Saturday, March 25, 2006
bunchball.com - Play with your friends!
Very cool business model.
A series of cool articles on global trade at Yaleglobal
Protectionism Threatens Emerging Engine of Growth
This article has some fascinating stats about shifts in global demand and consumption patterns.
A Floundering WTO I
A Floundering WTO II
Is Globalization Stealing EU Jobs?
The New Globalization Guru
One of these days I need to sit down and analyze the emerging trends in global trade. There's some really cool stuff happening out there. One thing I can certainly say, though, is to Europeans and Americans is that be careful what you wish for : what if some day the rest of the world stopped
wanting to trade with you?
Friday, March 24, 2006
2.0 Business Models
Fred kicks off an interesting discussion about b-models; says his favorite recent model is free + premium services, which I call "enterprise subsidizes consumer" (to reflect the fact that it's often SMEs who are subsidizing the free half of these models).
An astute commenter calls this model "freemium", which is a name that is a work of art in itself - so freemium wins.
Now, I'm surprised to hear Fred say he likes this model the best. Is it a cool model? Yes. Does it make money? Sure.
But is freemium the model that's responsible for the largest amount of value capture across 2.0 spaces? Nope - not even close. You don't have to run numbers, this should be intutive - just think about how much money Flickr/Skype etc really make.
Finding your way through the maze of b-models is the focus of my next paper - here, I make it pretty clear that you should only shift to services if you haven't really figured out deep, direct value creation in the first place. That one's out next week...
Thursday, March 23, 2006
New Stuff - The Laws of Social Media
Folks, I have decided to shift the Bubblegen model a little bit.
Since I don't have time to consult with everyone, over the next few months, I am going to try offering a series of papers based on my research and consulting. Some of these will be free; the good stuff will cost you a bit.
The first of these is called The Laws of Social Media
; it deconstructs how MySpace dominated this space, and the mistakes that it's numerous competitors - notably Friendster - made and continue to make, distilling all this stuff into about 12 key lessons for social media strategy.
It's like a mini workshop with me rolled into a nice, jargon-free 20 page pdf (not a dense, econ heavy ppt).
Who should be interested?
- VCs - to understand how the dynamics of social media will unfold, and help your portfolio companies find advantage (read: to figure out how to scale).
- Attention Economy players - to dig deeply into your strategy and business model, understanding the drivers of advantage.
- Media strategists - to begin understanding how and why to create social value propositions.
- Ad and marketing guys - so you understand what to look for as potential buyers of and complementors to social media plays.
- Everyone else - to cut through the noise and really begin understanding concrete lessons about the Attention Economy
If you would like to buy this paper, email me for pricing (less than a 300 page market research report, more than a
subscription to the Economist) + access.
In the next couple of weeks, I hope to have a Google Base/Amazon set up going, and the majority of these papers online. The next one is specifically about building Attention Economy business models - so we don't clog the pipes, that one isn't available until next week.
No big sales pitch - in fact, an anti-sales pitch: I don't like the idea of charging particularly, but I can't give this hard-earned knowledge away; these papers are like blueprints for strategies and business models in my practice areas. Since I don't have time to consult with nearly as many people as I would like, I hope this experiment is a middle ground that gives more people some level of access to me.
Also note that at some point in the next year, prices will drop, and, even later, these papers will be free. So if you're just curious, and don't plan on using these as blueprints/insight now, it's probably worth it to wait. OTOH, if you're involved in these spaces, it's probably not.
Update - for clarity's sake: this isn't a new business model. BGSL is and will remain primarily a boutique strategy consultancy - I don't publicize my clients; suffice it to say you know who they are.
Rather, selling access to papers it's a way for me to try share my knowledge with a larger pool of people. Workshops and consulting gigs are expensive. Papers are (relatively) cheap. The goal is not so much $$ as it is offering a bigger universe of people a more economical path to the BGSL school of strategy.
Breaking the Corporation - The Rise of the Edge
Case Study: GM. After decades of stifling hierarchy, anti-strategy, and an innovation failure so total, it will be the stuff of b-school discussions for years to come...
