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Strategies for a discontinuous future.










Saturday, September 09, 2006
 
God's Country?

Must read analysis of evangelicals gaining power in Foreign Affairs magazaine.


On a lighter note, here's the perfect gift for your friendly neighbourhood bible-thumper.

-- Mahashunyam // 8:24 PM //


 
Bottom of the Pyramid Debate

I blogged about CK Prahalad's BoP thesis some time ago. There's a renewed debate on that idea, kicked off by Prahalad's colleage Aneel Karnani at Michigan Business School. Indian economist Atanu Dey plays host to an interesting debate on this over at Deeshaa : here and here.

Why is this debate relevant? First, it is important to understand the economic dynamics of how the vast majority of mankind lives in order to bring them into "our" ecosystem. You can see this in the context of Umair's take on what's next for 2.0. Private enterprise can, and must, step in to tackle this Big Hairy Problem.

Another trend that makes it even more imperative for us to tackle this BHP by ourselves, is that the hope of using free trade as powerful macroecon tool to bring prosperity to most of the world has been diminishing over the last few years. This is because the WTO is effectively dead as a mechanism to share trade benefits. Developed countries have been loading up on economic benefits by tilting the playing fields in their favour through multilateral trade agreements for ages, but poor countries have now wisened up and they are now clamouring for getting their fair share. However, there is little chance that entrenched farm and manufacturing lobbies in developed countries will ever allow their ill-deserved subsidies and market entry barriers to be jeaopardised. This is going to lead poor countries to remain isolated from global commerce and make it even more difficult for them to fight poverty. Of course, they are right in refusing a bad deal at the WTO, but unfortunately they don't seem to have a game plan to continue beyond that.

2.0 crowd must step into this vacuum and tackle the BHP head on.

-- Mahashunyam // 7:59 PM //


Friday, September 08, 2006
 
Industry Note: Media vs Innovation

A question: how often have you heard the phrase "media innovation"?

This is a point I've been making to clients recently.

You've read enormous numbers of articles (listened to presentations, etc) about strategies, business models, tectonic shifts...but the words "media innovation" are as elusive as the Yeti.

Why?

This is the heart of the very big problems the media industry faces. It's been so protected for so long, it's forgotten not just how to innovate - but it's even forgotten the idea of innovating.

Though many people may talk about strategies and business models (etc), unless they approach these from the perspective of innovation - radical change - little insight can result; because these endless discussion all hinge on the same tired, obsolete assumptions.

What we must have is innovation - and it must stop being a dirty word; it must be a word that is discussed from boardrooms to newsrooms.

-- umair // 3:10 PM //


 
Deconstructing The Crash, Pt 1

"...E-Offering health analyst Caren Taylor doubts Drkoop will attract many new investors. "We believe the only exit strategy for the company - aside from bankruptcy - is a merger," Taylor wrote last week in cutting her rating on the stock from "buy" to "hold."

Like other 1.0 dot coms, Drkoop spent heavily to drive traffic to its site. The company has $147 million in portal deals, including a four-year, $89 million agreement with America Online. Such obligations help explain why Drkoop lost $56.1 million on $9.4 million in revenues in 1999."


Why did the Crash happen? In no small part, it was because the institutional arrangements which dominated yesterday's media and industries were deeply out of sync with the nature of value creation itself.

Here's a great example. Drkoop, one of the most notorious bombs, was far from unusual in spending huge amounts of cash on deals to essentially buy attention. These deals, interestingly, were characteristic both of the venture industry and 1.0 media - where risk is diversified by syndication (or affiliation, same diff). That might have been a great strategy - because the price of attention has today, exploded.

Except for a big assumption, which ultimately, led to a fatal error - buying attention from yesterday's monolithic attention brokers couldn't work for the very simple reason that control was shifting to consumers themselves.

The game was won by Google - who pre-empted the threat of revolution by decentralizing and democratizing control, not fighting this great economic shift. That's an important (but probably very opaque) point which we'll return to later.

Worth remembering, as the pace and fury of deal-making in 2.0 media accelerates.

-- umair // 2:09 PM //


 
Levinsohn vs BGSL

"...Levinsohn: We have to be broad, but within that broad consumer-facing sphere there are lots of 'micro-niche' vertical networks with specific focuses that are certainly worth examining."

Interesting to hear Levinsohn using concepts that sound suspiciously BGSL to make sense of media.

-- umair // 12:56 PM //


 
Somebody Set Up Us the Book

Hi guys, I am just finishing up my book, and I would like to consider a few more examples of interesting markets, networks, and communities that I have perhaps not considered.

