Posts from February 17, 2004

The coming information collapse?

The coming information collapse?
: Eli Noam, a Columbia professor, writes a most depressing piece for the Financial Times arguing that we’re headed to a market failure in the information economy — and, he says, that holds ominous implications for the economies of countries dependent upon the information economy (like Finland, with 35 percent of exports and 15 percent of GDP coming from one company, Nokia … or like America, eh?).

I’m not sure he’s right about this — I think, instead, that we are headed for a fundamental restructuring from hyperbig to hypersmall. But then I’m no economist, so let’s listen to him [via EditorsWeblog]:

…we need to recognise that the entire information sector – from music to newspapers to telecoms to internet to semiconductors and anything in-between – has become subject to a gigantic market failure in slow motion. A market failure exists when market prices cannot reach a self-sustaining equilibrium. The market failure of the entire information sector is one of the fundamental trends of our time, with far-reaching long-term effects, and it is happening right in front of our eyes.

The basic structural reason for this problem is that information products are characterised by high fixed costs and low marginal costs. They are expensive to produce but cheap to reproduce and distribute, and therefore exhibit strong economies of scale with incentives to an over-supply. Second, more information products are continuously being offered to users. And information products and services are becoming more “commodified”, open, and competitive.

The main result of these factors is that prices for content, network distribution and equipment are collapsing across a broad front. It seems to have become difficult to charge anything for information products and services. The music industry is unable to maintain prices. Online publishers cannot charge their readers, except for a few premium providers such as the FT. International phone call prices have dropped, and with internet telephony will move to near-zero. Web advertising prices have collapsed. Much of world and national news is provided for free. A lot of software is distributed or acquired gratis. Academic articles are being distributed online for free. TV and radio have always been free unless taxed. Even cable TV, at 20,000 programme hours a week, is available to viewers at a cost of a 1/10 of 1 cent per hour. Newspaper prices barely cover the physical cost of paper and delivery; the content is thrown in for free…

The reaction of information sector companies to the price declines is to cut costs, outsource, hedge, diversify and use new processes such as micropayments. They will try to innovate to differentiate their products. But there is a limit to the ability of individuals and organisations to absorb rapid change over a sustained period. Therefore, the main strategy will be to consolidate and cartelise in order to maintain pricing power. As a result, prices and profits rise (as well as media concentration), which will lead again to expansion, entry, and by the same economic logic, to a new price collapse, with a general downward trend in prices.

He’s right that consolidation is a market reaction to this trend (and that’s why government regulation of such consolidation fundamentally mucks with the market). We will see the big get bigger, like supernovas exploding.

But underneath them, we are seeing little guys grow on an entirely different scale.

And that’s where I think the professor is wrong: There is more demand for information and media than ever. The market is not collapsing. Yes, prices are. But so are costs. And so, some of this growing demand will be served in new ways. And the big guys will not be out of the picture.

: So, up from the bottom, there’s Nick Denton creating new media properties at next-to-no cost; he’s profitable already.

There’s somebody using Apple’s Garageband in a garage right now creating a future hit that (as some of us discussed at ETech) will surely be sold at Apple’s iTunes store.

There are local, even mom-and-pop retailers who are now serving the world at eBay.

There’s Vonage piggybacking on the high-bandwidth Internet to kill the gigantic telcos with VOIP.

There will be little guys selling bits of bandwith.

There will be creative people using new, easy, and cheap tools to create very credible TV products.

There will be marketing companies like BlogAds (and Technorati) using the explosion of citizens’ media to create whole new ways to reach and listen to the market.

But this is not mutually exclusive to the big guys. On the one hand, those big guys will find marketshare — not huge amounts, just irritating amounts at first — taken by these little gnats flying around their heads.

But the big guys will still control broadcast, cable access, theaters, retail, and other ways to get the benefits of volume. If they’re smart — and they are — they will benefit by finding new and far less expensive sources of content from all these new, little guys; they will take some of the successes of the little world and bring them to the big time. The big guys will also benefit from learning new, cheaper ways to produce what they produce (look at how FoxNews saves a fortune vs. the other news operations by just eliminating produced pieces).

