Tuesday, February 17, 2004

Reed Hundt on Big Broadband

Reed Hundt, formerly head of the FCC, wrote a recent thing piece on the "inevitability of big broadband". As you might imagine, his speech lays out that it's far from inevitable -- unless the government does something Real Soon Now.

His argument seems to be for the creation of a single, highly regulated, universal high-speed fiber network across the USA, which would be able to pay for itself by charging regulated fees for voice ($40) internet ($25) etc. He views the parallel creation of multiple competing 'mini-broadband' networks by telcos and cable as a bad thing, and the attempt to support the old copper phone system and old universal access scheme as a bad thing.

Smells like Ma Broadband to me.

The piece is surprisingly short on "why to do it" beyond vague hand-waving about how the network will realize untold benefits. Has anyone actually figured out what to do with broadband networks?

One interesting tidbit is Hundt's summary list of all the old "vs." arguments of the past decade:

Since the beginning of convergence, dated from about 1992 (plus or minus a year), the battle to be the primary medium of at least the next decade - the one we are in now - has raged among various antipodal rivals: content vs. conduit, local vs. long distance, wireless vs. wire, data vs. voice also sort of known as packet vs. circuit, communications vs. computing, network vs. edge, and copper vs. HFC (also known as telco vs. cable). Other, possibly lesser dialectics include satellite vs. terrestrial and broadcast vs. cable. Convergence describes then a clash of networks, businesses, and even cultures.

Monday, February 16, 2004

Microsoft -- winner of the coming convergence collision and the next media empire?

William Safire, whose conservatism is on best behavior when he's focusing on the important issue of media consolidation, has just predicted that Microsoft will become one of the three biggest media companies in the world, acquiring ABC/Disney, NBC, or possibly even both.

Remember, Microsoft is sitting on a $49 billion cash reserve the last time that anyone checked.

Bob Cringely, who is entertaining even when he's not prescient, has an entertaining and possibly prescient claim that Microsoft is laser-focused on owning the next generation of converged computing/entertainment/communications through control of underlying protocols such as Windows Media Player 9. What Bob is probably missing here is that Bill Gates is as likely to fight the next war (media) as the last war (standards). Why worry about owning the standards when you can just own the media (or a large chunk of the media) itself?

Over in the communications side of the converging global future, AT&T Wireless is being sold to either Vodafone or Cingular; and win or lose, one of these two will almost certainly merge or acquire T-Mobil in the U.S. within the next 18-24 months. This will shake the U.S. cellular market (long overdue, pundits say) down to perhaps 3 1/2 companies by 2006 -- uber-dogs Verizon/Sprint (on compatible CDMA) and Vodafone/AT&T/T-Mobil or Cingular/AT&T/T-Mobil; and trailing lap-dog Nextel, plus one other component that somehow loses out of the great mating dance.

All of this is about the same thing -- convergence of communications, computing, and media/entertainment. The stakes are simply all the money in the world. Enjoy the show!

Tuesday, February 10, 2004

Barney Pell Responds on the Value of SNS

My unidentified uber-LinkedIn friend in the previous post is Barney Pell. I sent him a link to the piece, and he's responded thoughtfully and at length. I'll attempt to address some of his points in a forthcoming piece, but on others, he's probably got me pinned. Three cheers for network-mediated pruning of ideas!

Barney writes:

Initial vs intended use: it's definitely a good point.

To paraphrase: Initial use is just playing around, people won't pay for
it, and we have no evidence that people will pay for the intended use or
that the intended use will really deliver value for the users at all.


1. There is still value in giving something away for free until the
network effect kicks in and starts driving the intended value. That's
just basic business strategy in networked information goods. Of course
it is risky (napster) but there have been significant successes.

- paypal was free, and paid users to spread it virally, who did so
without much in the way of real transactions for quite a while (I'll bet
the # of paypal users was huge compared to the # of ebay buyers for
quite a while). Then it wound up becoming a money-generating machine.

- classmates.com and the dating sites (match.com) are money machines.
They all started out free until they built their network. It doesn't
take a huge imagination to see that the social networking sites
(friendster, tribe, orkut, etc) can compete in the dating game once they
hit sufficient scale.