These don't have to be strictly "2.0" - there are interesting markets, networks, and communities far outside it (example).

Leave a comment here if you want to rec someone/yourself (and remember I have the obvious ones covered :)

Thanks for suggestions.

-- umair // 12:29 PM //


 
Industry Note: How Not to Think Strategically About the Edge, Special Disney Edition

Perhaps you've been amazed that ABC/Disney are willing to spend $40 million with the prospect of zero return (no ads) on a naked piece of propaganda - which will incur further massive costs in brand equity.

Let's not quibble about politics. I call this film propaganda, for the simple reason that even the 9/11 commissioners have admitted it's largely fictional - but Disney was very clearly attempting to sell it as factual (viz, the Scholastic deal to use it as teaching material).

You may disagree - it doesn't matter. The point I want to make is strategic, not ethical.

From a strategic pov, propaganda is fine; certainly businesses have the right to lobby regulators, directly, or indirectly. So let's treat Disney's agit-prop flick like we would any other investment. Although Disney thinks it's actually a pretty good investment, they're deeply mistaken.

We have to begin by noting that it's not an investment in production/attention/etc - because it's clearly not going to earn returns that way (ie, no ads). So why the $40 mil (+ brand equity lost, + opportunity cost) investment?

Disney's most valuable assets are, of course, it's characters/brands/stories/etc. Remember Eldred vs Ashcroft, and Disney's enormous pressure for more and more copyright extensions? From Disney's pov, this is the greatest investment in the world - a few million bucks on lawyers and $40 mil in propaganda earns them billions in future cashflows. These are mega-returns, Skype style returns.

Of course, neither move - coypright extensions or side payments to politicians in the form of propaganda - are in the least good for the economy, because they destroy more value than they create, through the stifling of potential innovation, competition, and new capital formation. This is crony capitalism at it's finest - we make your propaganda, you protect our assets; this is the kind of anti-capitalism that ends up destroying economies (hi Japan).

But, lucky for us, information is cheap and so returns to crony capitalism are dropping. Perhaps the most interesting bit of the story is simply that this is just another flawed tactic to protect a rotting core.

Remember, Disney has not exactly been going gangbusters lately. It has been thoroughly pwned by Pixar, the intarwebs - almost from every angle imaginable.

So I think a nice way to see this is as a nice mini-case study of why a single-minded focus on the core is leading so many incumbents deeper and deeper into competence traps and strategy decay.

Put more simply: Protecting brands and other key resources by draping iron curtains around them is the surest way to destroy their long-run value in the post-network economy.

Who's even gonna care about Mickey Mouse if he's not on YouTube/Myspace/Stardoll/etc in the next year or two? No one.

I would say shame on Disney - but instead, I'm a bit impressed with their obtuseness. It takes a special kind of genius to blow that much cash and brand equity on a move that only sinks you deeper into the hole you're fighting to get out of. Nice one, guys.

Let me summarize:

1) Disney is focusing resources at the core; a strategy which is yielding diminishing returns. This is strategy decay.

2) Disney makes propaganda in exchange for further protection of it's core focus.

2.5) Viz, effectively in exchange for propping up strategy decay.

3) Disney never learns edge leverage. Instead, it shields Mickey from YouTube, Myspace, Stardoll, etc.

3.5) ...A near perfect example of a competence trap.

4) Who cares about a Mouse trapped in a rotting core as value shifts to the edge? No one. Disney = game over, bye bye.

-- umair // 10:43 AM //


Tuesday, September 05, 2006
 
Facebook

Got an email asking me about Facebook's rev, what I think, etc.

To be honest, I think there are some good ideas there. One of the defining principles of 2.0 is to create value by vaporizing yesterday's artificial distinctions between public and private (but yes, it would be wise to make many of the new features optional, at least at first).

But, on another level, (how can I say this nicely) I'm not so interested - and possibly, you shouldn't be either.

I think there are bigger fish to fry, and it's time to put on our collective thinking hats again - instead of worrying about incremental changes to what is essentially yesterday's radical innovation.

-- umair // 3:58 PM //


 
Research Note: Next Big Things - 2.0 vs Globalization

I've been thinking a lot lately about where 2.0 should go.

Now, before you read this, remember, my definition of 2.0 isn't technological: to me, it is about the new economic possibilities markets, networks, and communities are opening up.

So here's what I've been mulling over for some time now.

2.0 vs media is pretty much over. 2.0 (very decisively) won. We have imploded the insatiable death star of lameness at the heart of the media industry - the one that chewed up every good idea and replaced it with a mass-marketed, boardroom-approved, star-saturated simulation of itself. Though most journalists, industry analysts, execs, and venture guys won't realize it until there are billions of dollars in the bank and new Ferraris in the driveway, it's game over for media 1.0.

