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.

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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 an 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.

Wednesday, March 16, 2016

Will the blockchain free music from being free?

The idea of a path of least resistance makes only too much sense, yet so often it’s not the path we find ourselves on. And don’t worry, this blog, whose focus is the media and entertainment industries in the digital era, is not about to go all self-help on you. Instead, I will bring you some wisdom gleaned from a talk I attended yesterday, given by Grammy-nominated producer and musician Darryl Neudorf.

His name may not ring a bell but one of these names probably will: Neko Case, Sarah McLachlan, The New Pornographers -- all artists with whom he's worked. Oh, and he co-wrote this song, a Top 10 hit for Hootie & The Blowfish in 1997.


Neudorf took us through a fairly quick but compelling presentation that outlined the state of the music industry today, namely musicians getting fractions of pennies for streams on services such as Spotify, then explaining how we got here, and then laying out his plan for a better tomorrow for the music business. Lofty goals and a big vision, but incremental thinking is probably not what’s called for, 17 years post Napster, and still no working business model for the music industry.

Whether obtained legally or illegally online, the advent of digital music has meant songs becoming unbundled from albums; and the music industry’s unit economics were traditionally based on album sales, which tended to be 1 or 2 songs you wanted and 8 to 10 you didn’t want. Too bad, you’re stuck with the whole pizza, even the slices covered in anchovies that you don’t want to get anywhere near. That’s just how it worked.

Furthermore, platforms aka streaming services, such as Pandora and Spotify, have a business model based on the freeconomy, in which tens to hundreds of millions of users, at aggregate, create an attractive market for advertisers. A small percentage of users pay for an ad-free service, which usually runs about $9.99 month, but most do not, paying, instead with data, not dollars. Also known as the great 21st century tradeoff.

The economics of streaming services is that they generally pay out 70% to rights holders and retain 30% of revenues for themselves. The problem for many artists is that they, the artists, are not the rights holders; it’s a label or publishing company, and that is therefore where the bulk of the money goes. This is just one part of the landscape in which musicians today exist. Another is all the songs uploaded to YouTube by non rights holders, with, in lieu of visuals, a slide show, lyrics on screen, or sometimes just a picture of the album cover. Music on YouTube is a whole other thing, and for today’s post we’re limiting the discussion to the situation with streaming.

As Darryl Neudorf pointed out in his talk:

From the mid to late 90s the narrative was one of empowerment through the Internet; that there would be a revolution based on a direct-to-fan model; and to some extent this came true, with companies such as CD Baby and eMusic arising out of the first wave of music freed from its physical form factor

Then came Napster. Talk about three words that don’t even begin to describe the upheaval and draining of revenue from an industry. 


If you really want to dig into the full story, it’s recounted in detail in a book called “How Music Got Free: The End of An Industry, The Turn of The Century, and The Patient Zero Of Piracy”

Post Napster came what Neudorf termed ‘the dark ages’, from 2000 to 2010, in which revenues for recorded music continued to dwindle each year, despite the emergence of the iTunes store and at least some people getting into the happen of paying for downloads.



The next phase was the coming of the streaming services, and 2014 was the first year that revenues from digital and physical sales were equal in the music industry; 2015 was the year streaming became the main source of revenues for music labels.

Streaming services have tens of millions of songs, so unless you know exactly what you're looking for, you're going to be at least somewhat reliant on playlists. And playlists on streaming services -- which are essentially what radio once was – skew to major label bands, pointed out Neudorf. In other words, the same gatekeepers that were in place in the world of radio airplay are now inhabiting the world of streaming.

But wait, there's more. Several years in, not a single streaming service is even close to becoming profitable. In fact, there’s evidence that they’re becoming less profitable with time. 

As you can see, problems aplenty. But what about solutions? Sell t-shirts? Tour more? Do intimate gatherings for superfans? Yes, all of those things can and do help, but Neudorf has a more radical idea in mind, and he’s not the only one.

The idea is based on something called the Blockchain. If you’ve heard of Bitcoin – which, let’s face it, nobody really understands, then you’ve had exposure to blockchain, as it’s the technology that powers decentralized currencies, sometimes referred to as cryptocurrencies, the most well known of which is Bitcoin.

Boston’s Berklee School of Music published a report last year outlining the benefits of decentralization for the music industry. 


All of this inspired Neudorf to start this project in mid 2014 – The POLR – or path of least resistance, which he calls a new model for a 21st century music industry. The model is based on the concept of A2A – artist to appreciator, working around the usual intermediaries. Is this direct to fan but with a different acronym? Not exactly. Because using blockchain technologies the licensing can happen at the point of upload, and with metadata added that lists writers, performers, producers, and any others with a stake in the sound recording, micropayments can go be paid directly to them. As long as only rights holders are able to upload, unlike the situation on YouTube and Soundcloud. This particular system hasn’t yet been built, but with the thinking in place, it’s probably only a matter of time. Imogen Heap is an artist already using blockchain; in fact she sold the first song using blockchain, so we know that part of things can work. 

