broadstuff

It's been interesting watching the reaction to Malcolm Gladwell attacking Chris Anderson's book "Free" - including Mr Anderson's riposte here (though technically the book should be called "Freemium", as he's largely abandoned his Free hypotheses of this time last year).

Its interesting in that Gladwell is the first Superstar grade guru who has had a go at Anderson and thus gets widely reported - he's not saying anything new mind you, its just that the mainstream media doesn't pick up economists, bloggers or even journalists who know a bit about economics - people telling us we can't have it all for free, now, are soo dull, dahling.

Which brings me on to the big problem I see here. Lets be clear, Anderson is proposing the economic version of a perpetual motion machine, but thats not the point of this post - quacks, charlatans, snake oil salesmen and journalist-authors on the make have been with us a long, long time. ( I'll get to what's wrong his theory tomorrow, but in essence its impossible to have the All Free to All Men, All the Time case )

The interesting point is that it is far, far harder to rebut these sort of claims in the new media, especially if the claimants have access to a good channels of their own.

There was a rather fascinating article last week in the FT talking about the trend in New Media towards "Small example set Narrative" replacing "large sample set Fact Base" as the way of conducting and winning arguments. Talking about a lecture (Ironically by Malcolm Gladwell, but it is the same general picture):

But this wasn’t a book reading or a Q&A session of the kind authors traditionally submit to. Neither was it a slide show, as you might expect to find at a lecture. Instead, the author recounted a single vignette from the book – the tale of why a plane ended up crashing, from the perspective of the pilots and those in the control tower – and burnished it into a narrative with all the chill and pace of a traditional ghost story. Even the lighting was kept deliberately low to create the right atmosphere.

As the FT piece notes, this is a new trend:

I have seen a shift away from the traditional model of book readings and for-and-against Oxford Union-style debates and towards a showier kind of speaking event, in which bookish ideas and themes are lifted off the page and into the stuff of rhetoric and performance.

The reason?:

...in popular non-fiction genres such as business and technology, the economics of books are beginning to follow the economics of the music industry. We are familiar with the sad tales of record companies headed for disaster thanks to people accessing music free from the darker corners of the internet rather than paying for it. As a result, pop stars from Coldplay to Prince have embraced a new kind of business model, which relies on giving music away cheaply or free then looking to make more money out of live performances.

The talking tours of high-profile writers follow a similar logic. While book sales are not suffering at the hands of online piracy in the same way as music and films, they are falling.

I would argue that the ergonomics of online media vs paper is forcing a similar shift. It is far harder to read long essays with complex arguments online, so shorter "sketches" are better. And if they dispense with the "hard" and go for the "fun" then they capture that all important prize, Attention, far better.

Social Media exacerbates this - if a well known player and/or blog trumpets something, it resonates widely. As these blogs have no compunction at all to carry alternate viewpoints, the dissenting voices - if they are smaller players on the social network - hardly get heard at all. If, in addition, the "popular" players broadcasts "populist" stuff and the rebuttal is complex and dull, it has even less chance. Besides, you can always drown oit dissenters unless they are in huge quantities with your own astroturf crew.

For example, let's say the icon of your choice spouts pure (but entertaining) cr*p to their 50,000 followers (who then re-tweet like good little acolytes), and a few experts in the field with a few thousand followers each rebut it, the correct version will be buried in the deluge. Ignorance prevails.

And it gets worse - typically, those espousing the populist cr*p can get funding from commercial entities, those resisting struggle for resources, so the field is further unbalanced. I have watched the "Free" hypothesis trumpeted in media organ after media organ , typically via journalists whose grasp of economics (or even maths) is tenuous at best. Tonight, for example, I am going to listen to Mr Anderson talk at the Royal Society of Arts - not the London School of Economics

And as this episode proves, even if you can get a fairly well known person to rebut the claims in a fairly well known piece of media, the claimant instantly pops up again on their own channels. And, if you happen to own a nice big megaphone like Mr Anderson (who edits Wired) does, then whatever rebuttal does emerge can rapidly be countered and covered in snake oil.

