July 17, 2004
MicroPubs
I know you are thinking free, as in beer, but let's talk micro, as in content. As a last guest post, lets explore where The Industry Standard could be going in an age of Social Media.
For now, the social aspect of The Standard is it has a community of affinity with the brand and its leveraging a group weblog and comments as social software. It links off to social networking services like LinkedIn Groups. The falling cost of erstwhile personal publishing and easy group formation enables this site to not only exist but foster participation.
Fine and fancy, but how can MicroPubs make money? A couple changes are afoot:
- New Metrics -- the commoditization advertising using Google AdSense and CPC doesn't represent the value of commoditizing sponsorships. Look to new models like Cost Per Influence.
- New Measures -- be it links or subscriptions, they add up to attention and reputation
- New Formats -- sponsor-like ad formats are starting to work, but new formats are called for that are transitive. Most of The Standard's ad revenue could be from ads first served on other sites and passed along with editorial endorsement.
- New Standards -- as in technical. Atom takes RSS beyond the feed for two-way transmission via a syndication format and an API. When people can contribute to The Standard using their own tools on top of standards, it gives rise to a different kind of participation.
- New Participants -- just as the Opinion section is generated by users, look for new ways to engage participants in conversations and re-mixing media.
- There is a common definition of the good and standardized contract. This includes its quality or service level and keep in mind there are over 100 gradients of West Texas Intermediate Crude, the most liquid oil contract.
- There is enough liquidity, or volume of trading in the market
- There is no concentration in supply
- There is no concentration in demand
- Pricing is volitile and indexed
- Market risk -- price volatility
- Technology risk -- obsolescence
- Operational risk -- execution
- Credit risk -- counterparties and exposure
- Volume, through realizing economies of scale and speed
- Trading, through arbitrage
- Bundling, through realizing economies of scope and span with an adaptive infrastructure
- Risk Management, through offering your customers bundles that shield them from volatility. Above all, this is managing complexity
- collapse of information markets
profiting in a datacommodity industry
- functional commoditization
- Timing Your Business Case with the Technology Valuation Lifecycle (pdf)
- Economies of Speed, Scale, Scope & Span
- Photos are inherently social, people use them to tell stories and share experiences
- Photoblogs and Moblogs are the fastest growing segments of consumer blogging right now
- Camera phones will outpace the sales of cameras and phones combined within five years
- Partnering with a printing provider like ofoto provides a direct and immeadiate revenue stream
- Picassa gives them a client to ease upload and provide organization
- It gives Google a new area of expertise and technology beyond Images
It's all driven by a fundamental human desire to be social and meddle with media artifacts suddenly being fulfilled by lower cost simple tools. These are some of the themes we'll explore next week in Berkeley at the BlogOn Event.
Thanks for the guest spot. Been a fun week, and managed to do it without a significant shameless plug.
Posted by rossmayfield at 06:17 PM | TrackBack
Tech Commodities 101
One of the better panels at Always On was the Commoditization of Software. What follows are definitions for understanding commodization in technology and how open source trumped the creation of a true commodity market in software
The tech industry has been obsessed with commoditization as a market trend since the crash. For most, its simply a chicken littlish "my prices are falling!" But I know a little too much about commoditization from a former life, co-founding a commodity exchange for bandwidth and leading a risk management software company for a time. My company moved out of the telecom market when it crashed into equities, but others remain. While building an exchange, we had to work with energy and other commodity traders to understand their fundamentals and apply them to markets otherwise driven by innovation. Some of the research we did back then can be found at Oncept, including how we identified market characteristics unique to telecom such as temporal and geographic arbitrage. So before I moved up the stack, I learned just enough to be dangerous.
Let me provide some definitions and then apply them to the commoditization of software.
First, a commodity market exists when:
Second, the Internet is a force for commoditization. It aggregates liquidity in otherwise fragmented markets, make pricing transparent and reduces transaction costs.
