It's always a pleasure to join Genesys Partners at the Union League Club in New York for their annual Venture Dinner. Speakers this year included Dick Harrington (ex-Thomson), Andy Lack (Bloomberg), David Eun (Google), Mark Anderson (SNS), Gordon Crovitz (ex-WSJ, now Journalism Online), John Patrick (ex-IBM, now Attitude LLC) and Mark Walsh (Genius Rocket). I'll give you my 'back of the napkin' notes in no particular order.
John Patrick spoke about the 7 desirable properties of the Internet he outlined in his book (Net Attitude) and how we are doing: fast, always on, everywhere, natural, intelligent, easy to use, and trusted. Speed and ubiquity continue to be a problem in the US, thanks to cable companies, but we are seeing gains in the other 5. Semantic Web isn't happening very fast, but the whole area of analytics is becoming huge. Thanks to advances in architectures and algorithms, large computations can now be done in hours that would have taken years. As I have written elsewhere, everything worthwhile is becoming data driven.
David Eun also talked about volumes of data and gave us some numbers. It is estimated that up to 2004 the human race produced a little over 4 exobytes of information; we are now generating this same amount every few days. On YouTube, a billion videos are viewed every day, while 20 hours of video are uploaded every minute, which is the equivalent of over 130,000 full length movies per week.
Mark Anderson marveled at old media's inability to grasp that control has shifted into the hands of users, that people won't be told what to watch when, what ads to endure, and how to consume media. Newspapers were singled out for some fairly harsh criticism, and he opined that the Wall Street Journal had "lost its way."
Gordon Crovitz talked about Journalism Online, which seeks to replace at least some of the ad revenue behind news with a freemium subscription model, whereby 10% or so of customers pay for access to premium information. He stated that: "News is going to have to be paid for by the people who consume it", which is a position I have taken elsewhere in this blog.
Mark Walsh satirized the recent SCOTUS decision in Citizens United (which I have pilloried elsewhere), Andy Lack bemoaned the lack of good digital business models, while Dick Harrington reminded everyone that the same rules of business concerning strategy, planning and execution apply in the digital world as elsewhere.
Altogether an entertaining and informative evening that augurs well for Jim Kollegger's CEO Panel on business models at the SIIA Information Industry Summit tomorrow, featuring Lack, Harrington, Eun and Anderson. (Disclosure: I represent Thomson Reuters on the board of the Content Division of the SIIA.)
Monday, January 25, 2010
Saturday, November 28, 2009
Book Review: Planet Google by Randall Stross
This 2008 book by NYT columnist and San Jose State U professor Randall Stross is nicely complementary to Ken Auletta’s more recent book, reviewed elsewhere in this blog. The author concentrates on three things: (1) Google as technology powerhouse, (2) the competitive situation between Google, Microsoft and Yahoo, and (3) Google’s forays into books, news, maps, email, videos, and question-answering, not all of which have worked out well.
Page and Brin decided early on that search would be completely algorithmic - no editors, no taxonomies, no pollution from ads. This distinguished them from Yahoo, whose early attempts to organize the Web quickly ran out of steam. Having suffered from hardware deprivation at Stanford, they decided (like Scarlett O’Hara) that they would never be hungry again, and took the highly unusual step of building their own machines. It’s often overlooked that Google couldn’t possibly scale their data centers and give away cycles and storage to the degree that they do if they bought big ticket boxes from Sun and IBM.
Moving to the competitive situation, it’s pretty clear that Google didn’t have much to fear from either Yahoo or Microsoft in the first half of this decade. Yahoo made the mistake of adopting Google as their search engine, giving their rival more exposure and more data to play with. (Ironically, it was Yahoo’s cofounder, David Filo, who discouraged Page and Brin from licensing their technology to others initially and building their own Web site.) Microsoft lollygagged around, first ignoring search (stupid) and then paying people to use their search engine in 2006 (really stupid). Bing post-dates the book, of course.
Finally, Stross does a good job of documenting Google’s somewhat mixed attempts to get beyond textual Web search and refute Steve Ballmer’s jibe about being a one-trick pony. Their book-scanning project is curious in many ways. It’s hardly a moneymaking opportunity for them, yet they were too impatient to try and get the publishers on board, thereby sparking lawsuits. Their video portal was an outright failure, leading to the expensive YouTube purchase and more legal woes. Google Answers was a loser and has been far outstripped by Yahoo Answers. Google News remains controversial to this day, vide Rupert Murdoch's recent approach to Microsoft.
