Sunday, September 27, 2009

Peabody, Jarvis, and the New Sacred Cows

Bo Peabody has a nice piece in the WaPo about the business models of Social Networks.

He's a bit more dour about their monetization schemes than I would venture, but generally is in the ballpark.
A visit from the pope may attract a large audience, but it's not a great place to make money. Likewise, social networks can successfully bring people together, but don't expect them to turn a profit
Peabody cites examples of the failure of both advertising models on social networks, and the inability of social networks to get subscribers to pay for their services. Peabody cites the experience of Tripod (a once moderately sized social network which Peabody created), and reveals that the ad revenue generated on the site was never a fraction of a percent of that which Google hauls in with targeted search ads.

This is not necessarily a failure of a social networking ad model, but a failure of the size and intelligence of the social network. I imagine that Facebook's targeted ads, based on the intelligence and the size of the network, can one day generate a decent amount of ad revenue. But neither Facebook nor Google, nor whatever comes next will generate ad revenue akin to what we were used to from the bloated an inefficient media channels of the 20th century. As long as distribution channels are relying on that outdated benchmark, they're going to be disappointed by the amount of revenue their ads generate. From my post on the idea of "Innovative Deflation":
We're told to believe in our future in a knowledge based economy, but nobody has really figured out how to make real money of it. Of those who are making money off of it (Craigslist, Google), they are making pennies per dollar in the old markets that they've upset or practically eliminated with their innovation. This isn't because we haven't found the right monetization scheme yet. It is because innovation is leading to efficiency and not growth and that is exerting deflationary pressure on bloated industries.
As far as getting paid subscribers to generate revenue for a social networking site, even the slightest barrier to entry can hinder the growth of any given social network, and this is a kiss of death in a highly competitive market. Price always trends towards the marginal cost, and for social network sites, the marginal cost is practically less than zero! The value of the system increases with each additional subscriber.

Now Peabody warns:
We need to learn from the first dot-com bust, when services that benefited society disappeared just because they didn't make money. Imagine a world without social networks, in which I could not use Facebook to share hundreds of pictures of my infant son with his grandparents and the citizens of Iran could not use Twitter to challenge their political system. If we focus simply on a profit-and-loss equation, there is a real chance we will eventually lose these invaluable services.
This is alarmist to the extreme. Venture capitalists *do* need to learn from the first dot-com bust that many things on the Internet provide value without providing profit. It's the nature of non-rival goods ("bits-not-atoms", Jeff Jarvis would say). If Facebook collapses under the weight of its own walled garden (*cough* *cough*... MySpace), something will pop up to replace it. It may be a knockoff site, it may be an open source platform, it may be nothing more than a set of APIs and open protocols, but the genie isn't getting stuffed back into the bottle any time soon. If social networking has taught us anything it's that people are motivated to create and share for reasons far beyond profit, and in a world of information abundance (as opposed to the material scarcity of the real world), they will do it for no charge.

This brings to mind Jeff Jarvis' recent SideWiki jihad. Jarvis thinks that Google SideWiki has centralized power, not distributed it. The fact is, SideWiki has moved power away from his site and out to the readers (who can use SideWiki to comment on his site, as well as grant or remove authority of SideWiki posts by voting them up or down--the classic crowdsourced form of editorializing known as a "reputation system"). He's on the receiving end of the same treatment he's been advocating against old media, and doesn't much like the perceived loss of control he had previously exercised over his site.

It feels like we're retracing our steps. The Internet has consistently produced results along the following lines:

1) It preys on the inefficiency of old media
2) It moves control, power, and authority to the end user/edge of the network
3) It promotes/enables collaboration at nearly no cost
4) It removes scarcity from the Supply-and-Demand equation where bits-not-atoms are concerned.
5) It allows the crowd to control your brand

That certain Internet tools are subject to the same combat in which they dispatched their 20th century counterparts shouldn't surprise them. It amazes me how quickly some people can free themselves of one outmoded mindset, adopt some new gewgaw as revolutionary, and then immediately fall back into protectionist mode of their *new* sacred cow. Both Peabody and Jarvis, even armed with powerful observations and keen insight into new media, seem to be flirting with this temptation.

Wednesday, September 23, 2009

Cautious Optimism about Google Sidewiki

I can see the potential benefits of using SideWiki. As Clay Shirky said, "Every webpage is a latent community".

