Posts about innovation

Mapping new opportunities in technology and news

At CUNY’s Tow-Knight Center for Entrepreneurial Journalism, we believe technology provides many still-untapped opportunities for news. So we commissioned Dr. Nicholas Diakopoulos to research and map that territory. He came back with a very good and readable paper and with an exercise/game to help media folks find that opportunity. We’re offering that game to journalism schools and media companies.

Here is Andrew Phelps’ report on the research at Niemanlab. See my longer post about the effort here; see Nick’s paper here as PDF, here on Scribd.

Online News Association members: Nick and my CUNY colleague Jeremy Caplan have volunteered to run brainstorming sessions at this year’s conference. So please vote for their session here. We’ll bring lots of games to give to participants. You can also email us to ask for them here (but — as with anything free — supplies are limited!).

Says Phelps: “The paper is high-concept but short, and everyone who wants to reinvent journalism should read it…. Breaking down the problems makes solutions a lot more attainable.” That’s the idea.

When innovation yields efficiency

Much of the innovation we’ve seen lately hasn’t led to growth but instead to efficiency – that is, shrinkage.

I’ve been mulling over Mike Mandel’s cover story in last week’s BusinessWeek, in which he tried to puncture another bubble: the belief that we’ve had a rich decade of American innovation. He argues that there’s actually an “innovation shortfall” and he uses economic stagnation to plead his case. Now I’m not economist (that’s a straight line) and so I won’t argue about the impact of other events on growth – starting with the so-called financial crisis.

But as I thought through the major innovations of the last decade, many of them have not led to economic growth; they haven’t added money to the economy but left it in the economy. Thus measuring innovation’s impact in the revenue, growth, productivity, and market cap of large companies may not be valid. Instead, we are seeing innovation take money out of their pockets, leaving it with their customers. What they, in turn, do with that extra money and what impact it has on the economy is an entirely different question – and that impact is likely seen in any case not in large companies but in individual consumers and in small businesses. But I think the proper measure of the changes in the last decade is the innovation dividend. See:

* craigslist is blamed for destroying (that’s from the publishers’ perspective) $10 billion in classified ad value annually**, replacing it with its reported $100 million revenue. Newspapers act as if that was their money – as if they had a God-given right to it – but, of course, it wasn’t. When Craig Newmark spoke with my students at CUNY, and they asked him why he didn’t maximize revenue at craigslist and sell it for billions and then use that money for philanthropy, he told them that he thought he was doing more good for the country and the economy by leaving more money in the pockets of the people who were doing the transactions he now enabled. He cut out a gross inefficiency born of the monopoly that newspapers held over the means of production and distribution. If you try to measure his innovation’s impact on the economy with old methods and metrics – built on the assumptions of the old economy – you can’t see it. He didn’t make companies grow or become more productive. He added efficiency.

* Amazon, eBay, and the internet as a whole are blamed for destroying large swaths of the retail marketplace. But again, they brought efficiency in a number of ways: price transparency, which leads to lower prices for customers; critical-mass efficiency; the reduction of brick-and-mortar and staff costs; and I’d imagine a reduction in distribution and warehousing costs. The net result is fewer jobs, less rent, less waste (that is, books on shelves that get pulped; now they’re made just in time), and lower prices. Again, more money is left in the pockets of the transcators. The impact of innovation on retail is seen in shrinkage and efficiency, not growth.

* Google is blamed for destroying media but, of course, all it did was give advertisers a better deal. It dared to compete. Google did this not just by creating abundance rather than selling scarcity born of control of those means of production and distribution. This created a more efficient – read: less expensive – marketplace for advertising. More important, Google revolutionized advertising by selling performance, proving a return on investment. So the money that didn’t stay in the pockets of people buying and selling cars and homes, thanks to Craig, now stayed in the pockets of retailers and manufacturers thanks to Google. More efficiency. In What Would Google Do”, I argue:

We have shifted from an economy based on scarcity to one based on abundance. The control of products or distribution will no longer guarantee a premium and a profit. . . . We are entering a post-scarcity economy in which Google is teaching us to manage abundance, challenging the bedrock rule of economics, first written in 1767: the law of supply and demand.

Old rules and measures and analyses can’t track that.

* Web 2.0 is credited with making it much faster, easier, and far less expensive to start new companies. That is the other innovation dividend – the innovation that happens on the back of innovation. But this is happening, again, not at a large-company level but at a small-company level. Measuring spending on innovation, then, becomes another unreliable metric. The economics of innovation itself have changed.

