Business Models

Paul Kedrosky and Fred Wilson have been in furious agreement - it seemed to me - about the restructuring of the VC industry. Last year they both opined that the VC industry was too big - Paul came at it from the angle of lousy returns over the decade implying that the industry was economically ineffective, Fred noted that the industry was chasing too few good deals with too much money.

Today the both wrote new posts on the topic (Paul's here and Fred's here)

Fred's worry is that silly money is coming back in:

My concern is that investing went up in the second half of the year to a $5bn/quarter rate, which is $20bn run rate, a bit above the number that I think is optimal for the industry's returns.

2010 will be an interesting year. If VC investments go back up to $25bn to $30bn per year, then the diet didn't stick and we are back to an overfunded industry that will produce subpar returns on average.

Paul's take is that VC may just be broken more than that now.

Finally, is it possible that venture is just so badly broken that we have no idea what the right amount of capital is? Yes, it is possible that we could see 10x as many startups and find that it is a distribution with many local maxima, some of which are much more attractive than the current level of investing. To be honest, I would love it if that were true, because it would be wonderful for the economy, and this assuredly isn't physics -- annual outlays is not fixed like Avogadro's constant. Good luck making that case, however, to burned limited partners who have just watched an expanded venture industry deliver the worst returns in its history.

Its at this point that people like me wot do strategy and game theory and system dynamics and all that stuff start to get interested in What Happens Next - what is the system dynamic of the VC industry? Instead of using my own brain I asked Google, and found the model I posted above (from a rather nice little paper by Carlos Yepez, Carlton University, Ottawa).

For those who are not familiar with system dynamics, the trick is to look at the model and find out where the postive and negative feedback loops are. When this model works well, these loops are all positive - Great Entrepreneurs give VC's great opportunities (right hand loop), which allows them to create great exits (bottom left) which then informs the market for investors (top left)

So, eyeballing this you can see the following is happening:

Firstly, if all systems are positive then the overall system grows - but at some point it hits a limit. I agree with Carlos that the limit is the appetite for great exits by the public markets. This has now dried up, so they are now looking at trade sales, which by and large have lower exit values. At this point Carlos's model shows the bubble starts to unravel. But it takes time because...

Secondly, the system is not self - regulating. Just because the Great Exit loop is stopping does not mean the Entrepreneur or Investor loops do - in fact I'd guess they are picking up old information about Great Exits so they are actually accelerating - more Greedy Investors and more Eager Entrepreneurs flock into the system. The VC matchmaking market expands on the money flooding in and then increasingly desperately has to find places for the money to go, so eventually has to start to fund the Entrepreneur Supply Market itself. Enter Incubators etc etc.

Thirdly, that increases the velocity of supply of Eager Entrepreneurs, but that means that the success ratio of Great Companies available falls, so you start seeing much more investment by the Didn't Get VCs in the Me-Too companies (aka the Dumb Money).

Fourthly, this Dumb Money phenomenon happens because at this point the lower values of (trade) exits means the VC's need higher volumes to keep net surplusses the same, but this is impossible so the VC's ROI drops. And the optimistic belief is that the next one just may be The Next Google. This is still not a problem so long as the Eager Investors think there is still a great return.

I think this is where we were in the cycle till about a year ago. Today, the Startup Promotion Engine is still in full gear (TechCrunch 50's and all the rest are GO!), but the public markets are by and large closed, and the trade market is slowing - even Google can't buy everything.

So the big question is what are the Investors doing now? Eager Investors are of course herd animals, so the last of the herd is still rushing in where the Angels are scared to tread. But at some point they must decide that this is not the best game in town and the herd reverses. If that happens then supply of money dries up and you get a bust - which is what Carlos' model shows happens (He assumes a 36 month lag before the light dawns, but Paul's data implies it may be far longer).
And as you may know, busts typically overcorrect themselves after bubbles.

So what happens next?