The lesson for the future is obvious. The truth may out, but if its not populist it will need a frigging great megaphone to have a hope of being heard.

Right now, as far as I can see, in the New Media Age there is a big risk that the Age of Reason is slowly sinking, and we are entering the Age of Unreason, as the (largely unfunded) forces of Right drown in a sea of (largely commercially funded) snake oil.

(I forgot to mention - both Wired and teh New Yorker where Gladwell wrote are Conde Nast journals, and both Gladwell and Anderson have new books out. Perish the thought that this is all about making, um, Money )

Update - it would seem that Mr Godin has also popped up in defence. Now I think Mr Godin is a great marketeer, but he is a lousy mathematician. When he says "Free is a relatively cheap way to get attention (both at the start and then through viral techniques)" he is repeating the erroneous Free assumption that if you charge nothing the costs somehow go away too, which is what Gladwell was pointing out. A small cost multiplied many times is still a big number that someone has to pay.

The UK mobile market has been irrational - sorry, hypercompetitive - for years 4 major players each had about a fifth of the market and a plethora of others vying for the rest. It is, I hasten to add, the only market on the planet like this - all others resolve into 2 or 3 main players and a babble of noise at the edges. However, it looks like someone finally is going to fall off the leaky boat. Notes the FT:

Vodafone is considering an offer to buy T-Mobile UK in an audacious move that would have huge repercussions for the British mobile phone market.

The world’s largest mobile operator by revenue is looking at the case for acquiring T-Mobile UK, which has an estimated enterprise value of €3bn-€4bn ($4.2bn-$5.6bn) – even though any transaction runs the risk of being blocked by regulators.

.....

Currently, O2 , the largest UK mobile operator owned by Spain’s Telefónica, has a market share of about 27 per cent.

Vodafone has 25 per cent, France Telecom’s Orange 22 per cent, T-Mobile 15 per cent, and 3, the operator owned by Hutchison Whampoa, 8 per cent.

I doubt the regulators would block it, given the market would then look more like any others with a 40%, a 27% and a 22% player.

More to the point, though is what will Telefonica/O2 and France Telecom/Orange do, as this would give Voda a strategic lead and cement them into first place, usually the best place to be in long term, commoditised mature markets. Also, will this finally give 3 the chance to exit with a quick sale and some face, as they could be a nice little number up for auction?

As an aside, it always fascinates me that companies usually get rid of stuff they don't want at the crunch in a market rather than at its top (see Microsoft below). It was cleat T-Mobile was in trouble 3 years ago at least, but it would have fetched a better price then.....

Razorfish was one of those iconic dotcom names, post dotcrash it was absorbed by what became aQuantive and then Microsoft - but now Microsoft wants to sell it off, as the FT notes:

Microsoft acquired the agency, formerly called Avenue A Razorfish, as part of its $6bn takeover of aQuantive in 2007.

One analyst valued Razorfish at $600m-$700m, based on sales of about $400m last year and profit margins for similar businesses of 12-13 per cent.

The analyst said: “Much more than that would be overpaying”, adding that even in digital marketing, valuations had fallen since last year, when Advertising Age trade magazine reported a valuation of $800m

Issue is the fall in online Advertising revenue growth. Publicis is seen as one potential acquirer as its clearly looking at a roolup/consolidation play:

Maurice Lévy, Publicis chief executive, said funds from a refinancing this month could be used for acquisitions, particularly in digital and emerging markets, which are performing better than traditional advertising in the US and Europe.

If we assume 10 years cashflow at 13% margin and an average cost of capital of 10%, and that growth equals inflation, then $700m is about a 2x valuation of the free cash flow. I think that 2x will be a tough ask in the current market.

What therefore does it say about Microsoft, that they are looking to sell at such a poor time?

Judge Posner thinks that we can solve the economics of the media by banning linking:

Expanding copyright law to bar online access to copyrighted materials without the copyright holder's consent, or to bar linking to or paraphrasing copyrighted materials without the copyright holder's consent, might be necessary to keep free riding on content financed by online newspapers from so impairing the incentive to create costly news-gathering operations that news services like Reuters and the Associated Press would become the only professional, nongovernmental sources of news and opinion.