- for that matter, napster might well have made money had it not been
for the lawsuits. I disagree that they failed to monetize completely.
It is quite possible that their time ran out before they managed to
monetize, in which case the lawsuits were a material cause of this
failure (not a red herring as you suggest).

2. That these SNS sites are growing so fast leads one to ask whether
there might in fact be true value even in the initial use (besides
entertainment from building a network). One such value is that of
"organizing and tracking" your friends. People change emails frequently
nowadays (esp personal ones, given spam problems and links to ISPs). If
we all sign up on a SNS, then so long as we update our contact info with
the SNS (which is a condition of use), then we'll be able to continue
to find each other independent of these address changes.

Related to this theme, I have found a recurring pattern on linkedin of
people wanting connections to people they already know but have lost
touch with. And I have been reunited with acquaintances. There really
is power in network connections. It's just like when you meet an old
friend and ask what happened to so and so, and hope that one of you is
still in touch or otherwise tracking the lost acquaintance.

3. If it isn't for the initial value (that of network building and
tracking), we need to ask what these users are expecting to get
eventually. The best time to build a network is when you don't need it.
You only change jobs or need to raise money once in a while, but when
that happens, you really need your network already built. So these
efforts can be viewed as a form of network insurance for future use.

The insurance analogy is actually quite interesting. The ratio of
insurance claimers to insurance payers is probably less than 1%, which
you found so damning with respect to linkedin... Yet people go right on
paying, and it certainly isn't done for mere entertainment value.
Initial costs with the expectation of ultimate benefits are actually
quite standard in traditional markets as well as online services...

And all that was generated at 2AM after a long day's work at NASA. Barney, you really have to start blogging!

Thursday, February 05, 2004

Does Clay Shirky's Howard Dean piece fundamentally question the value of social software?

My previous post discusses Clay Shirky's fantastic analysis of Howard Dean's Internet presence. I've been thinking about the larger implications of this analysis, and I'm beginning to wonder if Clay has actually suggested that many of today's "hot" SNS services are a tempest in a teapot, and that we're wildly over-reacting to them in just the way we did to Howard Dean's seemingly impressive early momentum.

The neatest trick of Clay's analysis is to flip our perceptions of several key Internet-related Dean events on their head:

Shirky quote: "We were right to be excited about this MeetUp, but wrong about the reason, because MeetUp was founded to lower the coordination costs of real world gatherings... Prior to MeetUp, getting 300 people to turn out would have meant a huge and latent population of Dean supporters, but because MeetUp makes it easier to gather the faithful, it confused us into thinking that we were seeing an increase in Dean support, rather than a decrease in the hassle of organizing groups."

Ethan's derived lesson: Old-world metrics (300 people at a political gathering) are not applicable to new-world-driven phenomena.

Shirky analysis: "Dean's campaign was never actually successful. It did many of the things successful campaigns do, of course -- got press and raised money and excited people and even got potential voters to aver to campaign workers and pollsters that they would vote for him when the time came. When the time came, however, they didn't. The campaign never succeeded at making Howard Dean the first choice of any group of voters he faced..."

Ethan's derived lesson: It is clear that key metrics (in this case, votes) are crucial in the old world or the new; but old relationships between different metrics (in this case, people at a political gathering --> translates to votes at the poll in some predictable ratio) are not applicable to new-world driven phenomena.

Now how does this apply to social software?

Well, I can't count the number of times I've heard that XYZ product is "the most successful product launch in history." This is always followed by a comparison of number of units of XYZ sold in some unit of time (months, years) as compared to past wild successess like the television, the telephone, the fax machine, the VCR, etc. For instance, here is a Y2K press release saying that the DVD is the most successful CE launch ever. A bit less impressively, RCA claimed similar historic status for the VideoDisc in 1981.

This old-world metric -- units sold in a given timespan -- is reasonably applicable when we consider one electronic device vs. another. While the number of underlying represented changes is large -- better retail distribution, better media publicity for a new product, more central role of media and electronics in consumer life -- we're still in apples:apples territory when we compare the DVD player, VCR, TV, and radio.