Firstly, I think Carlos's model of 36 months lag is too low for the Investor Herd - so the bust may take longer to materialise. There is the Great Recession factor, ie some Investors have reached their funding limits, but - in my humble opinion - this collapse will tail off slowly over a number of years and could be further ameliorated by schemes for governments to "cultivate innovation as a national priority", and tax breaks for funding startups etc etc. I expect to see lots of calls for all that over the next few years

Then, if you follow the model the VC industry shrinks, but the supply of Entrepreneurs doesn't immediately. Now, if the average funding per Entrepreneur goes down (and there are a lot of signs that they need less money, for software services anyway) so the No. of deals reduces by less - but as there is less surplus in the chain the VC's have to do simpler deals to make margin, and there is likely to be massive consolidation to get operating synergies. (There is an issue here about how good VC's are at picking winners - statistically its not great, so they have to keep on with wide portfolios - but you can expect less of the obvious lemons to be funded)

One option to mitigate this is for the VC industry to manage its own decline (which is why Paul floated the Cartel word methinks) but I think it will do so in a more Darwinian manner.

The other option is to exit 'Net Tech and find cycles where the ROI stays higher - hence the rush for the GreenTech/CleanTech bubble but this too will pop. (I see Vinod Khosla recently started to talk about agriculture - does he know merchant banks were buying Ukrainian farms just before The Crunch?).

But those options require big capital investments and people who are really good at getting things right, ie the weak VCs will die but the good ones will win, and the industry will rebuild. In about 10 years time.

And then the system dynamic predicts the next bubble

Extraordinary amount of economic rationality breaking out in January 2010 among the stories I see on Techmeme right now are:

The New York Times will charge for frequent usage:

Verizon cutting off service to multiple offenders:

Boxee making users pay for some of the content

YouTube starting to charge for some videos.

Hulu - moving to "Fee", not "Free"

Its not summer yet, but that's a lot of swallows. With respect to the End of FreeConomics, we hate to say we told you so, but...well, we told you so Till the next rush of dumb money hits the Tech market, of course....

We've said it over, and over .... again, even at Web 2.0 conferences and SXSW, and we've railed against others who say it is - but here are some other smart guys who note that Freemium is not a business model - the arguments are very well made in this paper> They are talking mainly about SaaS but it applies more generally - here are the key points:

• Freemium, while having both free and premium components, is most popular and well-known
for the free portion
• Free is not a Business or Revenue Model; money has to come from somewhere
• Free is not a revenue stream (obviously)
• Free is a tactic within an overall marketing strategy
• Free is a marketing tactic that can hurt a brand / market position if not handled carefully
• Free trials or “Try before you buy” are fine, and expected, but free in perpetuity, like
Freemium, has potentially negative consequences
• Many times "free" is a cop-out allowing a vendor to avoid asking for money or having to
“sell” ("we'll figure out how to monetize later...” or “we just need people in the system to bang
around; get them in and we’ll up-sell later” or “we’ll build the product, raise money, and then
hire a sales and marketing person”)
• Freemium is usually found in startups; rarely do existing companies wanting to bring a SaaS
product to market default to Freemium
• Free users should not be considered Customers since they do not pay

Or as we put it in this essay, in The Limits to Freeconomics Part IV, if you ain't paying, you ain't a customer!. It is fine as a way of getting going and making market inroad in the very early stages (a marketing tactic, as noted above), but its very risky to get hooked on it as a model.

Hat tip to ZDNet for the pointer and for bringing up the subject.

Yes, the one thing that we can absolutely predict in 2010 is that video resolution will be better . More bandwidth means better Web TV, higher resolution in game graphics, etc.

In addition there will be more features in the applications, more data richness being transferred as the average bandwidth goes up for Web Services.

Nowhere will the Web Services resolution be more interesting than for The Cloud. Is it real, or a flash in the pan? History implies that people wil be very reluctant to give up all control of their own platform and applications

We also expect to see the resolution of the Future of Mobile for the next (Smartphone) cycle. The iPhone started the next wave, Google is making the running, but the second shoe has not yet dropped. It remains to be seen what the Olde Industry will actually do (they have not been too impressive in response so far, but will have to sh*t or - eventually - go bust this year)

The other major resolution we expect is to see is that the Future of (non Video) media will become clearer as the Freeconomic funded new models flounder due to their own growth pressures, and the Old Models finally have to restructure as they are no longer propped up by past assets.