The reliability of the standard metrics and analysis matters greatly because profound – and expensive – policy and economic decisions are being made on the basis of them and I’m not at all sure they’re valid anymore, or at least as valid. They miss too much of the change and impact and value and dynamics in this new economy. They lead us to bail out GM and Chrysler. One could argue, as George Will did in yesterday’s Washington Post, that that the bailout violates even old rules:

The administration’s deepening involvement in designing and marketing automobiles through two crippled companies ignores this truth: Capitalism is a profit-and-loss system, and the creative destruction it produces is supposed to clear away failures such as Chrysler, freeing capital for more productive uses.

But that capital, once freed, may not go to building huge new ventures. It may go to building small new ventures. It may stay in the pockets of people doing transactions and now instead of spending it on Toyotas, it may go to banks. You won’t see all the impact – except negatively – on the Dow Jones Average and the Fortune 500; those were the measures of the old economy. We need new measures.

** I had said craigslist and the internet replaced $100 billion in revenue in newspaper classified, which was an attempt to calculate over the life of the web, but that was difficult to calculate, so I changed the figure to $10 billion, the difference between classified revenue at its height in 2000 and in 2008.

Innovate

Newspaper Death Watch has a nice list of change and innovation in news last year. It’s there; you just have to look for it.

VC 2.0

Question for my book and for a conversation I’m going to have about it this week: How do you think venture capital could operate in more of a Googley/web 2.0/networked way? VCs like Fred Wilson have already made the industry far more open than it used to be with their blogs, which have also extended their networks. So what’s next? What are new ways you’d like to see to invest in and start companies? (As always, thanks!)

When innovators sell out

Great response by Umair Haque to Fred Wilson’s discussion about fixing the venture investment ecosystem.

Let’s revisit the spectre haunting venture capital. Why aren’t there more Googles?

The answer’s very simple. Because every company that had the potential to be economically revolutionary over the last five years sold out long before it ever had the chance to revolutionize anything economically.

Think about that for a second. Every single one: Myspace, Skype, Last.fm, del.icio.us, Right Media, the works. All sold out to behemoths who are destroying, with Kafkaesque precision, every ounce of radical innovation within them.

Let’s replay the Google story. Google, despite serious interest from Microsoft and Yahoo – what must have seemed like lucrative interest at the time – didn’t sell out. Google might simply have been nothing but Yahoo’s or MSN’s search box.

Why isn’t it? Because Google had a deeply felt sense of purpose: a conviction to change the world for the better. Because it did, it held on and revolutionized the advertising value chain – and, in turn, capital markets gave Google an exuberant welcome.

See the point? If all Larry, Sergey, and Google’s investors had wanted to do was to sell out fast to the highest bidder, they could have done so at any time. But they didn’t: they chose to revolutionize something that sucked – and so a tsunami of new value was unlocked. That’s how Google was made.

Now, I agree with Fred. Equity capital markets are myopic, beancounterly, and soulless. But it’s not venture’s job to fix those problems. The real problem is internal: structural inertia and risk-aversion. . . .

The dynamics of old boy’s clubs are almost deterministically predictable: they fight tooth and nail against risk, against the radical, against any kind of change to the status quo. They’re great at “monetization” – cutting deals – but the last thing old boy’s clubs are good at, unfortunately, is sticking up, come hell or high water, for innovation. From music, to publishing, to food, to autos, the outcome of locked-down boardrooms has been innovation stifled and suffocated. . . .

A new liquidity event

Fred Wilson has an important post today arguing that we need a new way to find liquidity in innovative startups. The IPO market is over. Big companies buying new companies usually just ruin them. Big companies buying big companies — MyMicroYaAOlSpace — only makes it worse. My response:

I think there’s a new opportunity to buy up good startups without even trying to integrate them: the unsynergy corp.

AOL has ruined everything from Netscape to Moviefone to ICQ to Mapquest to Tacoda Being bought by bigco is a disaster for an application’s users and fans; the only reason it is done is liquidity for the founders and investors.

If I were, say, Carlyle today, I’d raise a fund to buy up and manage — but not synergize — some of the best applications and startups out there. I’d give them decent management and shared services (a la a later stage Idealab, I suppose) but let them still operate independently and entrepreneurially. I also wouldn’t want to buy 100 percent of the equity; the founders should stay and have earnouts that motivate them to improve their products, give them the control necessary to do so, and still let them and their investors cash out.

What I’m really proposing, then, is networks over corporations. If small is the new big — but, as Mark Potts said at my conference, “If you want to be small, you probably have to be part of something big” — then we need a new definition of big with all the benefits and none of the stupid corporate ruination.

