Sunday, September 25, 2016

When "you get what you pay for" no longer applies

Ah, the Internet. It brings us hotel reviews, deals on shoes, too many pictures of people's kids and renovations, and so much more...hence the 2 word catch-all Because Internet as a glib attempt to explain away the oddities of the vast network's offerings, and the often strange behaviours we all contribute to the mix.

The many splendored thing that is the Internet has rewritten the rules of many businesses, or, more accurately, those rules are in the process of being rewritten.

The conventional economic thinking of people operating in self interest, and therefore not working for free has been upended by the likes of Wikipedia and The Huffington Post.

The laws of supply and demand have similarly been suspended. Generally it works like this: demand goes down, supply co-operates with gravity and also goes down. Not always so on the Internet, with, for example, the output of the creative industries such as music, writing, and photography, being prime examples.  Fewer people pay, more people produce. What would Adam "Wealth of Nations" Smith have to say about this?  We'll never know.  

Conventional wisdom says we get what we pay for.  But on the Internet we also get what we don't pay for, a topic explored further in the Up Next Podcast on which I was recently a guest.  

Or perhaps as an old friend from my campus radio days put it:






Monday, August 1, 2016

Better complaining through technology

People just want to get stuff done. And with as few hurdles as possible. Sometimes intermediaries can assist in the process – that’s what the concept of a value chain is all about, i.e. the sequence of steps between creators and consumers, between organizations and citizens, that exist because they refine and improve products and services along way. That's the idea, anyway. Think of the journey a coffee bean harvested in Ethiopia takes to become the half caff tall skim latte at your neighbourhood Starbucks and you’ll have the beginnings of a mental model of a value chain. In such a case there are undeniable value adds along the way, though whether or not the end product is 'worth' the $4 you pay for it is a debate best left to branding experts. Or these everyday citizens. But I digress. 

This blog has focused on the changing faces and shapes of intermediaries in the creative industries, but today we’re going to look at an area known as civic tech, a way for interested individuals and community groups to enter the value chain of government and governance, using the self-organizing tools and techniques of peer-to-peer networking, crowdfunding, and co-creation.


I first learned of the field while living in Boston, by way of the MIT Center for Civic Media , and thanks to the civic tech involvement of a friend in Toronto ended up at an event hosted by the local Civic Tech group.

What I learned at this event is that while many of us spend our evenings with, I don’t know, laundry, yoga, or Netflix, there’s a group of laptop-toting individuals out there who get together each week to put their coding and design skills to work to address such civic issues as affordable housing, resource sharing, and getting out the vote. And they do it all on a volunteer basis. If you want to see the wheels of disintermediation in motion, this is a great place to start.

One of the projects discussed at last week’s Civic Tech meetup was based on SeeClickFix,  a website and app that lets anyone report civic concerns – whether they’re abandoned mattresses, potholes, or even roadkill -- and also offers tools through with third party developers can build on top of the site's core functionality. 

Civic complaints made easier at www.seeclickfix.com 

If you don’t believe me, just go to the home page at www.seeclickfix.com and enter your city’s name and see what’s going on around you. Some municipalities have some pretty brisk blotters going on while others have just a handful of ancient complaints. 

Street light bird nest issue recently resolved in NYC, taken from SeeClickFix.com

But the larger point is that anyone can post, thereby opening a ticket, and a combination of community members and civic officials comment and then follow up. As posts build up so does a picture of the neighbourhood, from the ground up. This is a key feature of the majority of civic tech projects: the collective corralling of community intelligence that also creates an asset for better governance and improved communication.

Note that also built into the system is a points mechanism, whereby frequent civic watchers can collect points for their interactions, becoming a digital Jane Jacobs at the 10,000 point level.