Nowhere will this be more interesting to see than if there is some clarity in Google's strategic direction. As others have pointed out, they seem to have put fingers in every pie, but its hard to work out why and where their true future direction lies - at present a lot of their activity seems to be more about spoiling tactics for other parts of the value chain by entering with (subsidised) free services.

One area we've been expecting to see more resolution on is the role of Privacy in Social Media, but each year it seems the grockles happily throw away their privacy for a few more thrown sheep, However, the last few months have seen quiet a large uptick in discussion about this area, almost at Beacon levels. Hopefully 2010 will see some resolutions in this space.

Anyway, with that its Happy New Year to all our Readers. I hope it is prosperous etc etc.

I loved this line, it came from Redmonk's James Governor who says he heard it from an old Journalist. The context was that we were discussing a post from Hugh McLeod from his "Evil Plans" thoughts, entitled "don’t worry if you don’t know “absolutely everything” before starting out". I had opined to James that the risk with such heady stuff is that it may entice people to leap before they look.

I agree that it is far better to act than to do nothing, as otherwise nothing will happen. But in order to maximise the probability of success, it is a very good idea to prepare yourself and scout the ground. I thus thought that there was an opportunity to add some "Cunning" planning to one's Evil Plan.

To explain, using the main points in Hugh's post

i. Being an Outsi­der with too much Insi­der Know­ledge, makes it even more likely that you’ll make the same mis­ta­kes as every­body else.

When Goo­gle– the most suc­cess­ful adver­ti­sing busi­ness in the his­tory of the world– star­ted their com­pany, the knew prac­ti­cally nothing about Madi­son Ave­nue...... Which helps explain why, when the nor­mal, mains­tream, industry-obsessed kids of around the same age were just lan­ding their first East Coast internships or junior exe­cu­tive posi­tions at adver­ti­sing blue-chips like McCann’s, Lin­tas, DDB or Saatchi’s, Ser­gey and Larry were already well on their way to beco­ming billionaires.

Not So Fast, says I at this point - What Google actually did was to copy (to the point of being taken to court and forced to pay a licence in perpetuity) Overture's technology, Overture being the company that initiated online placement advertising (it was eventually bought by Yahoo).

Lesson (i) of the Cunning Plan Addendum is therefore: Its actually not ok to have no Insider Knowledge, but better instead to stand on the shoulders of those who have gone before - or, in the words of the Great Lobachevsky, "Plagiarize, plagiarize, plagiarize - only please to call it Research".

ii. It’s pretty much impos­si­ble to know what the big, bad world is going to do next.

If it’s almost impos­si­ble for the smar­test peo­ple in Govern­ment, Wall Street and Sili­con Valley to pre­dict what hap­pens glo­bally, what chance does a guy wan­ting to open a small, highly-specialized, hand-built bicycle ope­ra­tion have, from his small sto­re­front in Brooklyn?

......

To get some very lucid, hard­core pers­pec­tive on this, I recom­mend that you read Nassim’s Taleb’s exce­llent and highly rea­da­ble “Foo­led By Ran­dom­ness” (W. W. Nor­ton & Co., 2001). Nassim’s the­sis is chil­dishly sim­ple: That the big­ger the his­to­ri­cal event, the more ran­dom and unpre­dic­ta­ble the event was to begin with. Nobody saw 9/11, Pearl Har­bor, the assas­si­na­tions of JFK, Lin­coln or Arch­duke Franz Fer­di­nand, the Ato­mic Bombs being drop­ped on Japan, the 1923 collapse of the Ger­man Deutch­mark, the Bar­ba­rians sac­king Rome in 410 A.D., The Bubo­nic Pla­gue of the 1300’s, or Hitler’s 1941 inva­sion of the Soviet Union coming down the pike.