Hat tip Stowe Boyd for putting me onto this - he notes:

As Erick Schoenfeld points out, Posner never mentions freedom of speech, fair use, or the benefits of linking in the context of open social discourse. He -- as might be expected -- is taking a propertarian approach to this antilinking nonsense: in his mind he is saying, "The newspapers spend a lot of time and money building this content, and then a bunch of freeloaders come along and reference it, and then others don't have to visit the original news stories! How dare them! How can the newspapers survive if people start writing about what they have written?

Its worse than that - I've seen more than one newspaper journalist use stuff that I've written or twittered about, and I've used their stuff. The difference is I acknowledge them and link to it, and many of them don't. I have drawn this dynamic above.

One is a mark of respect and legal (I am allowed to take samples of others' work for comment), the other is a mark of disdain and possibly illegal, just bloody costly and probably impossible for me to enforce. Odd that the one that is legal and marking respect is the one that should be banned.

Update - really nice analysis by Josh Young using Game Theory and Coase's Laws:

First, big news companies might rejoice, but their joy would be short-lived. For soon, all across the interwebs, on smaller websites and services, announcements would begin to pop up. Sites like TechCrunch and Talking Points Memo, to name just a couple, would start screaming as loudly as they can, “Please! Link here. Have your discourse about my content if you can’t have it about theirs! We hereby offer blanket permission to link and to paraphrase to anyone and everyone.”

In other words, as George Frink wrote on twitter, the plan “would give enormous competitive advantage to sources granting blanket copyright permission & for all fair-use links.”

As Posner’s beloved Coase theorem holds, “bargaining will lead to an efficient outcome regardless of the initial allocation of property rights.” Now, there are important caveats like zero transactions costs, but again from wikipedia: “While the exact definition of the Coase theorem remains unsettled, there are two issues or claims within the theorem: the results will be efficient and the results in terms of resource allocation will be the same regardless of initial assignments of rights/liabilities.”

So then, of course, medium-sized sites would look in envy at smaller sites’ success. It wouldn’t be long before they too joined in on the fun, grabbing traffic that their bigger, perhaps more prestigious news companies formerly lapped up.

As he notes, free links are the Nash Equilibrium......

Piece in the WSJ points to research that claims insight comes from having time off to contemplate ones navel, and other non work related pursuits:

These sudden insights, they found, are the culmination of an intense and complex series of brain states that require more neural resources than methodical reasoning. People who solve problems through insight generate different patterns of brain waves than those who solve problems analytically. "Your brain is really working quite hard before this moment of insight," says psychologist Mark Wheeler at the University of Pittsburgh. "There is a lot going on behind the scenes."

At the University of London's Goldsmith College, researchers reported in the Journal of Cognitive Neuroscience that brain waves heralding an insight can be detected 8 seconds before we become conscious of it.

In fact, our brain may be most actively engaged when our mind is wandering and we've actually lost track of our thoughts, a new brain-scanning study suggests. "Solving a problem with insight is fundamentally different from solving a problem analytically," Dr. Kounios says. "There really are different brain mechanisms involved."

By most measures, we spend about a third of our time daydreaming, yet our brain is unusually active during these seemingly idle moments. Left to its own devices, our brain activates several areas associated with complex problem solving, which researchers had previously assumed were dormant during daydreams. Moreover, it appears to be the only time these areas work in unison.

"People assumed that when your mind wandered it was empty," says cognitive neuroscientist Kalina Christoff at the University of British Columbia in Vancouver, who reported the findings last month in the Proceedings of the National Academy of Sciences. As measured by brain activity, however, "mind wandering is a much more active state than we ever imagined, much more active than during reasoning with a complex problem."

Liked the bits that implied that insight is not the same as analytical thought, so "structured innovation" may be a bad idea - as the article noted, insight has come about in baths, showers, orchards, while staring at insects etc etc. This leads us to wonder whether there is a market for a program on paid "unstructured" innovation, involving "structured unstructured" activities, and "innovation via water" etc.

Anyway, gotta go - "Natural Creativity" starts in the apple orchard in 10 minutes....