Third, all markets trend towards commoditization and prices decline. A market where prices have a rising trend is in contango, when prices trend to zero the market is in backwardation. Innovation creates new products and bundles that are initially in contango, but backwardation raises its ugly head at increasing speed with competition.
Fourth, when commoditization occurs the market grows in volume. Inflection points usually happen when there is a market failure that identifies new risks. When new risks are factored into models, the new risk management practice enables greater liquidity.
Fifth, there are four outstanding risks to manage:
There is little doubt that MIPS, Mbs, Mbps and Mhz meet the criteria for commoditization. If you are a player in a Datacommodity market, here's some ways you can make money:
Common wisdom in the valley is that when commoditization occurs in your market, you have to move up the stack. This is partially true, but forces some companies to move into services too early or without a competitive advantage. Instead, the first step is to address risks and inefficiencies -- to innovate in marketing, not as in spin, but value chain orchestration and commercial configuration. Embrace commoditization, since it is inevitable. One positive trend is companies already up the stack now take commodity managment as a core competency (e.g. Google's hosting complex) or are addressing it with partners that offer Grid Services.
Now on to software. This week, Jonathan Schwartz commented:
For software to be a commodity, intellectual property is a commodity, and I'm not buying that.
Unfortunately, the vast majority of commodities are intellectual property, not physical goods. They are derivatives. When someone writes an option, the intellectual property is rights afforded in the agreement. Currency, the largest market of a good, is also an information good. But Jonathan's point may be that IP goods are so maliable its hard to see them as fungible.
The software industry was due for commoditization, but something disruptive happened -- the rise of open source. At the time when competition would usually prompt the creation of a standardized commercial agreement, open source agreements like GPL were created. In other words, monopoly positioning commercial competition prevent necessary cooperation to pool risks and grow the market profitably. This could not have happened if the Internet didn't allow open source advocates to find each other in numbers and collaborate, not just in commons-based peer production of goods, but the commercial rights to them.
Now the industry is pooling risk in two areas: technical standards and open source. Standards are not about a common definition of a good for trading, they are interfaces for interop, which reduces transaction and switching costs (reduced lock-in and ability to bundle for customers). Besides the economic efficiencies gained, they enable easy combinations, or bundling, which drives innovation up the stack.
Open source reduces risk for participants of competing in markets where they don't have advantage. They contribute to the pool and benefit. Current open source agreements are awash with free options that could be seperate agreements. Their constraints on commercial use do not serve many markets. A standardized agreement reduces transaction costs and attracts liquidity. Especially when this contract has no competition. I have to wonder how long it will take for existing players to wake up and standardize a commercial agreement. The market has room for both open and commercial agreements and all software business models will trend towards hybrid (e.g. Socialtext has a hybrid open source business model that provides both open source, hosted service and appliance options to customers). I'll take the ASP Geneva Agreement with service schedule five, please.
A commodity market exists for software, primarily in components under open source agreements. In most commercial markets for software, there is too much concentration in supply and lack of standardized agreements for there to be a commodity market. Instead, commercial markets are using open source inputs. Witness the raft of startups building upon the LAMP stack.
But there will always be innovation in software and not all software will be a commodity. The trend is more software being built upon commodity inputs, mostly open source. While software that automates business process have grow into largely mature saturated markets, there is room for innovation. Much of the low hanging fruit is in managing the complexity we have created or orchestrating new elements of the network. But software for people goes largely unserved. The vast majority of employees are not engaged in process, they manage exceptions to process. Each wave of innovation leads to standardization which begets innovation again.
What's interesting is how players like MySQL are fostering a commodity market of open source derivatives while de-commoditizing with commercial services. They manage risk, complexity and quality for customers. As a vendor, they benefit from innovation in a liquid open market to reduce their own technology risk. Their pricing is disruptive and their role in orchestrating the value chain allows them to mitigate market risk.
Embracing commoditization doesn't just have to happen in areas where the software is core infastucture or the market player arose from open source. Its a simple acknowledgement of risk and the foresight to cooperate with erstwhile competitors.