Gmail and Google Maps, however, have done better, and Google Docs must be giving Microsoft pause. Google is a successful company by any standards, well ahead of their rivals on basic search, and Stross gives them their due. But he also notes their reluctance to embrace Web 2.0 and Web 3.0 concepts, e.g., social media and the Semantic Web. I'm not a great fan of the latter, but the relative failure of Orkut and the rise of Facebook must be giving Google pause. Whatever the future holds for Google, it won’t be dull, and we’ll all have a ringside seat.
Page and Brin decided early on that search would be completely algorithmic - no editors, no taxonomies, no pollution from ads. This distinguished them from Yahoo, whose early attempts to organize the Web quickly ran out of steam. Having suffered from hardware deprivation at Stanford, they decided (like Scarlett O’Hara) that they would never be hungry again, and took the highly unusual step of building their own machines. It’s often overlooked that Google couldn’t possibly scale their data centers and give away cycles and storage to the degree that they do if they bought big ticket boxes from Sun and IBM.
Moving to the competitive situation, it’s pretty clear that Google didn’t have much to fear from either Yahoo or Microsoft in the first half of this decade. Yahoo made the mistake of adopting Google as their search engine, giving their rival more exposure and more data to play with. (Ironically, it was Yahoo’s cofounder, David Filo, who discouraged Page and Brin from licensing their technology to others initially and building their own Web site.) Microsoft lollygagged around, first ignoring search (stupid) and then paying people to use their search engine in 2006 (really stupid). Bing post-dates the book, of course.
Finally, Stross does a good job of documenting Google’s somewhat mixed attempts to get beyond textual Web search and refute Steve Ballmer’s jibe about being a one-trick pony. Their book-scanning project is curious in many ways. It’s hardly a moneymaking opportunity for them, yet they were too impatient to try and get the publishers on board, thereby sparking lawsuits. Their video portal was an outright failure, leading to the expensive YouTube purchase and more legal woes. Google Answers was a loser and has been far outstripped by Yahoo Answers. Google News remains controversial to this day, vide Rupert Murdoch's recent approach to Microsoft.
Gmail and Google Maps, however, have done better, and Google Docs must be giving Microsoft pause. Google is a successful company by any standards, well ahead of their rivals on basic search, and Stross gives them their due. But he also notes their reluctance to embrace Web 2.0 and Web 3.0 concepts, e.g., social media and the Semantic Web. I'm not a great fan of the latter, but the relative failure of Orkut and the rise of Facebook must be giving Google pause. Whatever the future holds for Google, it won’t be dull, and we’ll all have a ringside seat.
Friday, November 27, 2009
The Limits of Journalism
Malcolm Gladwell’s recent book ‘What the Dog Saw’ has received a mixed press. It collects some of his articles from the New Yorker over a 10+ year period, and the topics range from interesting people to social issues to matters of problem solving and problem complexity.
On the positive side, these short pieces are thought-provoking and mostly well-written. In many ways, he is an original thinker, and I like the way he challenges our orthodoxies around important issues like intelligence, success and justice.
On the negative side, I think that he occasionally strays into areas that show the limits of his understanding. This is normal for journalists and nothing to be ashamed of. One is typically not an expert in the subject matter, and experts disagree, in any case.
The most glaring evidence of this was a reference to ‘igon values’ in his article on Nassim Taleb of ‘black swan’ fame. The correct term is ‘eigenvalue’ (roughly speaking, one of the roots of the characteristic equation of a matrix), and the misspelling was apparently caught by the original New Yorker editors, but not by the Brown Little editors of this book. (Shame on them.)
Steven Pinker recently faulted Gladwell in the New York Times for this gaffe, and used it as a means of casting doubt on the author’s probity. Gladwell acknowledged the faulty spelling, but went on to counter-attack. Needless to say, ‘igon values’ is more than a spelling error. It was an unlucky attempt to add verbal color to the story that instead revealed both ignorance of the topic and an oversight in fact checking.
We all pretend to know more than we do. Ironically, Taleb’s book ‘The Black Swan’ is an almost endless diatribe on this very topic, and Gladwell’s 2002 article on Taleb (‘Blowing Up’) is a rather successful summary of the book that Taleb had yet to write. But I find it a salutary fact of life that whenever I read a newspaper or magazine article on any topic that I know a lot about, I usually find both subtle errors of emphasis and unsubtle errors of commission and omission.
Henry Blodgett, Tim O’Reilly and other died-in-the-wool Webizens would say that this is why citizen journalism is such a great thing. Errors now get corrected quickly (by Pinker in this case) and then promulgated by bloggers. Unfortunately, news and book printing do not admit of instant correction, so Gladwell will have to live with this mistake until the second printing (if there is one), whereas the public corrigendum will live on indefinitely.