...and the workers are the ones that pay the price?
Look. I'm as much a vulture as the next strategist (OK, maybe not).
But this is, from an economic point of view, a deeply inefficient outcome. Here, the incentives are backwards. The guys that put the hierarchies in place, and cemented anti-innovation with design by committee - C-level, consultants, etc - should be the ones that get hurt by this.
This is elementary; they must bear the risk of their decisions for them to make rational decisions. The workers, by definition, shouldn't bear this risk, except in increments tiny enough to barely affect them, since they don't affect outcomes except in marginal ways. Put another way, the marginal product of a CEO's labor is enormously greater than the marginal product of an assemblyman's labor - that's, theoretically, the reason they get paid 100x as much.
Now, we can complicate this argument in many ways (by introducing different time horizons and preferences) - but I think we can all agree that for workers to take an order-of-magnitude cut in their lifetime earning is absurd; it's absurd even
if C-level takes the same percentage pay cut.
There is no economic universe in which this outcome can be justified.
It points to the deeply inefficient mode of coordination and production the corporation has become.
It points to the malaise at the heart of our thinking about "free" markets, which, as this example demonstrates, really get freer the more capital you bring to the table. Certainly, if markets implicitly regulate the corporate sphere - they failed spectacularly in this case, and they continue to fail spectacularly.
Ultimately, this is the heart of edge competencies; this is why we see value shifting to (real) markets, networks, and communities.
Many think I'm simply talking about Web/Media 2.0 when I talk about edge competencies. But the shift to the edge is, I think, a much broader phenomenon, with much bigger implications: it is a fundamental reshaping of the economic landscape, in response to the growing inefficiency and abusrdity of the corporation.
How different is GM's failure from the fact that most investment banks are making more and more of their money from arbitrage (versus relatonship based dealmaking)? In the big picture, not really different - they are effects of a cause; the shift of value to the edge.
Politics of the Day - Washington
So, while I was busy slaving away this week, the Post did something awesome. As I'm sure you know, they hired a 24 year old kid to write a new "red" blog.
Why is this awesome? The sheer brain-exploding comedy factor of it is just too much.
-he thinks "evolution is a crock" (ha ha)
-he was formerly a Bush appointee (HA HA)
-he can't write to save his life (brain pressure)
-he's a thinker of the finest quality (viz, liberals are by default "shrieking extremists" - pressure increases)
-sometimes, he even dabbles in racism (aaaaaaa ha ha ha)
thinks Red Dawn is a spiritual experience (no...more...)
-he's a 24 year old chickenhawk (aaaaaaaaaaaaa ha ha ha)
-he even has the requisite family connection - his dad
is also a Bush appointee. (mflurgle!#$#$!!!!)
-who's connected to Jack Abramoff (brain explodes).
At first I was offended. After all, it's not every day that a budding racist is given a podium at one of the country's top media outlets.
On reflection, I have a delicious sense of anticipation. This is a guy who says things like:
"...Apparently, this violent testosterone-fueled psychological imperitive - not a coherent and just strategy for defending America in response to the first major attack on our soil since Pearl Harbor - is the real reason for our war in Iraq."
I don't think the Post could have made a worse move, from any perspective, if they tried. I mean, this isn't just a strategic error - it's just asinine.
It's going to be drama of the highest order watching them get flambeed by the blogosphere, their competitors, and the public, roughly in that order, as everyone discovers just how bad a taste it leaves in the mouth to give people like this - those who love war, but won't fight it; those who can't reason, but yap away anyways - the keys to the town square.
Pass the popcorn.
Monday, March 20, 2006
Innovation and social capital
Aging Japan builds robot to look after elderly - Yahoo! News
Destruction of social capital is not necessarily orthogonal to innovation and entrepreneurship. Of course, it can be hardly desirable to live in a society where social capital has eroded to the extent of replacing humans with machines. This set off a chain of thoughts in my mind.