Hugh makes a good point here, ie there is no sense in trying to worry about far larger problems in a small business. But if I may add to this, there is also a lot of point in worrying about which way the wind is blowing, the current is flowing, the tide is turning etc - swimming against the flow is a lot harder than swimming with it. Also, while I am a fan of Taleb's book, I think that its incorrect to claim that all such big events are unpredictable. Of the above, I would argue that quite a few were being predicted at the time by people who knew the actual situation. This is where James' comment came in:

Paradigm shifts are for people too stupid to spot trends

So Lesson (ii) in the Cunning Plan Addendum is to make sure you understand the direction of the tides that surround the ship your dream is on, and to understand what the really smart people in the space are thinking. Some people are likely to be seeing the trends, its a question of finding them. In fact, I rather thought Hugh's approach was quite good illustrating for this:

So I just put the idea out there on my blog to see if any fish would bite. And they did. A lot of them even liked the idea enough to put up money in advance, before I had spent a sin­gle penny.

That's pretty cunning preparation - see if the kite flies first!

iii. Inte­res­ting des­ti­nies rarely come from just rea­ding the ins­truc­tion manual.

Yes, Louis Pas­teur did say, “For­tune favors the pre­pa­red.” On one level, he was right. That being said, the stuff you learn befo­rehand will never be one-tenth as use­ful as the stuff you learn the hard way, on the job. All the for­mer can do is help train you to deal with the rea­lity of the lat­ter. The real truth is always found in the moment, never in the future. Sadly, not every­body is cut out for thri­ving in the pre­sent tense. Life is unfair.

Which is true, experience is a great teacher - there are quite a few studies that show that a bad action is sometimes better than no action. Sadly, there are also examples that show a rash action is far worse than no action. For example, its a very unwise idea to go sailing around the world without learning how to swim and sail a boat first. You could do it without these skills and stay alive long enough to learn to be an old salt, but the probability of failure is far, far higher. And its probability of failure that the Cunning Planner is aiming to minimise. Let others do the headless chicken routine.

So Cunning Plan Addendum lesson (iii) is to do a bit of core preparation before leaving shore - if you can't swim or sail, get some lessons or hire an experienced crewman. In other words, what core skills do you need, and how can you get them?

iv. “Some­ti­mes Paranoia’s just having all the facts.” –William S. Burroughs.

(snip of businesses Hugh has been involved in)

Take it from me– if I had known ONE HALF about these busi­nes­ses that I know now, I doubt I would’ve bothe­red in the first place. Ins­tead, I would’ve just got­ten an MBA somewhere and lan­ded a mid-level posi­tion in a bank or a cor­po­ra­tion. Maybe joi­ned the local country club while I was at it. Or something. Lucky Me.

Which is true - unless entrepreneurs were extremely optimistic they would never do anything new - but some understanding of the founder's discount and calculation of the risk verses the reward is a very good idea for a Cunning Planner. Venture Capitalists always want to know the size of the market you are looking at, and its not an irrational view. There is also an old saw, that you get richer supplying to rich industries than poor ones.

So Cunning Plan lesson (iv) is to (as with robbing banks) go where the money is.

By the way, I agree totally with the heading of this post - Paradigm shifts are for people too stupid to spot trends - in that in much of the stuff we have looked at over the last 10 years or so since I've been doing projections of future trends, there are always signs that are there early, and it is nearly always possible to imagine the correct (enough) scenario albeit assigning probabilities early is very hard (it typically becomes clearer over time though). The really hard things are:

(i) predicting the when, not the what. There is a useful recent McKinsey paper in using game theory in scenario development that may be useful, I will comment on it in detail in a later post.

(ii) planning for very big, very low probability events (Taleb's "Black Swans"). Many are possible, but very, very improbable so in reality you just have to ignore them for all practical purposes or you'd either do nothing or spend a ludicrous amount mitigating very unlikely events.

Today was an interesting experience - the No. 1 son, a real* teenager, got a turntable (aka phonogram/record player) for Xmas and we duly cranked it up and listened to some vinyl records for the first time in about 20 years - among them Bo-Rhap (follow the link for music industry shortsightedness) from Queen's classic Night at the Opera album, shown above courtesy YouTube..

And the Christmas message from Queen and others is this - you can really hear the difference between digital and analog music, even on high sample rate digital tracks (and as for the low bit rate stuff that is streamed....). To be fair, Queen used higher production value than a lot of "pop" music does, but the difference in the same song between analog and digital is noticeable, the difference in effect between a finite and an infinite sampling rate.