On the positive side, these short pieces are thought-provoking and mostly well-written. In many ways, he is an original thinker, and I like the way he challenges our orthodoxies around important issues like intelligence, success and justice.
On the negative side, I think that he occasionally strays into areas that show the limits of his understanding. This is normal for journalists and nothing to be ashamed of. One is typically not an expert in the subject matter, and experts disagree, in any case.
The most glaring evidence of this was a reference to ‘igon values’ in his article on Nassim Taleb of ‘black swan’ fame. The correct term is ‘eigenvalue’ (roughly speaking, one of the roots of the characteristic equation of a matrix), and the misspelling was apparently caught by the original New Yorker editors, but not by the Brown Little editors of this book. (Shame on them.)
Steven Pinker recently faulted Gladwell in the New York Times for this gaffe, and used it as a means of casting doubt on the author’s probity. Gladwell acknowledged the faulty spelling, but went on to counter-attack. Needless to say, ‘igon values’ is more than a spelling error. It was an unlucky attempt to add verbal color to the story that instead revealed both ignorance of the topic and an oversight in fact checking.
We all pretend to know more than we do. Ironically, Taleb’s book ‘The Black Swan’ is an almost endless diatribe on this very topic, and Gladwell’s 2002 article on Taleb (‘Blowing Up’) is a rather successful summary of the book that Taleb had yet to write. But I find it a salutary fact of life that whenever I read a newspaper or magazine article on any topic that I know a lot about, I usually find both subtle errors of emphasis and unsubtle errors of commission and omission.
Henry Blodgett, Tim O’Reilly and other died-in-the-wool Webizens would say that this is why citizen journalism is such a great thing. Errors now get corrected quickly (by Pinker in this case) and then promulgated by bloggers. Unfortunately, news and book printing do not admit of instant correction, so Gladwell will have to live with this mistake until the second printing (if there is one), whereas the public corrigendum will live on indefinitely.
Wednesday, November 25, 2009
Book Review: Googled by Ken Auletta
Ken Auletta's book is outstanding; I read it in a single day. Three interesting threads run through it: (1) the sheer audacity of Google’s founders and their determination to do things differently; (2) the engineering philosophy at Google, with its emphasis on data, pragmatism, and empirical methods; (3) the woes of Old Media and other naysayers who regard Google with fear and loathing.
We have all read versions of the Google story. But Auletta brings out how incredibly focused Larry Page and Sergey Brin were in their early days, and how they deftly avoided most of the pitfalls that other dot coms succumbed to. They built a brand around their world-class technology, but also around putting users first. Everyone talks the customer-centric talk, but Google went ahead and walked the walk. They worried about ease of use and quality of results first, monetization second, and marketing not at all. Yes, they got lucky with ads, but you could argue that they made their own luck.
Their engineering culture led them straight to an emphasis on data mining as a source of inspiration, rather than surveys, focus groups and other, more traditional, methods. Everything at Google has to be done to scale. Why sample a percentage of your users when you can monitor all of them? In a very even-handed treatment, Auletta examines how this same culture sometimes leads the company to tread on people’s toes by lacking a human touch and discounting things like privacy concerns. He also notes that none of Page, Brin or Schmidt is a charismatic or inspirational leader in the conventional sense, yet this doesn’t seem to have held them back at all.
The chapters “Is Old Media Drowning?” and “Compete or Collaborate?” do a great job of outlining the dilemmas faced by the recording, radio, television, book and newspaper industries in dealing with the Google (+ Apple + Amazon) threat. Auletta points out that the music companies were not “murdered by technological forces beyond their control” but rather “they committed suicide by neglect.” The same could be said for many other industries now on the ropes. The near universal distrust of Google in these quarters is in stark contrast to the trust invested in Google by the vast majority of their daily users.
If you only read one book on the information industry over the holiday, I would recommend this one. It is based on sound reporting, original interviews, and painstaking research. It is also entertaining without being shallow. The last quarter of the book is devoted to sources and other supporting references.
Finally, Ken Auletta is giving a keynote at the Software Information Industry Association’s Information Industry Summit in New York on January 26. In the interests of full disclosure, I should say I’m on the steering committee for that conference. We were delighted to get him, and he gives a good talk by all accounts.
We have all read versions of the Google story. But Auletta brings out how incredibly focused Larry Page and Sergey Brin were in their early days, and how they deftly avoided most of the pitfalls that other dot coms succumbed to. They built a brand around their world-class technology, but also around putting users first. Everyone talks the customer-centric talk, but Google went ahead and walked the walk. They worried about ease of use and quality of results first, monetization second, and marketing not at all. Yes, they got lucky with ads, but you could argue that they made their own luck.