A pertinent issue is to what extent does focus on financial/material capital accumulation *causes* the destruction of social capital? I think there is overwhelming evidence to see a significant causal linkage here. For example, the Big-Boxification of rural US robs it whatever little socio-economic diversity and character it has. In fact, this is increasingly evident even in cities : traveling around in the US, I am just amazed at how uniform the entire landscape has become. It is all so uniform, and...boring!! Except for a few pockets of interesting and diverse places such as downtowns in a few large cities, the rest of the country is rapidly becoming one Big Box hell. If you were blindfolded and left at a Wal-Mart ot Costco in the middle of nowhere, would you even be able to tell what town or even which state you were in? Paradoxically, the US also has very high degree of ethnic diversity in its cities, but once the immigrants get assimilated they all pretty well live the same life centered around going to work and paying their bills. Charlie Chaplin presaged this at the dawn of industrial times, and I don't think he was too far off the mark from describing the misrebale lives of two-hour commutes from exurbs, organized shopping at Hallmark holidays fueled by huge consumer debts and lifelong payment of mortgage followed by reverse mortgage.
Another point I wanted to make was that sometimes, this is framed as an issue of choice, but that misses the whole point. The argument goes that by choosing to shop at Wal-Mart rather than at mom-and-pop shop, the consumer is choosing to vote with her wallet and therefore, society must let Wal-Mart win. However, free markets are the right solution only if buyers and sellers are reasonably well-informed, capable of judging a price based on the value of utility, and operating in a non-monopolistic environment. None of this is applicable in this case : economics has not yet developed the capability of figuring out the value of social capital and large scale retail is almost always a game of creating localized monopolistic power to destroy competition. Human minds as of today are incapable of valuing the opportunity cost of trading off social vs. financial capital. Our entire socio-economic discoures is driven primarily by a debate on various financial issues, but we don't have a clue about how the trade-off with socio-cultural capital is likely to affect us in the long run. Put it simply, if the consumer does not even know what the potential worth of losing the social (non-financial) value of interacting with Ma and Pa at the local grocery shop is, how can we reasonably say that she is exercising free choice in shopping at Wal-Mart?
This has real implications about framing the debate on our socio-economic issues. Since social capital has no tangible value attributed to it, its economics becomes subject to Prisoner's Dilemma. Everyone is individually better off shopping at Wal-Mart because there's a direct financial benefit to doing so. However, if everyone actually does it, then the society as a whole loses not only the socio-cultural capital but also financially because of the burden on the tax-payer to support an underclass of workers who can hardly afford to pay even for basic needs like healthcare and education. Their entire lives are centered around living from paycheck to paycheck and working in multiple jobs just to keep up. One of the most pathetic things I have seen in the US is restaurants with large enough parking lots that allow people to buy food at their drive-in windows and then eat it in their cars in the parking lot on their way to or from work!! Even the minimal social interaction associated with the act of eating is disapperaing : Isn't this sad and miserable? If you can't see anything wrong with this picture, or that of a Wal-Mart employee who needs to supplement her income with state food stamps, then good luck to you and have a nice life in the comfort of your cars and parking lots. If not, then perhaps it may be a good idea to seriously think about understanding the value of the social aspects of your well-being.
I also believe that this lack of understanding about valuing socio-cultural capital is a huge part of the disconnect between North Americans and Europeans when it comes to economic dialogues : we just don't have a common valuation framework. Americans seem to have hugely undervalued socio-cultural capital while Europeans have hugely undervalued financial capital. Asia is an interesting case where traditionally, socio-cultural capital has, in effect, been enmeshed with financial capital : you could not even be in business unless you had a certain social capital.
Where do we go from here? I think the first thing is to realize what our goals are and question our focus on exclusively maximizing financial utility. I see a few vague contours of such questioning happen in the US : there is a reason why films such as this are getting a huge response, for example. In the post-industrial society that we are living in, our needs are outgrowing satisfaction by financial utility. It's obvious that societies collectively progress up the ladder on an equivalent of Maslow's hierarchy of needs, just as individuals do. Then does it make sense to have our entire universe of socio-economic debates revolve around financial utility? Clearly, no.