Related posts:
Posted by rossmayfield at 05:35 PM | TrackBack
July 15, 2004
Entrepreneurship and Innovation Education
I'm attending the Always On Innovation Summit at Stanford this week. Others are here on Blogger Passes. Thought I would share notes from the one session on innovation
Notes from a session on Entrepreneurship and Innovation Education with Professors Tom Byers and Bob Sutton of the Stanford Technology Ventures Program. One of my favorite topics and perhaps the best session at the event.
Can entrepreneurship (defined as a process, a way of leading and managing, a way of siezing opportunity without regard to available resources. More than a set of characteristics.
Polled the audience on when they went to school. Odds are, I'm one of a handful to have studied entrepreneurship.
Most technology schools teach entrepreneurship now. Teaching it aids tech transfer. Leading schools prompt competitive response to offer it by other schools. At Stanford 40 courses, 3k students, 25% MBA students, most of the rest are engineers. Its about skill development, turning people into leaders. Real-time decision making skills, comfort with change, basic fields like selling and evangelism. They share their curriculm (shows Educator's Corner).
Bob Sutton, author of Weird Ideas That Work:
Like Physicians who study bloodletting in the 16th century, over focus on success stories. The AO 100 isn't what its about. Successes and failures share predictable plot lines (before and after with Enron). People worship CEOs, the degrees in which CEOs don't matter is the biggest CEOs matter at the beginning, and the very end of a company, the team is more important. CEO worship is irrational..
In the valley, on average, you are going to fail. Entrepreneurship is a Ponzi scheme, with the one that succeeds in a portfolio is held up by VCs, saying "this could be you." Students need to know these risks. 1:10 odds.
Companies take a bunch of old ideas, tweak them slightly and boom they Take elements that are proven and can be done quickly. iPod done in 8 months, because aside from ID and interface, everything else was off the shelf. iPod wasn't a radical innovation, optimized what they were good at and otherwise went with other's stuff.
One of the best ways to increase your success rate is to lie to others about the odds of success. Certain delisuional quality (Steve Jobs, Coppola). Confidence and irrationality as key to success. Blind faith towards a goal. Makes the Lemmings run faster to the sea.
Technology brokering, an IDEO approach.
I asked: Does the valley still reward failure? Valley still rewards failure, better than anywhere else (save maybe Shanghai). Rewards failure, but only if entreprenuers go through it gracefully.
Kathy Eisenhardt, success of teams that worked together before.
Get it out, fail and fail faster.
I posted the chat transcript from during the session (most of it).
Posted by rossmayfield at 03:31 PM | TrackBack
July 13, 2004
Google Gets Social with Photos
Google just bet on photo sharing by acquiring Picassa. Sayz the old standard, John Battelle: So now let me state the obvious: Google will compete in the photo management/storage/search/untangle-the-shoebox market. And by extension, let me state the not so obvious: I think travel is next.
Blogger integrated their Hello service at the time they did their re-design, so they have been working together for a couple of months now.
The acquisition makes sense to me:
Blogspace just got richer, as in social media. Keep in mind that Picassa on its own isn't social software (especially compared to Flickr), but in combination with Blogger it can be.
Posted by rossmayfield at 04:20 PM | TrackBack
July 12, 2004
Wikidmedia
By now, you have heard of wikis, a writable website -- the simplest way for a group to create a website without having to know HTML. And you have probably come across Wikipedia, an online encyclopedia created by everyone. And if you are really up on it, you know that my company, Socialtext, provides a wiki platform for enterprises.
Wikipedia is a counter-intuitive unbridled success, with over 300k articles compared to 65k in the Encyclopedia Brittanica. Boston Globe collumnist Hiawatha Bray covers Wikipedia with a different angle, quality.
So of course Wikipedia is popular. Maybe too popular. For it lacks one vital feature of the traditional encyclopedia: accountability. Old-school reference books hire expert scholars to write their articles, and employ skilled editors to check and double-check their work. Wikipedia's articles are written by anyone who fancies himself an expert.