Their engineering culture led them straight to an emphasis on data mining as a source of inspiration, rather than surveys, focus groups and other, more traditional, methods. Everything at Google has to be done to scale. Why sample a percentage of your users when you can monitor all of them? In a very even-handed treatment, Auletta examines how this same culture sometimes leads the company to tread on people’s toes by lacking a human touch and discounting things like privacy concerns. He also notes that none of Page, Brin or Schmidt is a charismatic or inspirational leader in the conventional sense, yet this doesn’t seem to have held them back at all.
The chapters “Is Old Media Drowning?” and “Compete or Collaborate?” do a great job of outlining the dilemmas faced by the recording, radio, television, book and newspaper industries in dealing with the Google (+ Apple + Amazon) threat. Auletta points out that the music companies were not “murdered by technological forces beyond their control” but rather “they committed suicide by neglect.” The same could be said for many other industries now on the ropes. The near universal distrust of Google in these quarters is in stark contrast to the trust invested in Google by the vast majority of their daily users.
If you only read one book on the information industry over the holiday, I would recommend this one. It is based on sound reporting, original interviews, and painstaking research. It is also entertaining without being shallow. The last quarter of the book is devoted to sources and other supporting references.
Finally, Ken Auletta is giving a keynote at the Software Information Industry Association’s Information Industry Summit in New York on January 26. In the interests of full disclosure, I should say I’m on the steering committee for that conference. We were delighted to get him, and he gives a good talk by all accounts.
Monday, November 23, 2009
The Future of Newsprint
Ken Auletta’s recent book, “Googled”, contains a good analysis of the woes of the newspaper industry. (I’ll be writing a review of this shortly, when I’ve mulled it over some more.) The fact is that the moguls fiddled while Rome burned, so it’s a bit late to wake up and start worrying about it now. Even if they reach the kind of settlement with Google that the book publishers did, it won’t support the cost structure of print.
I think most paper news is doomed, thanks to a combination of lifestyle changes, competition for ads, and other entertainment choices. It’s tough to read the paper every day if you drive to work instead of taking a train or a bus, then spend most evenings ferrying your kids around. Meanwhile, eBay and Craig’s List are killing the classifieds section, and bored people in airports have a wide variety of gadgets to play with.
Decades ago, my idea of a good time was to spend the Sunday lunch hour in a London pub with the Times and a pack of cigarettes. (That was in the good old days of Harold Evans, before Rupert Murdoch got his hands on it.) One had time on one’s hands and the bandwidth to enjoy the serendipity of bundled news. I also did the Telegraph crossword every day, puzzling over cryptic clues and references to the classics.
Now, it seems I don’t have time for a paper; even when I buy one I don’t read it. I get generic news from NPR during my hour in the car. Everything else that’s daily I get through my Mac or iPhone, supplemented in any given month by the only two news magazines I feel are worth reading: the Economist and Foreign Policy. I don’t watch Network TV for the same reason I never took LSD: I like my mind the way it is.
On the business side, print banner ads and classifieds are a thing of the past. So if people don’t want to pay real money for paper news, no one is going to pick up the tab for them. Government subsidies are a bad idea; the Repugnant Party is right for once. Private ownership of newspapers is the lesser of two evils, but it’s a moot point, because newsprint is going the way of stone tablets, papyrus scrolls and illuminated manuscripts.
Time Warner and News Corp keep pretending the Emperor has clothes, because nudism (free) isn’t an option for them. But, if there were business models out there other than ads or subscriptions, we would have found them by now. Messing around with portals and micropayments is just rearranging the deck chairs on the Titanic. The ocean’s pouring in, but the band plays on. We’ve already seen what 99c album tracks have done to the record industry. (Network TV is next for the great unbundling; I can’t wait.)
One can only imagine what would have happened if the news moguls had encouraged their talent to create vertical Web sites around travel, food, wine, real estate, geographies, etc., turned them into virtual communities, and then AdSensed them. Such a strategy might not have saved the day, but I think they’d be in better shape than they are now. Online ads for electronic news are currently worth about a tenth of paper ads, but that’s partly because the targeting is demographic and not by interest, as the Web has come to expect.
But I sometimes think the real issue isn’t money or advertising. It’s that people have less time to reflect than ever before, while the world is getting more and more complex. The blurring of traditional male and female roles has left everyone responsible for everything: earning money, food prep, child rearing, transportation, etc. The blurring of work and non-work has similarly pushed everyone towards being ‘always on’ with not much downtime. It’s not good or bad; it’s just the way it is.