So there it is - a fascinating counter-trend to the usual Teen Scene tales:

- The qualitative change from analog to digital has been a regressive step
- You can't reproduce analog music on digital online services (or you could, but the bandwidth required would be huge). It has to be bought as a physical good.
- Some New Teens are not just consuming more digital music, they are also driving a resurgence in anti-digital music - and the love of the physical media.

So here is a thought - there is a market emerging for quality analog music, driven by a youth market, and it cannot be disaggregated easily online (except for creating an efficient market in second hand records). A high- end in sight to digital disaggregation ?

(An afterthought - quite a few of those 70's albums have "home taping is killing music" printed on the dustcovers - some things never change... although, as one of the tracks on one of those old albums noted, they "aint seen nothing yet" )

* As opposed to "research" teens, the subject of multiple PhD's and papers, who often seem to bear little resemblance in many ways to the "real" teens I observe daily.

Amazon is rumoured to be looking at opening real bricks and mortar shops in the UK:

Property landlords said that the American company, which has a market value of $59.1 billion (£35.6 billion), had launched a secret search for bricks-and-mortar stores to support its rapidly growing website. It is understood to be scouring the country for high-profile sites just as the Borders book chain is shutting up shop.

Heck, if they'd been a bit quicker off the mark they could've bought Woolworths. Question is, why would an internet retailer, with all those lovely online economics, go for the cut throat world of high street retail, especially as the sector is having a tough time right now? Apparently:

Amazon wants to cash in on rising customer demand for click and collect services where shoppers buy online and then pick up their goods from a nearby store. Consumers who are fed up with waiting at home for deliveries are increasingly choosing to buy online and collecting goods at a time that suits them

.....

One source familiar with Amazon’s proposals said:"When Amazon was just selling books and CDs that fitted easily through the letterbox it was fine to be a web-only business, but now it has branched out into everything from children’s bikes to electricals it believes it could boost sales by having stores that offer a collection point for shoppers. It will probably be an Argos-style operation.”

I hate Argos's system! Besides, getting a whole bricks-and-mortar retail network is a heck of a price to pay when all you may need is someone who can run a decent delivery service to step in, or the Royal Mail to sort itself out from its civil war. Maybe they should get into distribution instead?

In the UK news today is the hullabaloo that RBS, a failed bank propped up by UK taxpayers money, wants to pay its bankers large market related bonuses to "retain the talent" (talent to do what, one may ask, given that the total value creation of the entire banking industry over the last 10 years is so massively negative that it nearly ruined the global financial system). If they do not get paid, the Board of Directors will resign ("Go on, make my day" is probably the average UK taxpayer's - and thus bank owner's - response). There has been a concerted behind the scenes PR campaign of breathtaking cheek to persuade newspapers to run items like "pay them even though it stinks", etc etc. That these bonuses are only possible because public money saved them and because they cey can only trade at current profits due to public money's de-risking effects seems to have eluded them.

Beyond this spat however is a far bigger issue, of which this is just another point of evidence - despite the bailouts of masses ($15 trillion and counting) of public money the banking leopard has clearly still not changed it spots ( like the French nobility of the 100 years war, the banks have learned nothing and forgotten nothing ), and now that it's risks are bailed out today, and in future will clearly be underpinned by public money, there is an extremely high probability that the banking system will hand over the same problem again in a few years, only far far bigger (due to said public money underpinning).

(I suppose it solves the Climate Change problem though - making every global citizen into the equivalent of medieval serfs and making them work unto the 5th generation to pay back the debt will sure reduce carbon emission )

So what to do to prevent incipient forelock tugging villeiny? Graeme Pieterz has written a fairly concise blog post on how to fix the Banking system (you may recall his excellent "how to fix the economy" post a few weeks back), and I quote it in part below:

Too big to fail is too big to exist

Big banks create too much systemic risk, and are far too much of a strain on government finances when they need to be bailed out. The British government is going the right way by breaking up big-banks that have been part-nationalised. Why not go further and prevent any bank of having too much market share in the first place? No bank would be allowed to take more than a set percentage of deposits within a country.