Deeper in the comments — and a very good discussion there — Subhankar Ray says this is what Berkshire Hathaway has done for years. Good point. We need the hip version. Commenter Ambrosini adds:

What Jeff describes does seem like the obvious next phase of tech “growth/later-stage” funds, especially as vc/pe firms are looking to more money to work. As Fred mentioned, it seemed this was where Velocity was headed (which didn’t really happen).

This strategy extends to many of the types of deals that are probably viewed as successful as well. At the time of its acquisition, Myspace HAD to get acquired by someone like News Corp. because the company and its backers–Redpoint–couldn’t fund its huge and growing cost structure. Was Myspace worth more than $150mm (remember it was Intermix that sold for $580mm…Myspace was just a piece of that overall deal)??? In hindsight it would obviously seem so, but without News Corp. coming in with its big balance sheet the cost of business would have killed growth and Myspace would not be Myspace as we know it today.

However, a Carlyle-funded late-stage Idealab would have been a great buyer/investor. Redpoint gets a good return on its earlier stage/higher risk investment, and Carlyle funds/grows Myspace into a fast growing, highly profitable business. The story would be the same for Youtube and many other top start-ups. . . .

New business models for news

No doubt to the frustration of my fellow organizers, I’m still thinking through the format and agenda for the New Business Models for News conference we’re holding at CUNY in May and want your advice.

I was influenced watching the Google team at Davos and by a session on innovation there: I saw that engineers don’t start with neat ideas. They start with problems and then seek solutions.

Too much of the discussion about the future of news has been focused on the blind hope for some neat solution: an iPod moment or a white knight or even, god help us, government support. And too much of the parallel discussion about media on the internet is about neat things.

Instead, I think we need to identify the problems and then have a rational search for solutions. So I’ve been focusing my thinking on expressing our problems — or call them our challenges and opportunities — as the agenda for the meeting. My thoughts:

* Efficiency: See the results of my back-of-the-envelope survey asking what should be cut from newspaper budgets. There is no shortage of suggestions. I think we need to have a hard-nosed discussion about the efficiencies that can be found in news. The negative way to say that is that we’re getting rid of commodified fat. The positive way to say that is that we must boil down what we do to its essence, its greatest value. And the internet gives us opportunities to be newly efficient — it is journalism’s internet dividend. So what can and should we do without? What do we absolutely need? How can we use technology to find efficiencies? What is the proper organization of a news company (see Dave Morgan’s proposal to split up newspapers)? What does efficient journalism look like?

* Networked content: It is a precept of mine, at least, that one way to expand journalism’s reach even as revenue and organizations shrink is to work collaboratively outside our organizations. That was the subject of our last conference on networked journalism. So let’s come up with real solutions using collaboration. Where could it help? With what kind of stories? What kinds of beats? What tools do we need? Training? What’s the business relationship?

* Networked advertising: I also believe that the key to making the networked architecture work is advertising to support and motivate new creators and to have control over their quality. We are beginning to see examples of this: blog ad networks from the Washington Post, the Guardian, Reuters, and Forbes; Reuters selling the Guardian’s international advertising (just announced); Glam.

* Innovation: We’re going to get nowhere if we don’t start inventing new products, networks, means of work, means of distribution, technologies, and business models for news. This is just not happening in the industry now, especially in the U.S. So how do we jumpstart it? I’ve been working on starting an incubator. At Davos, some innovators suggested to me that we should start an X prize contest to solve some of our problems, (e.g., an open-source ad network; geotagged news….). Do we need to start an investment fund across media companies? What should universities do?

* New revenue: There may not be any. It may all be advertising. And too often in this discussion, all hope is thrown into this bucket: There’ll be some new ad product or there’ll be some foundation that out of the goodness of its heart decides to feed a newsroom. Ask any foundation whether that’s likely. It’s not. But public support of journalism is one model: see NPR, Pro Publica, and the Center for Public Integrity. There may be new models for supporting high-quality journalism. (One idea I’ll write about soon is what I call reverse syndication: What if the LA Times pointed its traffic about Baghdad to the NY Times’ reporting and rather than the NYT charging the LAT, it pays for LAT for the traffic, which it monetizes to help support the bureau?) I’ve long thought that subscription models won’t work. Prove me wrong. Come up with other new models we should be testing.

How does that sound as the basis for discussion — and more than discussion: real plans?

Davos08: Collaborative innovation

In a session on collaborative innovation — a theme of this year’s Davos — Mark Parker of Nike tells the crowd that Nike plus — the gadget you put on your shoe to hook you into your iPod and the internet and a network of runners — has hit 40 million miles run so far. What’s coolest is that the system connects runners so they communicate and get together to organize races. The internet is all about making connections. Those who enable those connections win.

Later, Reuters’ Tom Glocer says the company has an internal innovation program that budgets money to ideas employees can submit in one page.