Meanwhile, since the end of the Cold War, global politics has become much more complicated. Reading a multi-page article about Somalia requires time, effort and thought; not many people have that kind of resource to spare during a 21st Century day. My sense is that they find it easier to dial up their favorite talk show and listen to someone guaranteed to agree with them while pretending to have all the answers.
The only interesting question that remains is: who will pay for in-depth reporting? My suspicion is that most people won’t miss it, any more than most people miss opera or orchestral music. Like music, journalism is being ripped, remixed, mashed up and deskilled. Not many folks noticed when drum machines replaced drummers, samples replaced players, and singers could no longer carry a tune (just as not many notice that Glenn Beck isn’t a journalist). The only problem is, cannibalism isn't a long-term dietary strategy; someone has to create.
Those who want quality news may have to pay a fairly high price for it in future, because those who produce it will have to be supported one way or another. One form of support is bundling business news with an expensive feed of must-have professional information. But what about the stuff business typically doesn’t care about, e.g., human rights, corruption in high places, and the fate of animal habitats? My prediction is that stuff will go not-for-profit, electronic, and be highly politicized for the most part.
Earlier this year, Michael Hirschorn's Atlantic article "End Times" predicted that the financially endangered NYT might end up as a "bigger, better, and less partisan version of the Huffington Post", in which reduced staff would mix original reporting with aggregated stories having the NYT seal of approval. I wouldn't bet on it. My prediction is that the new, improved Huffington Post will be the Huffington Post.
I think most paper news is doomed, thanks to a combination of lifestyle changes, competition for ads, and other entertainment choices. It’s tough to read the paper every day if you drive to work instead of taking a train or a bus, then spend most evenings ferrying your kids around. Meanwhile, eBay and Craig’s List are killing the classifieds section, and bored people in airports have a wide variety of gadgets to play with.
Decades ago, my idea of a good time was to spend the Sunday lunch hour in a London pub with the Times and a pack of cigarettes. (That was in the good old days of Harold Evans, before Rupert Murdoch got his hands on it.) One had time on one’s hands and the bandwidth to enjoy the serendipity of bundled news. I also did the Telegraph crossword every day, puzzling over cryptic clues and references to the classics.
Now, it seems I don’t have time for a paper; even when I buy one I don’t read it. I get generic news from NPR during my hour in the car. Everything else that’s daily I get through my Mac or iPhone, supplemented in any given month by the only two news magazines I feel are worth reading: the Economist and Foreign Policy. I don’t watch Network TV for the same reason I never took LSD: I like my mind the way it is.
On the business side, print banner ads and classifieds are a thing of the past. So if people don’t want to pay real money for paper news, no one is going to pick up the tab for them. Government subsidies are a bad idea; the Repugnant Party is right for once. Private ownership of newspapers is the lesser of two evils, but it’s a moot point, because newsprint is going the way of stone tablets, papyrus scrolls and illuminated manuscripts.
Time Warner and News Corp keep pretending the Emperor has clothes, because nudism (free) isn’t an option for them. But, if there were business models out there other than ads or subscriptions, we would have found them by now. Messing around with portals and micropayments is just rearranging the deck chairs on the Titanic. The ocean’s pouring in, but the band plays on. We’ve already seen what 99c album tracks have done to the record industry. (Network TV is next for the great unbundling; I can’t wait.)
One can only imagine what would have happened if the news moguls had encouraged their talent to create vertical Web sites around travel, food, wine, real estate, geographies, etc., turned them into virtual communities, and then AdSensed them. Such a strategy might not have saved the day, but I think they’d be in better shape than they are now. Online ads for electronic news are currently worth about a tenth of paper ads, but that’s partly because the targeting is demographic and not by interest, as the Web has come to expect.
But I sometimes think the real issue isn’t money or advertising. It’s that people have less time to reflect than ever before, while the world is getting more and more complex. The blurring of traditional male and female roles has left everyone responsible for everything: earning money, food prep, child rearing, transportation, etc. The blurring of work and non-work has similarly pushed everyone towards being ‘always on’ with not much downtime. It’s not good or bad; it’s just the way it is.
Meanwhile, since the end of the Cold War, global politics has become much more complicated. Reading a multi-page article about Somalia requires time, effort and thought; not many people have that kind of resource to spare during a 21st Century day. My sense is that they find it easier to dial up their favorite talk show and listen to someone guaranteed to agree with them while pretending to have all the answers.
The only interesting question that remains is: who will pay for in-depth reporting? My suspicion is that most people won’t miss it, any more than most people miss opera or orchestral music. Like music, journalism is being ripped, remixed, mashed up and deskilled. Not many folks noticed when drum machines replaced drummers, samples replaced players, and singers could no longer carry a tune (just as not many notice that Glenn Beck isn’t a journalist). The only problem is, cannibalism isn't a long-term dietary strategy; someone has to create.