Now Hiawatha considers himself, and is, an expert in editorial process. He has a similar view on blogs, that quality matters and readers need to understand what is authoritative. I spoke with him about this article, helped explain how public wikis work and pointed out that quality is subjective. But he also interviews a complacent representative of Brittanica and Wikipedia founder Jimmy Wales and gets at the heart of competition:
"We're in talks with a publisher on doing a concise desktop reference, and that should come out next year," Wales said. He also has plans for more comprehensive printed editions of the encyclopedia. These will cost money, but a lot less than today's encyclopedias, because the writers and editors are volunteers. That means that Wikipedia can be distributed to the world's poorest people at reasonable cost.
"Britannica's out of the reach of your average African villager," Wales said. "But if a publisher can take our content for free and print it, the only cost he has to recoup is the cost of printing."
But no book publisher will print an encyclopedia -- even a cheap one -- if it can't stand behind the accuracy of its articles. "If we go to print, you can't just print out the latest nonsense," Wales said.
This realization forced the Wikimedia Foundation to start work on a formal editorial process for Wikipedia. Wales isn't sure how it will work yet; contributors might still be anonymous. But there will probably be an editorial board staffed with experts in various fields. They'll be identified by name with the Wikipedia, and stand behind the accuracy of its contents.
It's a plan that should give nightmares to traditional encyclopedists. If Wikipedia, pro-duced by volunteers, becomes just as trustworthy as Britannica, and far more comprehensive, who'll need any other encyclopedia?
A few years ago, Microsoft Corp. scoffed at free software; today the company is running scared. Britannica's Ross seems a lot more relaxed about his company's future. It's difficult to see why.
Participatory publishing is a powerful model where the bulk of the work is performed up front as informal practice by the community at greater scale, scope and speed. When you add a process at the end of this production cycle to serve as an arbiter of quality, the result is an extremely competitive product.
Often when we think of Social Media we try to compare informal practice such as blogging vs. formal editorial process. But its the combinations that are disruptive.
Posted by rossmayfield at 06:24 PM | TrackBack
Cost Per Influence
Over the course of the week, I'll guest blog about Social Media, Software and Networking and try to bring together these themes in advance of the BlogOn Event. First up, let's plunge ahead into the heart of darkness for Social Media -- advertising...
Internet advertising was subjected to broadcast media metrics from the beginning. CPM, or Cost Per Thousand Impressions, was borrowed from print and was accepted by traditional advertisers as a measure of reach and frequency. Back then, if a company had a site to point to it was largely brochureware, a corporate identity on the web. But when the bubble burst its effectiveness beyond branding was questioned. The industry shifted to Cost Per Click around the same time that most companies had transactions available on their sites. An ad was effective if it drove transactions (Cost Per Action is another metric, a step beyond a click as a lead to an action as a sale). Consumers became sensitized to how broadcasted ads were trying to influence them. Google stepped in with a market for advertising, based on CPC, that rewarded effective narrowcasting. Both ads and sites are optimizing their messages for what people are looking for to gain traffic and transactions.
This model works fine with companies as the only influencers and the only ones with sites. But it ignores the influence of social networks. And what happens when consumers become users with their own identity on the web? When conversations influence attention?
I've suggested its time to explore new ad metrics:
What's different with new media is simply that it's not the number of impressions you make, but who you impress. In other words, instead of subscription counts, its the number of subscribers my subscribers have, discounted by the probability of my memes getting through. Cost Per Influence.
Jeff Jarvis comments:
You're right: We need to define new metrics. This medium isn't about impressions; it's about relationships; it's about conversations; it's about influence; it's about authority. We are starting to measure how many conversations a blog starts (or at least takes part in) with Technorati. But it's just a beginning.
- There is a common definition of the good and standardized contract. This includes its quality or service level and keep in mind there are over 100 gradients of West Texas Intermediate Crude, the most liquid oil contract.