Tuesday, July 5, 2016

Organizing Without Organizations (and the story of the world’s biggest cash heist)

It’s an organization without a boss. No org chart, no hierarchy, no workflow plan. This may at first sound like utopian post-hippie talk, i.e. that if everyone just brings their best intentions, and their favourite casserole, that we the people can do anything. Barriers to entry be damned, business as usual be damned, best practices and all the rest be damned too. This may sound like a whole lot of antiestablishment nonsense except that we now have examples to point to such as Wikipedia, a free-to-use, high quality, written by no one in particular encyclopedia that is organized, vetted, and updated by the crowd.  Previous attempts to do the same – produce an online encyclopedia, with a combination of experts and the public had been attempted but with extremely limited success. How limited? In its first year a scant 21 articles went online, compared with Wikipedia’s 18,000 in its first year.

Design by committee, rather than bosses, VPs, and armies of the able, was the philosophy behind Nupedia, but apparently they did not go far enough. It wasn’t until the whole system was thrown to the wind and decentralization became the lay of the land that Wikipedia started to flourish, and now it is a daily destination for most of the world’s 3 billion Internet users.

The fact that with a few tweaks something like a wiki-based encyclopedia could go from a stalled, somewhat idealistic effort to a world-changing repository of knowledge may be reason for us all to have faith in other decentralized technologies.

The blockchain is one that comes to mind, and one about which I learned more at a recent Meetup. Blockchain, perhaps best known as the technology backbone of BitCoin, was looked at in an earlier blog post, as a potential solution to many of the music industry’s legacy system problems that send dollars to layers of the business that aren’t necessarily needed in today’s digitally connected marketplaces.  

The blockchain is also behind something called the DAO, which stands for decentralized autonomous organization.

Click to enlarge

The objective of the DAO, a single app running on the blockchain, is to eliminate the need for organizational decision making apparatuses, such as formal managerial positions and hierarchical structures. And note: Decentralization does not mean an absence of control, but, rather, no single person or entity is in control. It sounds kind of crazy until you think of, say, Wikipedia.

In the words of one of the Meetup speakers, Jeff Coleman of Ledger Labs, the blockchain enables “super secure, super awesome decentralized organizations that can give you more security for less work than any other system out there." 

Ledger Labs’ Jeff Coleman schools the crowd on the great DAO hack of 2016    

Coleman then walked the Meetup crowd of 100+  through the architecture of the DAO, explaining how, when a funding window in the DAO was opened on April 30th, 2016, over 10,000 people poured in about $100 million in funds, making it the largest crowdfunding endeavour in history. The idea was that it that this would be a relatively low risk investment where you could invest and withdraw funds at will.

All good. Really really good in fact, until the hack

Coleman called the hack, in which $60 million was drained from the DAO, “the largest cash heist in the history of the world”.  (As you can see lots of firsts and biggests here.) The problem, it was explained, came down to issues with the smart contracts, pieces of computer code that represent contract-like agreements between other pieces of code built on the blockchain. (I’m not a lawyer so for an actual lawyer’s perspective on smart contracts, click here.)

The short version of the story is that despite two years of due diligence, including bug bounties -- essentially crowdsourced security -- it was assumed the system was good to go. Who performed the due diligence? Not the DAO, pointed out Coleman, but the underlying platform, Ethereum.


How the Ethereum platform works
Source: https://www.ethereum.org

Coleman continued: "Thanks to this careful due diligence, Ethereum, the platform, remains uncompromised. But the DAO opted for just a few short weeks of public viewability and no serious testing, audits, or bounties, and that's why it was successfully attacked."

In other words, this wasn't a blockchain problem, but a negligence problem. If there's a problem with a single website you don't blame or impugn the entire Internet. Same thing here.

And the icing on the cake, in Coleman’s view: “It’s exceedingly likely that the attackers didn’t plan on actually getting the $60 million.” In fact, the cash is still yet to be released to the attacker, and Coleman thinks it may never be.

The moral(s) of this story? That’s hard to say, as this is a story that is only beginning to be written, and is one that changes dramatically from week to week. Not only do technologies move at unfathomable speeds and take on increasingly complex functions, but they also bring with them enormous flows of capital, and along with those flows trust invested in systems that are built and operated outside of the usual standards and structures that have formed the basis of our economy for decades.

Related Post:
Will the blockchain free music from being free?