Those who want quality news may have to pay a fairly high price for it in future, because those who produce it will have to be supported one way or another. One form of support is bundling business news with an expensive feed of must-have professional information. But what about the stuff business typically doesn’t care about, e.g., human rights, corruption in high places, and the fate of animal habitats? My prediction is that stuff will go not-for-profit, electronic, and be highly politicized for the most part.
Earlier this year, Michael Hirschorn's Atlantic article "End Times" predicted that the financially endangered NYT might end up as a "bigger, better, and less partisan version of the Huffington Post", in which reduced staff would mix original reporting with aggregated stories having the NYT seal of approval. I wouldn't bet on it. My prediction is that the new, improved Huffington Post will be the Huffington Post.
Tuesday, October 27, 2009
Book Review: Wired for Innovation
“Wired for Innovation: How Information technology is Reshaping the Economy” by Erik Brynjolfsson & Adam Saunders, MIT Press, 2010.
Main argument of the book is that the so-called “productivity paradox” of the period 1970-1995, whereby the adoption of IT failed to boost per capita productivity growth in the US, is now seen to be due to a lack of concomitant investment in organizational capital. In other words, people tended to “computerize” existing tasks in a brain-dead way, without investing in new business processes, employee training, and the like. The literature shows that the period 1995-2008 saw far greater gains, but only for those companies that combined new technology with a range of complementary practices around job redesign, openness of information, and empowerment of workers.
These “complementarities” are not just the “best practices” beloved of management consultants of every stripe, but aspects of a company’s culture, including things like profit sharing, flexible work hours and reorganization of workflows to really capitalize on new technology, so that even where there are fewer jobs, these jobs are more interesting than before. These practices are only effective if they work together to reinforce each other, both incenting workers and helping them innovate. Studies show that productivity programs such as TQMS don’t produce results otherwise.
Secondary related topic is that GDP tends to underestimate the value generated by IT innovations. The argument is that traditional measures of inputs and outputs used by the government do not capture “consumer surplus”, i.e., the net benefit that consumers derive from a product or service after you subtract the amount paid. E.g., various studies claim that eBay alone generates several billion a year in consumer surplus, and Amazon’s used book sales generate tens of millions in surplus, given aggressively low pricing. Another study found that the government’s 10 year regulatory delay in allowing cell phone usage cost consumers about $100 billion in lost surpluses!
Chapter 6, on ‘Incentives to Innovate in the Information Economy’ is especially worth reading, for an economist’s view of our world. The authors characterize information as a ‘non-rival good’, i.e., if I consume a piece of information that doesn’t prevent anyone else from consuming it (unlike a piece of cake, say). They also argue that people are reluctant to pay full-price for information goods, since they don’t know how useful they will be until they consume them (by which time they have already paid). Bundling is advocated, because it gets you away from the problem of pricing individual pieces of information in a situation where the marginal cost is close to zero (so that formulas like marginal cost plus a markup don’t work).
Another consequence of information being a non-rival good is ‘knowledge spillovers’, which typically mean that the private return for innovation will be less than the return for society as a whole. (Think about cell phones, and the value they create for society compared to the returns for cell phone companies.) The authors argue that this kind of disparity leads to a ‘chronic underinvestment in R&D’ by the private sector. Even within a single corporation, like Thomson Reuters, you can see this play out. Individual business units that invest in R&D often feel that other businesses that benefit from the ‘spillover’ are freeloaders who have not taken the risk or borne the cost of R&D, but nonetheless derived its benefits. This is why companies like 3M try to take a broader view of R&D cost-benefits across the organization as a whole.
Finally, the authors address the issues of price dispersion and low-cost copies of information goods, and how disruptive they really are. With respect to pricing, studies show that Amazon retains market share, even though it doesn’t actually have the lowest online books prices, thanks to their customer experience and reputation. (This doesn’t bode very well for Walmart in their current price war with Amazon over holiday sales.) With respect to low-cost copies, the authors argue that high availability can create demand for publishers’ wares under some circumstances. For example, lending libraries created readership and stimulated book sales rather than depressing them; more recently, VCRs created demand an insatiable demand for video.
At 150 pages, this is a slim, dense book that contains many insights into the forces behind innovation. Unlike many of the volumes that one finds in airport bookstores, the facts and claims are backed by citations to recent research. Although the main theme is really the relationship between innovation, IT and productivity, there are many interesting reflections upon leadership, change, knowledge, value and the distribution of wealth. It’s not a light read, because it doesn’t shrink from complexity, but it’s not turgid either. The authors are from MIT’s Sloan School and U Penn’s Wharton School, so you are getting an up-to-date view of the very latest thinking at these august institutions.