This means that an ideal socio-economic system needs to manage both the financial as well as socio-cultural well-being of a society. How do we do that? I don't know, but it will become increasingly important to all of our futures because the consequences of not doing that are likely to be terrible : a crass oversimplification of this scenario will be that if we don't figure this out, it will cause Americans to end up chasing the mirage of happiness through material consumption while Europeans will be left wondering how their pension funds went bankrupt in a couple of decades. Life as a television zombie fueled by consumption is unlikely to be better than surviving on a meagre social welfare and crumbling government services. So, Americans : please be nice to the hippy, enjoy the conversation with him, and recognize that there are a lot of people and societies living much happier lives than yours inspite of being poorer than you so perhaps you could learn something from them. Europeans : please be nice to the immigrant and the entrepreneur : unless he makes money, your pension funds will run out of stocks to buy and give you capital appreciation to take care of you. Asians : please go on and be different, learn from the mistakes of Europeans and Americans to make better societies for yourselves.
Sunday, March 19, 2006
Pandora and Last.fm: Nature vs. Nurture in Music Recommenders
This is a must-read analyis. (Hat tip : Paul Kedrosky)
A few quick points:
1.Really cool example of edge competency is how Last.fm's plug-in allows it to automatically capture data to improve its search filters. If you have followed Umair's thesis so far, you should be able to immediately see increasing returns to scale through positive feedback loop and how it creates a very strong barrier to entry. This is strategically brilliant.
2.This also illustrates a theme I blogged about earlier
We seem to have two distinct strands of how edge competencies are developed : algorithmic or anthropocentric (yes, I am coining that term here and now). Although they both have common strategic roots, clearly the execution will be very different. Firms will need to pick one or the other and allocate their resources accordingly. An implication is that firms must clearly know what they are doing : they are unlikely to succeed with a hybrid approach. One way to see this is that making this choice offers a migration path for the firm's existing core competence. In other words, firms can see where they are today and then make the most doable choice. For example, it will be an idiotic strategy for Google to develop an anthroppocentric edge competency, because they are all about computation and algorithms. Witness how miserably Google's social network attempts have failed.
3.Gratutious strategic advice for MySpace : please shut up and buy Last.fm already!
Guys, I have been in hardcore work mode for the last few days - comment responses to follow in the next day or so.
As always, please comment here if it's a burning issue, or I've said something that offended you (like "America sucks" :)
Breaking the Corporation - Redefining Innovation
A nice article from the Post about the Office
highlight something many of us can instinctively feel: the corporation is broken.
The ways we manage are deeply out of sync with the world around us. There's a reason so many movies, books, etc have been focused on the Kafkaesque institution the corporation has become.
They are telling us something very important: it's time to innovate not just what we produce, or who we sell it to, but why
My profs stressed "who, what, how" as a simple template for strategic innovation (redefine customer selection, value propositions, value chains). This is probably the most powerful strategic innovation framework around - it's a simple but elegant synthesis of many strands of thinking (Value innovation/market-driving, Porter/IO, RBV, etc).
The question that occurred to me even then was: where is the "why" in this equation?
Today, IMHO, the "why" is becoming much more important. Why do we produce the way we do? Why do we focus on the so-called productive when it's patently absurd most of the time? Why do we manage in such obviously self-defeating ways?
I think the next wave of great strategic innovation will be built on asking "why" - and answering it in radically new ways.
Let me give you a few examples.
Coordination innovators are asking: why do we interact?
Brand innovators are asking: why do we need to attach social meanings?
Media innovators are asking: why do we need to mediate?
Makers of markets, networks, and communities are asking: why do we need the firm?
Disruptive managers are asking: why do we need to control?
Strategists (esp the ones that work with me) are asking: why do we need competencies at the core? Why do we need to compete?
Soon, I think, if you're not asking "why" - instead of "who, what, how", you will be squarely at the mercy of global hypercompetition and the accelerating loss of traditional sources of advantage.