Thursday, June 2, 2016

Do Borders Matter In A Digital World?

My original plan for this brief blog post was to point readers to an article I recently wrote for the CMF Trends Blog. Simply that. Then something arose the other day that added another dimension to the discussion. The topic for the piece I wrote is the fate of Canadian content -- and the related subsidy and quota systems for its creation -- in a time of Netflix, YouTube, streaming, torrenting, etc., and the full article can be found here. Meanwhile, in Europe, a similar debate has emerged.

More on that in a bit. But first, some Canadian content for you.

For readers outside of Canada the concept of CanCon, the catchy abbreviation for Canadian content, may be not only foreign but also a bit hard to get one's head around. The idea is this: That there is a mandated minimum on the broadcast schedules of radio and television entities across the country for music and television programs created by Canadians. This is part of Canada's Broadcasting Act, supported and enforced by governmental cultural institutions as well as industry partners such as radio broadcasters and cable and satellite companies.

Allow me to provide you with the most unintentionally successful example of Canadian content, created by Rick Moranis and Dave Thomas when they were informed that SCTV, the television show on which they appeared, was 2 minutes short on its CanCon requirements. Upon hearing this was the case, Moranis and Thomas are said to have jokingly responded with: "What...you want 2 guys sitting on beer cases, frying back bacon, and talking about donut shops? Will that do it?"


And so, a phenomenon was born, that led to catchphrases, a best-selling album, and a cult classic movie.

Most CanCon does not enjoy anywhere near this level of success, of course, fuelling ongoing debates about the usefulness and relevance of the governmental mandate in today's landscape of the all-you-can-eat offerings of Netflix and Spotify; not to mention the podcasters and YouTubers able to create content on a shoestring, with a reach limited only by the number of people that like what they're doing and are willing to publicize it via digital word-of-mouth. Competition now comes not only from the usual places, but from the most unusual places as well.

I thought of this conundrum as largely a matter of Canadian cultural politics until I saw this article, in which a department of the European Union "...proposes that video streaming services operating in Europe -- including Netflix, Amazon Prime, and HBO -- be forced to dedicate at least 20% of their local content offerings to European product, and to invest in some European productions....part of a larger effort to create a borderless digital marketplace stretching from Ireland to Greece..."



I'm not sure what a Euro version of Bob & Doug might look like...perhaps smartly attired, baguette-breaking Gitanes smokers, discussing the finer points of post-structuralism?

In the meantime, for those unwilling to wait for sweeping cultural reform or the end of geo-blocking, there's always VPNs.

Monday, May 9, 2016

Decentralization, Douglas Rushkoff, and the Digital Economy

This blog has spent the last 3+ years and 150,000 or so words chronicling the demassification of media enabled by digitally networked individuals and systems. Simply put, we’ve gone from a few people telling a lot of people what they can watch or read to a veritable free-for-all in which the cost of getting into the ring is almost nil and we end up with unthinkable things like 500 hours of video being uploaded to YouTube every minute. (Note: Statistic as of early 2016, almost certainly more by the time you read this)

Decentralization is a wonderful thing as it means democratization. The trouble with decentralization, though, is it’s hard to find a place to start. In the context of music, e.g., we’ve gone from the Top 40 format of radio to the 40 million (probably more by now) of Spotify.  If you know exactly what you’re looking for, it’s great. But if you don’t, it’s less great. This truism is what’s led value on the Internet to shift from creators to aggregators. There just aren’t enough hours in the day to help us navigate the choppy waters of freely flowing content on our own.

And this is a big part of why today’s Internet looks nothing like the fledgling Internet of the early 1990s. Back then it was a combination of a technologically-enabled future that didn’t yet have a roadmap and a post-hippie playground where the cybertopian ideals of a decentralized society frolicked alongside the plans for world domination being hatched in locales such as Redmond, WA and Silicon Valley. 