Main argument of the book is that the so-called “productivity paradox” of the period 1970-1995, whereby the adoption of IT failed to boost per capita productivity growth in the US, is now seen to be due to a lack of concomitant investment in organizational capital. In other words, people tended to “computerize” existing tasks in a brain-dead way, without investing in new business processes, employee training, and the like. The literature shows that the period 1995-2008 saw far greater gains, but only for those companies that combined new technology with a range of complementary practices around job redesign, openness of information, and empowerment of workers.
These “complementarities” are not just the “best practices” beloved of management consultants of every stripe, but aspects of a company’s culture, including things like profit sharing, flexible work hours and reorganization of workflows to really capitalize on new technology, so that even where there are fewer jobs, these jobs are more interesting than before. These practices are only effective if they work together to reinforce each other, both incenting workers and helping them innovate. Studies show that productivity programs such as TQMS don’t produce results otherwise.
Secondary related topic is that GDP tends to underestimate the value generated by IT innovations. The argument is that traditional measures of inputs and outputs used by the government do not capture “consumer surplus”, i.e., the net benefit that consumers derive from a product or service after you subtract the amount paid. E.g., various studies claim that eBay alone generates several billion a year in consumer surplus, and Amazon’s used book sales generate tens of millions in surplus, given aggressively low pricing. Another study found that the government’s 10 year regulatory delay in allowing cell phone usage cost consumers about $100 billion in lost surpluses!
Chapter 6, on ‘Incentives to Innovate in the Information Economy’ is especially worth reading, for an economist’s view of our world. The authors characterize information as a ‘non-rival good’, i.e., if I consume a piece of information that doesn’t prevent anyone else from consuming it (unlike a piece of cake, say). They also argue that people are reluctant to pay full-price for information goods, since they don’t know how useful they will be until they consume them (by which time they have already paid). Bundling is advocated, because it gets you away from the problem of pricing individual pieces of information in a situation where the marginal cost is close to zero (so that formulas like marginal cost plus a markup don’t work).
Another consequence of information being a non-rival good is ‘knowledge spillovers’, which typically mean that the private return for innovation will be less than the return for society as a whole. (Think about cell phones, and the value they create for society compared to the returns for cell phone companies.) The authors argue that this kind of disparity leads to a ‘chronic underinvestment in R&D’ by the private sector. Even within a single corporation, like Thomson Reuters, you can see this play out. Individual business units that invest in R&D often feel that other businesses that benefit from the ‘spillover’ are freeloaders who have not taken the risk or borne the cost of R&D, but nonetheless derived its benefits. This is why companies like 3M try to take a broader view of R&D cost-benefits across the organization as a whole.
Finally, the authors address the issues of price dispersion and low-cost copies of information goods, and how disruptive they really are. With respect to pricing, studies show that Amazon retains market share, even though it doesn’t actually have the lowest online books prices, thanks to their customer experience and reputation. (This doesn’t bode very well for Walmart in their current price war with Amazon over holiday sales.) With respect to low-cost copies, the authors argue that high availability can create demand for publishers’ wares under some circumstances. For example, lending libraries created readership and stimulated book sales rather than depressing them; more recently, VCRs created demand an insatiable demand for video.
At 150 pages, this is a slim, dense book that contains many insights into the forces behind innovation. Unlike many of the volumes that one finds in airport bookstores, the facts and claims are backed by citations to recent research. Although the main theme is really the relationship between innovation, IT and productivity, there are many interesting reflections upon leadership, change, knowledge, value and the distribution of wealth. It’s not a light read, because it doesn’t shrink from complexity, but it’s not turgid either. The authors are from MIT’s Sloan School and U Penn’s Wharton School, so you are getting an up-to-date view of the very latest thinking at these august institutions.
Thursday, October 8, 2009
Book Review: Free
Chris Anderson of “Long Tail” fame has done it again with his latest book, “Free”. I reviewed his NetGain talk earlier in this blog, so I won’t go through all the basics again. His concept is that, in a highly competitive online market, price falls to the marginal cost of adding a new user, which is close to zero.
He distinguishes between three different models of “free”: the cross-subsidy (basically a come-on, like the free sample or the loss leader), the two-sided market (one customer subsidizes the other, e.g., advertisers subsidizing magazine readers), and the “freemium” model (upgrade users from a free version to a more capable version of your product, or a range of ancillary experiences).
His historical preamble is both amusing and informative, explaining the origins of common phrases such as "free lunch" and "jumping on the bandwagon." There are sidebars containing detailed examples of companies that play in the free space to a non-trivial extent. His comments on the dilemma currently facing the media industry are unsparing and incisive.