Not so SNS. This is for three distinct reasons:

1) Any free product cannot be compared to a product which is purchased.
2) Any ephemeral product (meaning, can be accessed through other than physical means) cannot be compared to a physical product.
3) Any product in which the initial use is different from the intended use cannot be compared to a single-value-proposition product.

Let's break these down.

First point: No consumer product organization in the world -- Proctor and Gamble, for instance -- would dream of conflating demand for a free, bundled, or drastically-price-reduced offering with the eventual market demand for that same product. And yet, the hype and excitement of new-to-the-world products or services, and investments on the back of those products or services, is often based on exactly such incomparable situations. Napster started out free, and stayed free -- and Napster and its investors (notably Hummer Winblad) never saw a dime for the costs they bore. The lawsuits were a sideshow -- Napster's failure to monetize was fatal.

Second point: We all talk about 'stickiness' and 'switching costs' but we forget that it's as easy to become unstuck as to stick, and as easy to switch away as to switch in. Ephemeral one-click-to-join products may attract many, many members or users quite quickly -- Friendster, LinkedIn, etc. being great examples -- but with joining costs near zero, can we really compare this to the consumer awareness and commitment indicated by, for instance, going out and purchasing a DVD player? Hardly. We in the pro-blogging, pro-SNS, pro-software-network-collective world are fond of arguing that there is inherent value in this easy-to-start-up nature -- which is a true statement. But we can't measure new-world services, with new-world joining costs, in old-world ways. This is the Dean mistake which Clay has so rightly pointed out. Clay's piece cautions us that while we can celebrate the ease of one-click joining and the reduction in transactional costs it represents, we must at the same time discount the perceived value of every one-click-casually-joining member. If we don't, we are guilty of having our conceptual cake and eating its hype, too -- and that is the road to red-faced failure in the unforgiving marketplace.

Third point, and to my mind this is the most worrisome: The initial use of SNS is nothing like the intended or expected eventual use, and the claimed value proposition. Every argument I have seen for SNS, and every funded business model with which I am familiar, suggests that people will use the improved informational flow of SNS to do things, and the desire of people to continue to use SNS to do things will be monetizable by the SNS owner. Contrast this with how we use SNS today? We 'use' (if the word 'use' is appropriate, which is highly debatable) SNS to play connect-the-dots with our friends and acquaintances. If you doubt me, empirically measure the amount of time you spend in connect-the-dots vs. the amount of time you spend searching, leveraging, and deriving value from your dot-connected network. As an associated analysis, think about how easily these services enable 'connect the dots' (which is in fact their barrier to entry, rather than their use case) and how easily they enable use of one's existing network. In nearly every case, I would argue that while it is fairly easy to join and connect-the-dots, few if any of the major services have figured out a compelling user experience for actually deriving value from their service. Initial joining-related activities are easy, and in fact a fun diversion -- which, while worth celebrating (turning one's barrier to entry into an engaging game is a Good Thing) strongly suggests that measuring the number of members in a SNS is completely meaningless; a far more 'vote' like metric is the number of people using the network for actual business of some sort.

These numbers are incredibly, embarassingly, surprisingly small.

I recently got a self-puffing email from LinkedIn. One of my very few contacts on LinkedIn happens to be one of the most-linked people on the entire service, so I have a disproportionately large 'network' for my level of participation. That email said, in part:

"Have you noticed how your network has grown? Since you last logged in [note that this was about one week prior to my receipt of this email], 33,300+ professionals have joined your network, and you now have access to 62,800+ contacts who are linked to you through your 7 existing connections... And every day, over 300 LinkedIn professionals request a referral from someone they know..."

That's a fascinating ratio. 33,000 new people in my network (which represents a large percentage of the LinkedIn network, due to my uber-connected acquaintance) as compared to 300 who daily request referrals. That 300, of course, are unlikely to be 100% successful, which means that actual connections made through those referrals will be an even smaller number.