Fascinating piece of research by Joseph Bonneau on the Economics of Privacy on Social Networks (blog here, report here). This piece about consumer social networks is fascinating:

The most interesting story we found though was how sites consistently hid any mention of privacy, until we visited the privacy policies where they provided paid privacy seals and strong reassurances about how important privacy is.

We developed a novel economic explanation for this: sites appear to craft two different messages for two different populations. Most users care about privacy about privacy but don’t think about it in day-to-day life. Sites take care to avoid mentioning privacy to them, because even mentioning privacy positively will cause them to be more cautious about sharing data. This phenomenon is known as “privacy salience” and it makes sites tread very carefully around privacy, because users must be comfortable sharing data for the site to be fun.

Instead of mentioning privacy, new users are shown a huge sample of other users posting fun pictures, which encourages them to share as well. For privacy fundamentalists who go looking for privacy by reading the privacy policy, though, it is important to drum up privacy re-assurance.

So - two markets. Over time the "privacy fundamentalists" force changes, but the new sites are a bit "Wild West":

The privacy fundamentalists of the world may be positively influencing privacy on major sites through their pressure. Indeed, the bigger, older, and more popular sites we studied had better privacy practices overall. But the desire to limit privacy salience is also a major problem because it prevents sites from providing clear information about their privacy practices. Most users therefore can’t tell what they’re getting in to, resulting in the predominance of poor-practices in this “privacy jungle.”

To which we would add, mosts of these sites are free, and you have to remember the difference between a user and a customer. A customer pays money, users get used.

We address a lot of these issues in the 3 papers we wrote on the "Limits to Freeconomics" but the essential lessons are these:

- There is no free lunch, so if you can't see it on a Social Network then its you
- Your data may be free, but its everywhere in change.
- Caveat Emptor, especially if its Gratis

QED.

Claims of the Collapse of the Internet owing to Michael Jackson's death were wildly exaggerated (see clamp-on fest here). Unlike his death, unfortunately. RIP, MJ. (Great Obit piece from Steve Lawson over here)

Yes, there were traffic peaks, but it got ridiculous....

Thursday night was the The Future of Connectivity, organised by the Club of Amsterdam at the RSA. It had:

Egbert-Jan Sol, CTO, TNO Science and Industry, mainly talking about the Internet of Things - Billions of people using 1000 Billion connected devices and bandwidth for free.

Peter Cochrane, Co-Founder, Cochrane Associates talking about Evolving Connectivity.

Hardy F. Schloer, Owner, Schloer Consulting Group talking about Human Connectivity at the Event Horizon of new AI Technologies.

It was moderated by the very moderate James Cridland, Head of Future Media & Technology, BBC Audio & Music Interactive. (Here's his blog post of the event)

Egbert-Jan Sol noted that we have moved from a world where 100 people worked on a mainframe computer around 1980 to one PC and one mobile per person around the year 2000, and we are approaching 100 computing devices working for one person by 2020.

His approach is what I'd call "rational futurology" - you can take the existing trends and project them out to make highly probable predictions. He spoke of 3 key laws:

- Moore's Law: The doubling of power for price very 2 or so years
- "Dollar a Day" bandwidth increase - consumer services are driven by "dollar a day" subscriptions but bandwidth doubles very 2 years or so.
- "Sol's Law" (Logarithmic decrease in volume of smart devices and increase in devices per person)

He also noted that the bottleneck in productivity in IT has moved from hardwars to software to comms to (today) services. He was mainly interested in the impact on traffic management, as the car moves from an automobile you control to an auto-mobile that controls itself - but the implications of computing power, size and price have many ramifications.

Next up was Peter Cochrane, whose main argument is that the world is now too complex for man to manage, and that mismanagement with 7 billion people and a massively interconnected global economy was far riskier than in say 1918, with 2 billion people and localised economies - looking at the mathematics of how pandemics spread, and the thin skein of services on which totally we rely today, he noted that the question for a 1918 style Spanish flu outbreak now is not "how many people can we save" but which people at the power companies, telcos etc do we have to keep alive to keep a far more serious set of problems from occurring.