If you're under age of 30, you know exactly what I'm talking about - because you're living it.

At this point, you're going to say - was that it? That was all?! No, not at all - plenty of startups will continue to be born and profit enormously. But from the point of view of innovation, the radical stuff - the value chain imploding, industry reshaping stuff - has now happened.

Or you're about to leave a comment about the "tricky" business models issue, which is really the same question in reverse. So let me talk about it a bit more deeply for a moment. The truth is that business model innovation at the edge is not so hard. There, it's value creation that's the hard part. When it comes to 2.0, business models happen - they're the products of deep, consistent experimentation.

But the key insight is that once you've created the value, if you do experiment, you will more than likely learn how to capture it - that's an almost inevitable function of persistence, risk, and reward (viz Google, Myspace, Skype, etc). Though the question may be tricky, it is, in fact, loaded deeply in your favour.

OK. Back to the larger argument. Now that 2.0 vs media is over (or at least winding down), we have to figure out what's next. Here's what I think.

2.0 was a product of hipsters. Hipsters are concerned with things like music, fashion, dating, and films - and so 2.0 targeted media first. Now, our whole community has to grow up a bit.

Today, we're ignoring new markets which are where the principles of 2.0 can drive enormous growth and profits - and where they can create some serious, durable, meaningful value. And by we I mean almost all of us - from open source guys, to venture guys, to creative commons folks, to entrepreneurs, etc. I mean almost everyone thinking about 2.0 in the Valley/NYC/Tokyo/Paris/London.

Globalization is unleashing a deep tide of squalor and misery (highly recommended link), which most of us pretend we're ignoring - we avert our eyes at the laborers on the street corner waiting for work, or the guy in the back of the cafe down the street who we know works 100 hours a week for little in return.

I'm as guilty as anyone; last year I went to the cornershop down the street from LBS to buy some cigarettes. There, I discovered the guy that owns/runs it - an old Indian guy - was shouting at (and possibly had just finished beating) a woman who was obviously a menial laborer from India, who couldn't speak English and barely had the skills to survive in Western society.

I told him off, but I should have reported him to somebody who could have regulated him a bit.

The point I want to make is simple. This vast ugliness that globalization is exposing is an enormous market gap for 2.0 - for markets, networks, and communities to create value by really unlocking the potential of globally mobile capital - rather than letting owners of that capital amplify their returns by literally beating the time, effort, dignity, and life out of poor people.

That's still a bit too complicated. Let me try and make it even simpler. Globalization creates wealth at the cost of the social, the cultural, and the human. 2.0 creates wealth by amplifying the social, the cultural, and the human. For the next wave of entrepreneurs, this will be the market gap where profits are to be discovered.

Remember my anecdote? I think there are enormous numbers of ways a simple market, network, or community could have prevented the ugly scene I chanced on in the cornershop - and by doing so, could have created new value and expanded the pie for everyone.

Let me try and express it another way. Where can connectivity - not bandwidth, but connectedness to resources, insitutions, other people - create the most value?

I think, right now, the answer is where people who are ruthlessly exploited because they're disconnected from their homes, their families, the states, each other, and, to be honest, almost anything but sheer labour - where the social, human, and financial costs of these deeper kinds of disconnectedness from all the kinds of capital (social, human, financial, etc) are enormous.

This is why, for a while now, I've thought that Kiva is hands down the most revolutionary startup I've seen for ages - it is awesome because it hints at the enormous possibilities in harnessing the principles of 2.0 on a global scale, and to create value where value counts most.

I think that's going to be at least one of the Next Big Things. I think the challenges will be big, too. VCs will have to learn how not to mess this one up; entrepreneurs will have to learn about markets they've never considered before; and the rest of us will have to put on our thinking hats again, and come up with ideas that speak to the rest of the world, instead of just the geeks, beancounters, and hipsters.

-- umair // 3:27 PM //


 
The Hypersocial

WoW mini case study.

-- umair // 3:20 PM //


 
Death of the Blockbuster

Oh yah - never posted about this, but it should be obvious to bubblegen readers. Redstone vs Tom Cruise has nothing to do with Tom being a flaky scientologist - it has everything to do with the fact that returns to marketing for blockbusters are falling off a cliff, and so starpower is worth a lot less today and will be in the future than ever before.

The NYT has an article which almost talks about this, but not quite.

Now, before I get the inevitable comments - I'm not saying there won't be any stars. Just that their fame will be short-lived, won't be worth 30% of the cost of making a creative good, etc.

-- umair // 11:45 AM //


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