No question that the information economy is undergoing fundamental change. It’s too soon to predict exactly what that change will bring. But it’s not too soon to try to figure it out and join in.

More than words, people

More than words, people
: G’bless Google for bringing advertising revenue — and, far more important, credibility — to weblogs and citizens’ media.

But Google is just the first step in the value chain.

For Google treats us as if we are just a collection of our words and it acts on the coincidences that occur in them: His page mentions “hosting,” so let’s put a hosting ad on it.

But we are more than coincidences and algorithms. We are people who expose our thoughts with our words and our relationshps with our links.

As Tim Oren said after ETech:

Links are not just citations. They are gestures in a social space, parts of conversations or other interactions. There’s an inherent value in looking at the dynamics of the record as it is created.

This inspired Dave Sifry, founder of Technorati>. Sifry said:

I’ve been giving a lot of thought to Tim Oren‘s succinct comments that links are a new kind of social gesture, too. I think that’s the most succint way of describing the phenomenon that we’re tracking at Technorati – behind every link, behind every post, behind every weblog is a person (sometimes more than one), and that person is making decisions on what to post and who to link to, and the linking process itself is not just a proxy for attention (as the Google guys understood) but it is a new form of social gesture – definitely something conversational, more public than email, more accountable than BBSes or Usenet News, more transparent than writing a letter to the editor. I’m still noodling over this, what the underlying metaphor is that we’re discussing…

Right. And there is a much deeper relationship to discover and forge here.

Henry Copeland’s BlogAds proves that. Look at this success story from a Congressional candidate who invested $2k in Blogads and made about $50k. That worked because it was more than a coincidence of words but was instead the building of a relationship.

That’s the next step in the value chain.

Now watch what Sifry invents next and there’ll be more steps beyond. Look at what he did with blog links to Amazon products and now imagine what a marketer could do with that: You want to predict the buzz and sales on a product, look at Sifry’s product cosmos page. You want to sell more books, track back to the blogs that link to these products and you’ll find the influencers who are talking about your products.

That’s another step.

And there are many more to come.

Dewey defeats Cingular

Dewey defeats Cingular
: The top of my NY Times front page says this morning, in that font that intones credibility, “VODAFONE IS SEEN AS FAVORED BUYER OF AT&T WIRELESS.”

Only problem is, I’d heard on the radio a few hours before that Vodafone, in fact, had dropped out and Cingular won the bidding.

Oops. Well, stuff happens, right? Well, yes, except I do wonder why an editor chose to put this speculative story on top of the front page. The answer, I think: show-off journalism. The NY Times wanted to be first with the news, even if it was wrong. In most journalistic quarters, that’s seen as a macho virtue — beat the other guy; you can always correct it tomorrow.

But in this age of instant news, I wonder whether that needs to be reexamined. For instant news, available everywhere anytime, also exposes your mistakes instantly. Is it a better service to readers to guess what’s going to happen or to let them come online and find out what really happens when it happens?

Or on the other hand, do you have to compete even more fiercely with the Drudges that will also report speculation and rumor?

e, the conference

e, the conference
: Kevin Werbach, who runs the Supernova conference, proposes expanding it to add on e, the conference, a gathering I proposed after ETech “devoted to the impact of Internet technology on our lives.” He suggests in the comments below:

What if we did it around Supernova? I understand the appeal of a stand-alone event, but it would be easier to piggyback (at least the first time out). Assuming the hotel space is still available those days, I can provide a venue at the Westin Santa Clara.

Jeff is right that there is four days worth of material to cover, but that’s a long time for a conference. I would propose doing it over two days either before or after Supernova (which is Thursday and Friday June 24-25). What say ye?

Well, I’d certainly vote for Tuesday and Wednesday over the weekend. And I wish it were in a more geographically accessible venue. Can such a conference — on the impact of citizens’ control on media, marketing, politics, the world, and education — be put together in such short order?

What say ye, e people?