That's an actual LinkedIn use rate of just 1%, and a presumed success rate of even less than 1% -- which is hardly a testament to the power and value of SNS. Most important is the demonstrable fact that on any given day, 99.5% or more of LinkedIn members are not using the service for its intended purpose, even if they are active as beavers building their social networks. I would bet you any amount of money you care to name that on any given day, and despite our constant carping at their limitations, 90+% of the users of Microsoft Office are using those applications for their core intended purpose, and deriving real value from that use.

This core use vs. initial use distinction also applies to other web-based services, and once again SNS comes out looking the poorer. Ephemeral access or not, Amazon.com could tell when it had a customer. That customer a) gave Amazon money on a given purchase in preference to all other retailers that the customer could have used (see first point); and b) in that initial use, used Amazon for its ultimate and intended purpose -- e-commerce -- in completing that transaction. From that single transaction, usage, and addition of a customer, Amazon knew that one person had understood and benefitted from its core value proposition. In the SNS world, Tribe, Spoke, LinkedIn, and their brethren have no similar assurance.

Clay’s outstanding analysis of Dean and the Internet points us toward this final, most worrisome point. Dean’s Internet supporters did a superb, net-enabled job of finding each other, communicating with each other, creating buzz, and even raising money — but they failed at achieving their core goal and metric, which was to get votes for Dean. If other social Internet phenomenona such as SNS are similarly inept at their intended purpose — be it finding dates, selling stuff, or whatever — they will similarly implode, because all the metrics we’re using to measure their success, such as new users and rate of uptake, are as irrelevant as were the Deaniacs and their ultimately ephemeral movement.
Clay Shirky on Howard Dean and the Internet

I am a regular and avid reader of Corante's Many 2 Many group blog; some of the best in the business, including Clay Shirky, Ross Mayfield, and Dave Weinberger are regular contributors.

Despite the very high level of ongoing content creation, Clay's recent piece on Howard Dean and the Internet stands head and shoulders above the rest. It is an absolutely brilliant piece, and contains key insight after key insight. Below are a few teaser excerpts; rest assured that despite the pithy bromidic nature of my quotations, Clay supports each of these in full and fascinating fashion:

"The press has a way of running fast epidemics, where an idea virus runs its course quickly, leaving everyone inoculated in its wake."

"The first time Dean appeared on our radar was when 300 people showed up for a Howard Dean MeetUp in New York City in early 2003...We were right to be excited about this MeetUp, but wrong about the reason, because MeetUp was founded to lower the coordination costs of real world gatherings... The size of the MeetUp in NYC was as much a testament to MeetUp as to Dean... it created a false sense of broad enthusiasm. Prior to MeetUp, getting 300 people to turn out would have meant a huge and latent population of Dean supporters, but because MeetUp makes it easier to gather the faithful, it confused us into thinking that we were seeing an increase in Dean support, rather than a decrease in the hassle of organizing groups."

"Margaret Mead once said “Never doubt that a small group of thoughtful, committed people can change the world. Indeed, it is the only thing that ever has.” Generations of zealots have tacked these words up on various walls, never noticing that the two systems that run the modern world – markets and democracies — are working right precisely when they defeat these attempted hijackings by small groups."

"Money does not in fact buy votes, as candidates like Michael Huffington and Ron Lauder have shown — you can be very rich and still very lose. In Dean’s case, though, the effect was compounded by two other effects from above. By moving campaign donations online, they made it much easier to donate, so much easier in fact that raising millions from individuals was never the sign of strength we thought it was. (Support isn’t votes.) Like MeetUp, a lot of what the campaign achieved was by lowering the threshold to contributing, which helped create a false sense of strength."

"Since the 1970’s, anyone who has looked at the cultural effects of the internet has picked the same key element: the victory of affinity over geography. The like-minded can now gather from all corners, and bask in the warmth of knowing you are not alone... Voting, though, is the victory of geography over affinity. Deaniacs in NYC could donate money and time, blogging like mad or tramping through the cold to talk to a handful of potential voters, but they couldn’t actually vote anywhere but NYC. Iowa was left up to the Iowans."

Absolutely brilliant stuff. There are more real insights in this single piece than a week of the New York Times' editorial page. I cannot recommend it highly enough.
Spybot Search & Destroy: Remove your spyware

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