Thus machines will have to come to our rescue if we hope to survive. His view was the management methods (and politics) as we know it is reaching the end of its useful like - as he noted, bankers and politicians:

"reached for simple solutions to complex problems - and they are all wrong, and lead to unwanted consequences"

He also noted that "Social" mediums were unlikely to work simply because the combined intelligence of people, even if you can get wisdom rather than madness, is not enough and the combined intelligence of machines will be required. The Social networks of people will be small beer compared to those of machines.

Internet of Things points he made were that its not so much the "smart dust" of sensors that will really impact us first, but all the sensors in our devices - PC's, Smartphones, cars - that will have the biggest impact first.

Last up was Hardy Schloer, who asked us to recall what Darwin had said about survival of the fittest - "fittest" was not the strongest or cleverest, but those that are the most adaptable. He also pointed out that in fact we have given over quite a lot of organisation of our lives to machines (eg complex trading, much of manufacturing) and that they are taking over our leisure time - After Big Blue beat Kasparov, the global interest and newspaper column inches given over to chess plummeted. He sees that this will happen in area after area.

We would be free to enjoy a life of leisure, wired up directly to devices that would fulfil all our fantasies.....

And yet, and yet...I recall all this being talked about 30 years ago when I were a spotty youth - in fact it was really brought home to me the next day at the Tuttle club where I met Maggie Philbin, who used to present Tomorrow's World - and launched the beginning of the Internet of Things when she demonstrated the first bar-code reader in 1983 (and who no doubt launched many a young man's interest in technology - see picture above, she is an the right ) and I'm pretty damn sure she used to talk about how all these machines would take over and we would live lives of leisure etc.

It didn't turn out that way, and it made me realise that Futurologists also have to look at the past to find out why predictions did not pan out as expected. As the philosopher Santayana pointed out, those who forget the past are doomed to repeat it.

Google are Vampires, notes an article in the WSJ:

In a keynote speech at the annual PricewaterhouseCoopers Entertainment and Media Outlook event Tuesday, Dow Jones Chief Executive Les Hinton raised the rhetoric a notch, calling the Internet search giant a vampire “sucking the blood” out of the newspaper business, and promised that new developments would level the playing field.

“There is a charitable view of the history of Google,” said Mr. Hinton, who is also publisher of The Wall Street Journal. “[It] didn’t actually begin life in a cave as a digital vampire per se. The charitable view of Google is that the news business itself fed Google’s taste for this kind of blood.”

By offering its content free on the Web, the newspaper industry “gave Google’s fangs a great place to bite,” he continued. “We will never know what might have happened had newspapers taken a different approach.”

While there is some truth in this, one must point out that these companies were paying massive salaries and bonuses to attract "the best" and buying the best Financial, Management Consultancy and Legal advice money can afford, so its not as if they did this in ignorance. In other words they have to an extent been architects of their own destruction.

(Though we would argue that using top blue chip "Mainstream" soothsayers won't give you good advice to deal with disruptive new players, as these people don't understand them - but we would say that )

The uncomfortable truth - blatantly obvious to anyone who understands the economic structures on new media - is that most Old Media is sitting on cost structures and working practices that the New Media can run rings around. If I may wax historical, this is not the first time a new, more efficient comms industry attacks an older one with new technology, and so the lessons are there to be learned - but the pain required to change is such that it is virtually impossible to contemplate internal reform, until eventually via bankruptcy they go to the knackers yard of history.

Now they can stave off the inevitable for a while by using incumbency power to change regulation etc - and I think they actually have a point re Google, in fact I think there is an anti Trust case to answer there - but these are short term fixes. If the economics are not on their side, they will eventually die. Its just that they die when the current crop of senior execs are retired, so this is just an "Apres Moi le Deluge" game that prevents the current CXO crop from facing the consequences of the actions of the last 10 years.

If they do not, reform to face the Vampires therefore, the risk they face themselves is that they become media Zombies - companies stumbling along, not really alive, but not quite dead yet.

(I will be talking about this in more detail at the Media Futures conference next Friday)