Given that most big banks have are formed through mergers it would not even need much legislative change to block this: a slight tightening of competition law or an extension of the bank regulator’s power would be enough. It would be better to break up all the existing big banks as well.

The main economies of scale that would be lost would be the need to maintain the over-lapping branch networks, but, given outcry that often greets the closure of bank branches, there are obviously many people who think there is a public benefit to maintaining the networks.

Let banks go bust, then nationalise the assets and deposits

The way in which the British authorities deal with Northern Rock left the shareholders with nothing. This is the best approach to bailouts as it avoids creating moral hazard.Shareholders will know what they will suffer as much of the consequences of bank failure as possible and will have a greater to restrain management who are taking excessive risks.

This should be accompanied by better corporate governance so that the management cannot take risk regardless of the shareholders. This requires the break up of big banks as the economic disruption caused by the failure of a big bank is not acceptable: RBS and Lloyds could not have been dealt with in the same [way] as Northern Rock.

Force banks to issue more bonds

It looks likely that the crisis is likely to lead to higher capital adequacy requirements, so banks will need more equity funding. Banks should also be required to issue more bonds, and it should be made absolutely clear that bond-holders will not benefit from any government bailouts.

The market price of the bonds will adjust to reflect the level of risk of default, providing a market driven measure of risk. A high yield on the bonds would be a clear signal that the market expects problems.

If the banks are required to fix maturity dates so that a fair amount of debt needs to be raised each year to replaced year year, excessive risk taking will be quickly translated into high interest paid, penalising it fairly quickly.

It will also provide another layer of capital to pay depositors out of.


Separate investment banks from commercial banks

This ought to be a no-brainer, but banks lobby furiously every time the idea is raised. It insulates the big deposit takers from the risks of investment banking. There is not real reason to allow the two types of bank to be combined [This was of course the basis of the US Glass Steagal act after the Great Depression, yet no one is trying seriously to do it today even though it kept the system roughly stable until it was repealed (by bthe anks' lobbying) in the 1990's - Ed]: its main advantage is that it allows investment banks to fund their risky activities with the cheap money available to a commercial bank.

The point of the separation is to prevent the government underwriting risky activities, the profits of which go to shareholders (and in bonuses!). This amounts to a governments subsidising investment banking.

What about bonuses?

Politicians are very fond of talking about taking action on the huge bonuses paid to bankers. They are not that effective at actually doing anything about it. The problem with direct government intervention is that is not obvious what the “correct” pay for bankers (or any one else) actually is.

I regard the high remuneration of bankers as a symptom, not a cause. Lack of control by shareholders, implicit government guarantees that under-write high risk businesses, and too many (profitable to investment banks) large takeovers and mergers (most of which ought to be blocked because they undermine competition) are the root causes.

Rather than capping bankers pay, we need to ask what has changed. Banking was not so spectacularly well paid a few decades ago [True - 20 years ago Management Consulting, Banking and senior positions in business were similarly paid] and if we look at the reasons for the changes we can make a more sensible assessment of which are bad.

.......

If you think that the pay is excessive, find where the market failure is and directly address that.

Keep it simple, stupid regulator

One of the big mistakes that contributed to the crisis was a regulatory change, and, as before the regulators are proposing changes that could make things worse.

The Basel 2 accord was intended to provide a more accurate measure of the risks that banks had taken. One of the problems with its predecessor was that there were ways in which banks could manipulate it: for example by doing more lending at the riskier end of each “risk bucket”. Part of the solution to the banks manipulating the system was to allow them to use their own internal risk models for regulatory purposes, giving them a lot more discretion. Could no one really see a problem with that at the time?

Basel 2 also relied on credit ratings: those ratings issued by agencies that were paid by the people they were rating?

........

Regulators are still not being very sensible about capital adequacy. One popular proposal is to weaken mark to market rules, so that banks balance sheets will not all weaken at once when markets fall. In other words, we will all feel more confident because we will not know how how much the banks had lost.

.........