As far as robbing bloggers of their comment space, Google Notes can do that. Facebook does that. FriendFeed does it, etc. It's not new, and I'm not sure that it's evil. Moving power to the edge isn't just about moving it to the authorspace, be it the New York Times, or BuzzMachine. In my case, it's about moving the power to me as a commenter. And I'm just as much on the edge as the Author.

If nobody whips up a integrated comment system for WordPress and Blogger that uses SideWiki as the engine, I'll be surprised.

A quick search through the API looks like there's no way to use the API to insert comments yet, which could be a roadblock. And the fact that comments are voted up instead of threaded pretty much kills it as a discussion space.

However, I'm cautiously excited about what this may evolve into.

in reference to: Google Sidewiki: Danger « BuzzMachine (view on Google Sidewiki)

Tuesday, September 22, 2009

Genachowski's Net Neutrality Policy

I was excited to get home and listen to Julian Genachowski's speech on the FCC's stance on Net Neutrality yesterday. If you haven't read it yet, you can find it here.

I was, and remain, cautiously optimistic about Genachowski's appointment, and President Obama's professed support of Net Neutrality. But as always, the Devil is in the details. Sadly, Genachowski's speech did little to share those details with us.

This seems to be Julian Sanchez's observation as well, though he's far more skeptical than I:
The digest version is that the open Internet is awesome (true!) and so the FCC is going to impose a “nondiscrimination” obligation on telecom providers—though Genachowski makes sure to stress this won’t be an obstacle to letting the copyright cops sniff through your packets for potentially “unauthorized” music, or otherwise interfere with “reasonable” network management practices.

If the FCC's stance amounts to protecting end-to-end best effort delivery of packets, then I can wholeheartedly support it. This is part of the underlying structure of how the Internet and TCP/IP was designed, and to quote Larry Lessig, "Code is Law". This is a more thorough description of the End-to-End principle I laid out on this blog some time ago:
When you request a webpage (be it from Google, or from my tiny website), the packets being delivered to your desktop are switched along all the intermediate pathways (by AT&T, Comcast, or whomever) *without being molested*. Every packet on the network, from end to end, queues up and shoots down the line at it's fastest possible speed. Comcast wants the right to hold up your packets in transit to make way for traffic they deem more important. This is a violation of Net Neutrality. When intermediate carriers and providers can decide what types of applications, or packets from certain sources, are given priority at the switch level, they can decide which sites perform better on your desktop. Not based on the bandwidth that you pay for...Not based on the bandwidth the website pays for... But on which content is in the *best interest of the ISP*.

I can understand the FCC's role in protecting against this, and we've already seen ISP's violate this principle in the name of "network management practices". This is a smokescreen. If an ISP can not deliver as advertised the connection speeds which it is selling, regardless of the nature or volume of the traffic generated by its own customers, then it is falsely advertising as service that it doesn't have the ability to sell. It's that simple.

Hopefully, this is the kind of violation that the FCC will focus on, but Genachowski's speech is vague enough that it doesn't fill me with much enthusiasm.

One part of the speech holds profound implications for cellphone service providers and the mobile internet:
New mobile and satellite broadband networks are getting faster every day, and extraordinary devices like smartphones and wireless data cards are making it easier to stay connected while on the go. And I note the beginnings of a trend towards openness among several participants in the mobile marketplace.

Even though each form of Internet access has unique technical characteristics, they are all are different roads to the same place. It is essential that the Internet itself remain open, however users reach it. The principles I’ve been speaking about apply to the Internet however accessed, and I will ask my fellow Commissioners to join me in confirming this.

This statement, combined with the FCC's recent probe into who rejected the Google Voice app on the iPhone, concerns me. It seems to state clearly that AT&T wouldn't be able to filter out Google Voice data from the network, but does it mean that Apple can't choose which apps run on the iPhone, something technically completely outside of network management practices? Time will tell, but if I was an iPhone lover (I'm not) I'd be worried that the FCC is messing with the curated experience that I have chosen Apple to provide for me.

Understandably, AT&T is less than thrilled with this, particularly after they dropped so much cash on an FCC auction for a portion of the airwaves specifically set aside to be run as AT&T sees fit (unlike the portion that Verizon bought, much credit due to Google, that demands end-to-end openness). More details on that story here.

One thing is certain, the FCC is making waves right now. I don't envy the service providers who must work with them, as building business plans on shifting sand is always a difficult thing. Hopefully, the FCC will develop concrete guidelines that can inform all the actors soon. The FCC's heart is is in the right place, and Genachowski is certainly smart enough about the technology not to make any boneheaded moves, but as always, it's the unintended consequences to be wary of.