"Free" is a good read, being both very clear and non-redundant. Anderson has had a long and successful career in quality publishing, as well as being a well-known blogger. For my money, he is up there with Nicholas Carr and Malcolm Gladwell as a really insightful writer on technology, business and social trends. At about 250 pages, this is a book you can read in a small number of sittings, and then refer back to, as needed.
His message can be summarized as follows: a version of your current digital assets will one day be abundantly available free of charge, so you have to keep moving up the value chain. Furthermore, it often makes sense to give away some part of your asset base to some part of your potential market to gain attention, reputation and good will. You can then successfully monetize other, higher value, opportunities arising from all this buzz, possibly by charging just a fraction of your users.
He cites many interesting examples, e.g., Skype giving away computer-to-computer calls, but charging for computer-to-phone calls, Second Life giving away virtual tourism but charging for virtual land, etc. My main problem is that they are mostly drawn from the mass-market, consumer space, not the professional space.
Even in the consumer space, experiments with free are ambiguous. For example, local newspapers have had a mixed experience with free, as Anderson acknowledges. There is the whole issue of how readers (and more to the point advertisers) value free publications, especially those that were once sold at a price. He also acknowledges that free has a habit of turning billion dollar businesses (classified ads in newspapers) into million dollar businesses (like Craigslist). Scale seems to be everything, as well as getting your sums right.
Perhaps the most interesting passages for me concerned Google: its vast economies of scale; its use of free for various purposes (goodwill, data gathering, ad delivery); and the concern of execs like Eric Schmidt that publishing companies may suffer to an extent that they are no longer able to generate quality content to be searched. Not every aspect of the Internet economy is a zero-sum game, and Google probably knows that the sooner the media industry finds new business models to maintain its creative output the better for all concerned.
The book ends with a handy guide to the rules, tactics and business models that seem to work in the free economy. Appropriately enough, free versions of the book are available, e.g., in an abridged form as an audiobook. (For a while, an advanced copy was also free on the Web as a pdf.)
He distinguishes between three different models of “free”: the cross-subsidy (basically a come-on, like the free sample or the loss leader), the two-sided market (one customer subsidizes the other, e.g., advertisers subsidizing magazine readers), and the “freemium” model (upgrade users from a free version to a more capable version of your product, or a range of ancillary experiences).
His historical preamble is both amusing and informative, explaining the origins of common phrases such as "free lunch" and "jumping on the bandwagon." There are sidebars containing detailed examples of companies that play in the free space to a non-trivial extent. His comments on the dilemma currently facing the media industry are unsparing and incisive.
"Free" is a good read, being both very clear and non-redundant. Anderson has had a long and successful career in quality publishing, as well as being a well-known blogger. For my money, he is up there with Nicholas Carr and Malcolm Gladwell as a really insightful writer on technology, business and social trends. At about 250 pages, this is a book you can read in a small number of sittings, and then refer back to, as needed.
His message can be summarized as follows: a version of your current digital assets will one day be abundantly available free of charge, so you have to keep moving up the value chain. Furthermore, it often makes sense to give away some part of your asset base to some part of your potential market to gain attention, reputation and good will. You can then successfully monetize other, higher value, opportunities arising from all this buzz, possibly by charging just a fraction of your users.
He cites many interesting examples, e.g., Skype giving away computer-to-computer calls, but charging for computer-to-phone calls, Second Life giving away virtual tourism but charging for virtual land, etc. My main problem is that they are mostly drawn from the mass-market, consumer space, not the professional space.
Even in the consumer space, experiments with free are ambiguous. For example, local newspapers have had a mixed experience with free, as Anderson acknowledges. There is the whole issue of how readers (and more to the point advertisers) value free publications, especially those that were once sold at a price. He also acknowledges that free has a habit of turning billion dollar businesses (classified ads in newspapers) into million dollar businesses (like Craigslist). Scale seems to be everything, as well as getting your sums right.
Perhaps the most interesting passages for me concerned Google: its vast economies of scale; its use of free for various purposes (goodwill, data gathering, ad delivery); and the concern of execs like Eric Schmidt that publishing companies may suffer to an extent that they are no longer able to generate quality content to be searched. Not every aspect of the Internet economy is a zero-sum game, and Google probably knows that the sooner the media industry finds new business models to maintain its creative output the better for all concerned.
The book ends with a handy guide to the rules, tactics and business models that seem to work in the free economy. Appropriately enough, free versions of the book are available, e.g., in an abridged form as an audiobook. (For a while, an advanced copy was also free on the Web as a pdf.)
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