Keep it simple (no complex risk models), use the market (which will only work if you avoid moral hazard), and rely on caution rather than perfect measurements.

And bring back Glass-Steagal!

Google blinked - they have changed the system so that content publishers will be able to limit the number of articles viewers can access pages free through Google - NMA:

Josh Cohen, senior business product manager, said that previously each click from a user “would be treated as free”, but the update restricts access to “no more than five pages per day without registering or subscribing”.

“We think this approach still protects the typical user from cloaking, while allowing publishers to focus on potential subscribers who are accessing a lot of their content on a regular basis,” he says.

Interesting times. One in the eye for all the Link Economy pundits who never thought that what Google would do was that

Last night there was a Debate at the House of Commons (In the Mother of All Parliaments) with the intriguing title:

"In digital, data is the only currency"

It was sponsored by the IAB, and proposing it were Matt Brittin MD of Google UK and Louise Ainsworth, MD of Neilsen EMEA, and opposing were Graeme Hale MD of Interbrand and Mark Cridge, MD of Glue. Chair Cheryl Gillan MP bigged them up enough to make a Zulu Imbongi blush - marvellous fun!

First Up - For - Matt Brittin

This was pretty much the GoogleLitany 2.0, everything data is for the best in this best of all worlds:

- Data helps people if it's easy to find, also finding people to talk to.
- Faster, more efficient businesses - and makes some businesses viable. Also allows testing of propositions
- Good for Democracy - (Morales Fark protests example)
- Data is Reithian Plus - entertains, educates and educates - and connects, contextualises and......controls (who said datamining?)?
- Web TV - People watching web tv are 1.5x more engaged than TV
- Kills the "hippo" - highest paid person opinion - noise that the old systems have

First Up - Against - Graeme Hale

Worries that in the real world we may have already lost the debate to Google, but let's look theoretically at what we are giving up. It was an amusing talk in the main, but the main themes were:

- The world is bigger than just data, tendency is to measure what is easily measurable - misses the point
- For lasting impact, progress needs to benefit people over all, not some people all over others
- Example Soviet society. - is it better now that communism is over - yes for some who are wealthy, but not not clear if true for the "Long Tail", How sustainable is this?
- c 2/3 of all net usage is for connection
- Data is not only form of currency

Second Up - For - Louise Ainsworth

This was a more nuanced view (in my view) than the Googleview, and dealt mainly with the issue that part of the resistance to data as a currency was the inability of the old order to make the necessary adjustments. She pointed out that the freeing up of data:

- Drives creativity and individualism...
- ...but puts pressure on high quality, objective work - what happens when all is left is twitter and the BBC
- Data as a currency is not yet properly valued - for example Digital media needs to be funded, needs data to drive the funding as no one will pay sans click - and yet we pay a lot for display ads in non digital media - need to bring that spend proportionately online
- People who now want "measures of emotional engagement" pushing metrics too far

Second Up - Against - Mark Cridge Glue

Mark got down to the guts of the Real Economics of the post-data digital age:

- Business is actually about generating attention - data is not enough
- The real fight is over emotion and ideas - data is used more to justify emotional decisions
- Thinking purely about data is like looking at marketing as purely direct marketing
- Not everything can be reduced to a transaction
- Data is infinitely makeable so not a scarcity based currency (ie can be inflated, suborned etc at will)
- Data is a commodity that measures the cost of everything but the value of nothing

The Peanut Gallery

And then on to the Questions - actually, this is where members of the audience can get up and make a 3 minute speech themselves. The room we were in had opposing Government and Opposition benches and those hanging microphones (as seen on TV) so your truly had to pop up and orate!

My point was basically that, if data were to be a digital currency, then it needs to be properly measured and mandated because right now theh "Data Banking" system was more like the Wild West. Another person later got up and made similar points, ie Data not ready to be a currency look at financial crisis parallel smart guys no control

Other discussions of note were:

Data as a currency has no gold standard:

- which data is the correct currency eg Nielsen vs Comscore traffic measures which differ
- Relative values of different data eg UGC vs Long Form Video on YouTube

The Google Party - twice when some particularly anti-data point was made a Google employee popped up with a counterpoint, such as:

- