically, it's an environment of incredible diversity, but incredible sameness at the same time.
But the larger reason is that none of these reconstructors are really broad enough yet, and so reconstructing microchunks into coherent wholes is still pretty shabby. This is the where discontinuous value will be created - and surprisingly, the market gap is still open.
The good news is that the solution, I think, is fairly straightforward - reconstructor guys, if you wanna chat, ping me.
Let's be constructive for a sec - there's been waaay too much Yahoo bashing recently.
What would you do if you were Yahoo?
My ideas are pretty well known, and I humbly submit they have been a fairly big influence on Yahoo (viz Semel's four pillars = my new media value chain) - but, IMHO, execution has been fragmented, intent has been muddy, and so little value has been created.
So perhaps you have something cool to say - if so, leave a comment and let's kick off a discussion.
(Even More) Publishing 2.0
Scott asks, Lloyd riffs:
"...I think what heï¿½s said here is right too - you just canï¿½t measure everything, and one of the key things you canï¿½t measure is an audienceï¿½s relationship to its media. And if you canï¿½t measure it, you canï¿½t sell ads on it in anything like a mechanical way. And if you canï¿½t sell in a mechanical way, you end up hiring human beings who pitch to clients and draw up readership surveys and explain ï¿½brand effectsï¿½ and other such dark arts."
Look, I am one of the original anti-algorithmic guys. I helped kick off the whole "humans are more efficient than algorithms" school of thought that is hot at the moment.
But I also think Scott and Lloyd are wrong on this one. In fact, you can increasingly measure the audience's relationship to it's media.
The whole reason the media industry is being disrupted is because execs used to think that - essentially, that they knew what audiences would really
like - and that gave them the excuse to do horrible things, like this.
All of the radical media innovations of the last few years - attention markets, pay-per-x, peer production communities - are focused like a laser beam on exactly making the relationship between media and audience much more measurable.
Building Edge Competencies - Understanding the Edge Edition
Understanding the edge is tricky. It's a place where most traditional assumptions about management and strategy have to be left behind, if not upended - otherwise, it's difficult even to ask the right questions.
Here's a good example - Lloyd Shepherd, who's a publishing 2.0 guy at the Guardian, asks:
"...According to PaidContent.org, it takes 50 votes from 140,000 or so digg users to get a story onto the digg front page...
...But letï¿½s break those concepts down a little. The PaidContent stat seems to imply that, actually, the community doesnï¿½t decide what goes on the front of digg. Actually, a very small, statistically almost insignificant number of individuals decide (some 0.035%) that a particular story goes on there. Of course, itï¿½s not the same 0.035% for each story...
...On GU, the editor decides what goes on the front. But actually, itï¿½s not one editor, itï¿½s a team of editors, sharing stories, discussing them, making a case for them.
...All of which is a long-winded introduction to the core question: are 50 digg users more ï¿½representativeï¿½ of the 140,000 digg users? Or is a group of GU editors more representative of the GU community? In my more militant moments Iï¿½ve often wondered how GU would look if we handed over the front page to the 12 million unique monthly users - would it be more reflective of the community, or less?"
Bolding's mine. It's a good question - but it's the wrong question, unfortunately.
Let me back up for a sec to explain. What is Digg (Reddit, Tailrank, Memeorandum, etc...)?
They are all basically markets for attention. Attention is allocated efficiently because info about news (music, movies, books) is liquid when enough people trade it (theoretically, anyways - the problems arise because they're pseudo-markets, not real markets, and that's why all the information contagion/crap epidemics happen...but we'll get into that later).
Those 50 votes are the price of attention to the front page now - they are like the current ask price for front page space. To make this intuitive, think about the price of space on the second page. It's likely to be (exponentially) less than 50 votes. To make it even more intuitive, note the fact that what really makes Digg (etc) work is that not
voting sets the price too, just like not bidding at an auction.
Like in other markets, the price - 50 votes - is a reflection of supply and demand - the number of Digg users, the amount of time they spend on Digg, how often they vote, and the amount of news they each read, on average.
The point I'm trying to make is that the absolute price itself isn't so important - the only immediate thing it reflects is friction, aka transaction costs. What's much more important are the deeper variables - supply and demand, and their elasticity and volatility. These are the factors that Publishing 2.0 guys should be focusing on - but they're not (except Scott).
I've had a lot
of discussions lately where people ask this question.
To really build edge competencies - to be able to leverage attention markets like Digg, IMHO, it's really important to move beyond first-order thinking, and focus on the real strategic variables.
Wednesday, January 25, 2006
Managing the Edge, pt 138913
Jarvis follows up on the Post discussion centered around whether there should be an ethic of interactivity (ie, should big media feel obligated to host comments, etc).
It's a good question, and quite a fun dicussion to read - but strategically, I think the Post is asking the wrong question. Media has to ask the right questions if it's ever to break out of deep strategy decay.