To conclude his talk Neudorf quoted software engineer Vinay Gupta, who said: “Whoever controls the database, controls the future of the music industry.”

And if music is going to be a service, not a product, the thinking of Gupta, Neudorf, Heap, and other forward-thinking individuals may be one way for the balance of power to be reclaimed by artists.

Related Posts:

Free-conomics: Signs of the end of the digital free-for-all?
Decentralization, Douglas Rushkoff, and the Digital Economy

Postscripts:
Props to the crew at Toronto's Music Tech Meetup for organizing the event at which Darryl presented.
To learn more about the workings and potential impact of the blockchain, there's the book Blockchain Revolution by Don and Alex Tapscott, coming in May 2016.

Wednesday, March 2, 2016

We're back in the walled gardens of the Internet: A good thing or a bad thing?

“User experience always wins", says Dries Buytaert, lead developer of Drupal and champion of free, open source software.

In a talk given earlier this week at the Berkman Center for Internet and Society in Cambridge, Massachusetts, Dries rightly pointed out that people just do what’s more convenient without thinking too much about the trade-offs. This is how, for example, Facebook has become the de facto front page of the Internet for well over a billion people. This is the walled garden, or closed system of the Internet, in contrast to the wide open web, decentralized, and not owned by anyone in particular.

Dries characterizes the state of this corner of the  Internet as "the big reverse of the web", or the move from the radically open and uncensored Internet to one in which private corporations hold a kind and level of power perhaps only rivalled by governmental bodies.

One way to think about this big reverse is as follows: people used to go to multiple sites to get what they wanted  -- e.g. news from The New York Times or the Guardian, entertainment from online sites or the digital properties of broadcasters. The point is that it was the consumer actively seeking out and going to the content, as opposed to our actions and algorithms based upon them determining the information that gets pushed to us. The flip here is the content coming to the consumer, and it's  one of the defining characteristics of communications in the digital era.

And because we're generally not paying for the news, information, and entertainment we consume online, along with it advertising also comes to us, services come to us, and in the case of Facebook Messenger, now a separate app on our phones that pushes everything to the top layer of the interface, 1-to-1 interactions and transactions are about to come to us.

But are walled gardens, these privately owned portals to the Internet such as Facebook -- all bad? No they're not. Though I recall it being referred to as 'the trailer park of the Internet' I think we still have to credit AOL with getting mainstream America online in the 90s. The same can be said of services provided by Google in the 2000s and Facebook in the 2010s.

So what’s the problem? In Dries Buytaert's opinion it's the scale...of billions of users. And what’s the problem with that? Well, there are these pesky problems, such as Google technically being able to shape the results of the U.S. election by tweaking algorithms, and Facebook having the ability to introduce bias to the newsfeed.

And how did this all happen? The easy answer is that it's possible because of the storehouses of data built on our initial exuberance about everything being 'free' online. Could free be, as a friend of mine says, the most expensive price of all? Or are the tradeoffs -- the things we receive in return for the use of our data, the manifestation of the 'price' we're willing to pay for the services we get to use? 

Slide from Dries Buytaert's presentation illustrating who knows what
Click to enlarge


It's not a simple binary, i.e. that data collection a bad thing and no data collection is a good thing, because data collection becomes part of a filtering out of what could be thought of as the excessive noise of the firehose of the Internet. The processing of our data trails by 1st parties in some cases and 3rd parties in others means that we have move relevant information pushed to us, at the right time, so that, for example, a person who doesn't have kids doesn't get diaper ads, a person with diabetes doesn't get ice cream coupons, etc. The systems are not perfect, as most of us have experienced. I know Ivy league graduates who have received ads for community colleges and I myself have received targeted ads for products aimed at the teen market. (But maybe I shouldn't flatter myself, as I'm old enough to have teenagers, yet I don't; perhaps the ads were meant for the parent of a teenager to influence their kid's purchase?)

Why do we play along in this return to the walled garden Internet? The one that most of us thought we left behind with CompuServe, AOL, and Yahoo? Because the convenience, utility, and entertainment we receive are greater than the expenditure. And when I refer to the cost remember we’re not paying with dollars; therefore we’re paying with our data. And like any transaction it’s optional. But you know what they; You can check out any time you like…

More on Dries Buytaert's proposed solutions to the walled garden vs. the open web can be found here.