And it turns out that what’s happened in between then and now isn’t that much of a new thing. Douglas Rushkoff, author of numerous books on digital culture and media in the connected era, and one of my favourite thinkers in the field, breaks the issues down in his new book, Throwing Rocks At The Google Bus: How Growth Became The Enemy of Prosperity

The title of the book comes from the Google Bus protests of 2014. These private shuttle buses were seen as odious symbols of the digital economy, transporting tech workers from their urban San Francisco homes to the suburban campuses of the big tech companies. So central to the Silicon Valley economy were/are these caravans that the closer the apartment is to the Google bus stop, the higher the rent. According to one report, proximity to the Google stop puts the premium on a 1 bedroom apartment in San Francisco at about $4000/month. 


What, asks Rushkoff, does value creation look like now? What should it look like? And how did we go from the moneyless, collectively constructed, everyone was welcome Internet to the Internet we have today? This is not about neo-Marxism, but about, as Rushkoff likes to point out, a company such as Twitter, built on 140 character tweets, making $500 million per quarter and still being considered a massive failure by Wall Street.

In the book, and at the event at which I heard Rushkoff speak, he embarks on a journey, one in search of the origin of the model of the digital economy. Where did this ‘operating system’ come from? He traces things back to the bazaar of the late middle ages, post Crusades, when a peer-to-peer economy was the order of the day. People used ‘market money’, temporary objects that had value for a day, i.e. my bundle of spice for your chicken, your piece of fabric for my jar of oil. Over time, this is how the peasants became the bourgeois. 

And nothing is more threatening to the aristocratic upper classes than peasants on the rise. Therefore, explains Rushkoff, the elites came up with mechanisms such as centralized currency, issued by monarchs, to replace the market money of the peer-to-peer economy. Then came monopolies, which made purchasing from those other than the sanctioned entities illegal. Cities became weaker, nations became stronger.

Not all that dissimilar to the Internet of today in which individual websites, publishers, and creators have, to varying degrees, become beholden to platforms and aggregators. Like they say in Las Vegas, the house always wins.

The great promises of the Internet were the removal of the intermediary and lowered operating costs, so sellers could go direct to buyers, writers to readers, musicians to fans, etc. These activities were, and still are, enabled by the Internet, but what came next was not just an abundance of creative production, but an overabundance. And what came along with that was a public generally unwilling to pay for content. You want free? You got it. But not so fast. You’ll be paying with your data instead of dollars. Not that that’s necessarily a bad thing, but it’s definitely a real thing. (I’m always surprised when people are surprised, but that’s a whole ‘nother story).

But are these digital businesses viable business models? For some, they certainly are. Facebook, e.g, with its 1.65 billion global users and $20 billion in annual revenue has an annual revenue per user (ARPU) of $12.12 according to my calculations (yes, I do such spreadsheets for fun) and is highly profitable, whereas LinkedIn is making about $2/year off of you (with the company worth about half of what it was back in 2013), Google across all of its properties that you use pulls in about $50 in advertising revenue from you annually and runs a very profitable operation, and Twitter is at $6.45 of annual revenue per user, but unable to make bank. Why? Because as a public company, funded by venture capital dollars, the name of the game is growth, and theirs seems to have plateaued.

Click to enlarge
It’s exactly situations such as Twitter’s, with $2 billion of annual revenue and hundreds of millions of users, being considered a colossal failure that rankle Rushkoff. “I’m not anti-business, I’m pro business” he reminded the audience at the Toronto talk. “It’s just that if you can’t scale up indefinitely it’s somehow bad or wrong. Ongoing growth should be a happy outcome of business, not a defining element.”

For more, spend some time with Douglas Rushkoff here, at a talk given recently at the 92nd St. Y in NYC.



Related Posts on Internet Economics:

Wednesday, April 6, 2016

Politics for fun & profit: The Donald Trump Story

This blog has nothing to do with politics, yet I wanted to share a 1-2-3 sequence here that I've been thinking about for some time with readers.

So here we go.