What's the right question? Simple: is the edge a source of advantage or not?
Now, I think it should be very intuitive by now that it is. Just consider Wikipedia.
But let me make the argument even more intuitive by drawing an analogy. Consider the Lego Factory a sec, where consumers can upload their designs, and have them produced.
Now, imagine for a sec that I decide to be a massive troll, and I upload a Lego Goatse (why am I sure that one of you guys is actually going to try this and have a Lego Goatse made now...). Is this uncivilized? Sure.
Does it cost Lego something? No! In fact, it benefits Lego: it means the Factory is doing what it was meant to do - vaporize the cost of individualized goods. The larger economics of peer production are still on Lego's side. The Lego Factory is still a powerful source of advantage.
The reason is the same that it is across consumer industries - the deep economics of these industries are shifting. Consumers can coordinate and do productive things incredibly cheaply. For Lego, it's product design. For newspapers, it's fact-checking, commentary, editing, etc...
So media should start from the perspective that the edge is a powerful source of value creation. From there, discussions about how best to regulate conversations, etc, are relevant.
But to think that it's an ethical or moral responsibility is to miss the seismic shifts in industry structure that make leveraging the edge a deeply dominant strategy.
The death-by-whimper-not-bang of Bayosphere should cause you to ask: what happened to citizen journalism? Why isn't it working? What's holding back market growth?
Clearly, it has been disruptive in Korea, so it can work (unless you believe that everyone's mystically really different).
My answer's simple: citizen journalism is
working. With a few caveats:
1) Much of it's decentralized - ie, blogs.
2) Much of it's happened in verticals which don't need marketing because they have natural cool dynamics.
3) Amazingly, those CJ plays that are venture backed have built no understanding of how to drive scale.
3.5) Part of this problem is that many verticals do
need marketing - because CJ is so low under the radar, joe 6pack has no idea what the hell it is. I don't mean $$$ super bowl ads with lovable puppets - but I do mean some basic level of awareness building.
4) Much of the failure is of VCs, who seem to be unable to help the entrepreneurs they're backing articulate a coherent value proposition for citizen journalism plays - because they don't understand the dynamics of consumer markets.
5) All of this is absolutely astounding, given the fact that the market size of people fed up with big media is huge (and growing).
Yahoo 2006 = AOL 2001
Yahoo cedes search to Google.
What's going on? More than anything else, Yahoo's resetting the Street's expectations. Although, to an extent, Yahoo seems internally divided.
Of course, innovators usually don't have to do this - so take the hype with a grain of salt. If Yahoo's "social search" strategy was working - if they were going to be the world's attention allocator - I think it's safe to say we would have seen something cool happen by now.
Which begs the real question - if Yahoo's not good at search, what is
Yahoo good at?
Now, of course, the reason it's struggling to answer this question is that core competencies don't work when value shifts to the edge. You need edge competencies - and Yahoo's biggest failure, IMHO, is understanding this simple equation.
Tuesday, January 24, 2006
How Not to Think About the Edge, pt 14314
I hate to go on about the same thing, but with thinking like this:
"...I'm no Howell fan, but blogger accusations that she is carrying water for the right or peddling some bias are completely unwarranted. Attacking somebody as if they are your enemy when they clearly aren't makes no sense. Unless, of course, you're among the perpetually aggrieved and you've tired of flogging the usual villains."
It's really no surprise that Slate is worth about 1/100th of MySpace.
Just another small example of why media will continue to be commoditized by the edge - rather than learn how leverage it.
Monday, January 23, 2006
Folks, I have very little blogging time these days, and I know I'm missing many of the developments that interest you most. So please feel free to comment here on anything interesting you'd like me to talk about that I haven't.
More comment responses to follow as time permits - if you have a burning issue, point, argument, etc, comment here to get an answer first.
Plasticity and Post-Branding Mini Case Study - Spotrunner
There's been a great deal of buzz about Spotrunner recently. But there's also a great deal of confusion. Many feel, intuitively, that Spotrunner's going to be revolutionary - but no one can really explain why. Let me try and deconstruct Spotrunner and the economics of ads for a second, and also draw out some implications for branding.
Spotrunner's intent isn't just to make buying TV ads hyperefficient - it's to make the entire TV advertising value chain hyperefficient, like Google makes the larger media value chain hyperefficient.
How? By making TV ads more plastic than they were before. Before, ads were a perfect example of an indivisible input - you had to pay a great deal to have a 30 second spot produced, and then more to have it distributed.
Spotrunner's disrupting this equation. But let's be really clear about exactly how. It's making TV ads themselves microchunked - it's making formerly indivisible inputs divisible.