Tuesday, February 2, 2016

Internet: Difference or Sameness Machine?

Sometimes it takes an economist to tell it like it is. Such was the case at a talk I recently attended. 

"The world is not getting more homogenous because of the Internet", said Rohinton Medhora, who specializes in monetary and trade policy and development economics.


So when Medhora continues and says more and more people are becoming less and less poor, even in the face of the rising inequality we all know is an economic reality, I’m inclined to believe him.


Now let's consider some statistics for benchmarking purposes:


20 years after the introduction of the consumer version of the Internet we’re not even at 50% global penetration; though we can see from the chart below that while it took 10 years to get to the first billion users, it took just 5 years to get to the second billion, and another 4 to get to the third billion.




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From the World  Bank there's further evidence that there’s a bottom billion that is disenfranchised when it comes to any form of Internet connectivity.



Click to enlarge

We also need to factor in the issue of the cost of Internet varying considerably from country to country, with connectivity being a luxury that is well out of reach for most. For example, in Cuba it costs $2 for an hour of Internet use, while the average salary is about $20 per month. In Africa Internet connectivity is about nine times the cost of North America, and wages are 10% or less than those in most countries in the West.

But there's also good news according to Medhora. In the last 20 years the global middle class has doubled, the middle class being defined for these purposes as those with anywhere between $1 and $100 per day to spend. He further points out that the growth in this segment has led to a related adoption of Western values and consumer habits, and is happy to point out that globalization does not necessarily equal homogenization.


"It is not the McDonaldization of the world, but an explosion of diversity, with the connectedness availed to us by always-on devices allowing us to explore this diversity in depth, to connect with others who share those interests, and for transactions to take place instantly, regardless of geographical location", said Medhora.

And this is where the words of sociologist Raymond Williams are particularly resonant with regard to the effect of the Internet on culture. There are mass media but there are no mass peoplesaid Williams in the 1950s. This was a shortcoming in the age of broadcast, when programming and advertising campaigns had to necessarily be targeted to the large demographic in the middle of any chart, because costs of production, distribution, and promotion were high, and costs of mistakes even higher.

Even though connectivity is imperfectly distributed, the agora, or public space for discussion and argument, now extends to billions around the world. Twitter fights with strangers thousands of miles away are now a staple of modern life, often before one's first cup of coffee.

“Villages are not made to be singular and harmonious”, said Medhora, referencing the global village. It's reassuring to have data that suggest that thanks to Internet technologies we can have an increasingly interconnected global village of a world, without having an increasingly homogenous world of globalization. 

Wednesday, January 27, 2016

McLuhan in an age of Social Media: Tweets from a book salon I could not attend

Quick post tonight, as tomorrow is a teaching day. Consequently, I had to miss an event I wanted to attend: a book salon about the relevance of the work of Marshall McLuhan in the age of social media, featuring media studies scholar Paul Levinson of Fordham University, writer and educator Ira Naymanand museum planner Hugh Spencer


But media never sleeps. Not nowadays. And through the magic of the live tweeting of the event I was able to follow along at home. I now bring you some of the pithiest tweets of the evening, for your media theory consideration. 

Selfie sticks, overly Instagrammed food, streaming services -- How does the thinking of the man behind the medium is the message apply to these new forms and behaviours, if it in fact does? 

Feel free to assemble your version of answers to these questions from the tweets below.


#Socialmedia arose b/c #massmedia were not doing everything that #people wanted to do. @PaulLev #digital #tech #tools #cityasclassroom

Brevity is the soul of wit, and we do naturally #communicate in short bursts. @PaulLev #Twitter #newmedia #140characters #cityasclassroom


#Streaming is itself a new #medium which takes as its content the old media. @PaulLev  on #McLuhan #tetrad #newmedia #cityasclassroom


@PaulLev reminds us that #MarshallMcLuhan suggests old media become the content of new media #selfies #photography

Hugh Spencer: Cable TV drama is the new #museum. Binge TV watching, the new vacation. #narrativespace #digitalspace #cityasclassroom

Hugh Spencer: #Museums are an example of #cultural orientation. #cityasclassroom #navigating #identity #community #digitalspaces

Hugh Spencer: #Museums trade in #meaning. They tell us what has #value, or what's worth looking at. #curation #cityasclassroom #Toronto


#Selfie stick & #privacy: w/ so many selfies and information, how do we find each other? - Ira Nayman #cityasclassroom #hidinginplainsight

The #immediacy of new #media & #Internet allows academics to comment on #trends while they're still trends - Ira Nayman #cityasclassroom

Ira Nayman: It takes people who abstain from #tech to be able to really #see what is being #created w/ #digital practices . #cityasclassroom

Related Post: When media is everywhere, where are we?