1. Ross Perot's 1992 campaign was remarkable for the way he spent his own money running for office in the United States

2. Ron Paul's 2008 campaign was remarkable for the ways he raised money running for office in the United States

3. Donald Trump's 2016 campaign is remarkable for the ways a presidential bid makes him money


***********************


Ross Perot: 1992 infomercial. Yes, he bought television time slots to show us his bar charts



Ron Paul: The 2007 & 2008 money bombs go off



Donald Trump 2015-2016: Billions in free coverage



Yes, Mr. Trump, who inherited a money bomb of his own in the 70s (and on that pile of artillery is said to have achieved a non-noteworthy return more or less equal to that of the S&P), makes money through brand awareness. And more creates more. He sells his name to things like flashy real estate developments and in return usually receives a flat fee plus a percentage of annual revenues.

With a personal brand that he estimates at being worth in the billions, and a campaign that is said to have received close to $2 billion in free media coverage (so far), I think it's safe to say that Mr. Trump is the first presidential candidate to actually increase his net worth by running for office.

Monday, April 4, 2016

Free-conomics...Or the winding down of the digital free-for-all



If you build it, they will come. One of many Hollywood flights of fancy that may be appealing to audiences on the big screen, but rarely pans out that way in reality. Or maybe way back when in the 20th century things did work that way. In the 21st century world of digital services, however, the defining feature of attracting audiences has been creating a fiesta of free. Legal free, illegal free, it doesn’t matter. Just make things (appear to be) free and millions, if not billions, will come.

Of course nothing is ever free, only ‘free’, meaning there are always strings attached. As we moved from a monetize first model in media and entertainment – pay for the album, pay for the movie, pay for the newspaper – to a monetize last model, we shifted currencies as well. Whereas the currency was once dollars, it is now data; data culled about you from what you post, who is in your network, the websites you may visit pre and post the platform you’re on, etc. All of these provide an increasingly fully fleshed out portrait of you as a consumer. As the Silicon Valley saying goes: “If you’re not paying for the product, you’re the product.”

That’s the deal, and that’s the cost of free.

While the model of free has worked exceedingly well for platform-based businesses able to scale rapidly and monetize millions of users on the back end of the transaction, it has worked less well for content creators, who, whether working within the structures of industries such as music or publishing, have seen revenues from their creations decline sharply.

The previous post on this blog looked at the potential for blockchain, the technology that powers decentralized currencies such as Bitcoin, to provide a new, open-source payment path between musicians and fans, that doesn’t involve either music labels or for-profit payment companies. Imogen Heap was the first artist to release her music using blockchain and explains why here.

Imogen Heap represents but one example toward a monetization model, and in the last few weeks in particular a few more have emerged, suggesting to me that the pendulum may be swinging back to a pay model, if at not least swinging back and forth.

For your consideration, Exhibits A, B, C, and D:

Exhibit A: 

Blogging slash social journalism platform Medium, launched by Twitter co-founder Ev Williams in 2012, has been free since its inception but is now looking at putting up a paywall as well as adding premium content streams.




April 5th, 2016 Breaking News:



Click here for full story from AdAge




Exhibit B: 

SoundCloud, the nine year old audio-uploading platform with a few hundred million users is plagued by losses, and therefore just added a subscription service.


Exhibit C: 

YouTube, which needs no introduction, is now 10 years old and its revenues more or less match its costs of operation – approximately $4-5 billion in per year and $4-5 billion out per year.  They just launched YouTube Red, a subscription service with premium content and an ad-free viewing experience.


Exhibit D:

Blendle, a Dutch company that has stepped up to take on the challenge of monetizing the consumption of news online, across a wide variety of sites and platforms. This means micropayments, which means that the revenue generated from the micropayment has to exceed the cost of processing it; not an easy business to make work on that front, and also not an easy business to make work as so many have become accustomed to everything being free. 



The way it works is that (for now, at least) you get $2.50 in your account when you sign up for the service and you pay rates starting at $0.09 (set by the respective publishers) to read individual articles. You can even get a refund if you’re not happy with the transaction. After attracting close to 700,000 paying users in Europe, Blendle just launched in North America. Can it work? Will it work? Old habits die hard, especially when the baseline behaviour is not paying. Once again, time will tell. Meanwhile, this blog watches with a keen eye.