On Spotrunner, you choose a generic ad, and rebundle it with minor personalized info - your company's name, contact address, etc. The indivisibility of ads has suddenly been vaporized. It's not just that anyone can buy them - when you buy an ad on Spotrunner, you're really buying several rebundled, microchunked goods - so it's that the ad itself has been redefined.
This is a perfect example of one the way in which microchunking unlocks distributed scale economies - through the reuse and recominbation of microchunks. Spotrunner can be hyperefficient not just because it allows access to buying distribution online, but because it microchunks ads, letting them be rebundled - and so reused - making Spotrunner a far more efficient economic solution to buying ads than anything else in it's strategic group.
There's a lot of 2.0 noise out there at the moment - lots of plays that are strategically misfiring (Hi Ning). I think Web and Media 2.0 guys should take a single really deep lesson from Spotrunner: It's not enough just to build a market, network, or community.
Rather, you have to think strategically about them - how do they create value? By value, I don't means cells in a spreadsheet. I mean the reshaping of a value chain or industry, the redefinition of a customer base, or the redefinition of products and services (preferably, all three). This, more often than not, requires edge competencies - understanding what
makes markets, networks, and communities productive and disruptive.
Spotrunner creates value by leveraging plasticity to reshape the TV value chain, making it hyperefficient. Spotrunner has targeted with great accuracy a specific edge competence that is deeply disruptive to it's target industry - plasticity kills traditional advertising dead.
Now, this has deep implications for branding. It is the perfect example
of the hypercommoditization of social meanings. That the same generic ads are today available to everyone at a fraction of the price custom produced ads were yesterday means, necessarily, that the price of social meanings themselves just dropped dramatically.
If you're in advertising, you should stop and think about this for a second. Most ad heads respond to Spotrunner with disgust. As a former creative, I feel your pain - generic ads are indeed creatively bankrupt (even if that in itself is strangely cool).
But Spotrunner is just a mote in a storm that's about to strip advertising to it's core - the commoditization of social meaning is accelerating everywhere around us; through communities of connected consumers, through the explosion of micromedia, through the fall of global trade barriers fueling an explosion of global brands. Smart brand strategists are going to begin to shift away from the simplistic strategy of engineering (commoditized) meanings into brands.
To me, the most interesting part of Spotrunner is that they've totally missed
the biggest opportunity that currently exists to disrupt advertising, and that's easily within their grasp. It's not distribution, or the microchunking of generic ads...I'll leave it to you to guess (hint: think edge competencies).
A nice, thoughtful article in the LRB about Google, sans gushing, sans hype.
"...The best historical analogy for where Google is today probably comes from the time when the railroads were being built. Everyone knew that trains and railways would change the world, but no one predicted the invention of suburbs. Google, and the increased flow of information on which it rides and from which it benefits, is the railway. I donï¿½t think weï¿½ve yet seen the first suburbs"
, can we stop using the railroad analogy.
2) The suburbs are being built...think communities.
So if you follow Bubblegen, you'll know that when Ning came out, we didn't buy the hype
, and instead pointed out that their model had numerous problems, not least of which was that it was too geeky - it was a great example, in fact, of one of the key barriers to growth for 2.0.
It took a couple of months, but finally there was a long conversation this wknd about exactly the fact that Ning is cool for geeks, but less cool for everyone else, kicked off by TechCrunch.
I guess the point is that we predicted this some time ago, so it's not exactly a surprise - it pays to think a little more strategically about all this cool stuff.
The First Law of Post-Branding
"...Microsoft Corp., the world's biggest software maker, will spend $120 million a year on an advertising campaign to fight its image as "a huge American company."
Link. The First Law of Branding in the post-network economy: don't lie
Yesterday, you could get away with lying (TV dinners are good for you - SUVs are safe - diamonds are forever - etc) because consumers had little market power. Brand strategists, sowing the seeds of their own long-term destruction, exploited this ruthlessly.
Now, the information asymmetry that dominated consumer industries - that marketers knew more about their products than isolated, atomized consumers - hasn't just vaporized, it's been reversed: consumers often know a lot more about many the real-world performance of products than the firms that make them do.
This is what's driving so much of the growing consumer "resistance" across industries. Calling it "resistance" is to fundamentally misunderstand the dynamics of the situation, and tells us most marketers are very much out of sync - I call it anticonsumption, to reflect the fact that consumers can share info about what not
New modes of branding leverage the reversal of this asymmetry - they don't fight it. The weak forms are already emerging - like word-of-mouth/viral/buzz marketing. These are naive examples of strategies which partially leverage the deeper knowledge of consumers, by engaging consumers themselves (as "evangelists", etc) - in econ terms, shifting consumers from peer marketers or micromarketers.
Given these microeconomics, lying is a trivially, totally
dominated dominated strategy. Microsoft is a marketing retarded company; probably the most marketing retarded company in the world. But this is a colossal error, even for them.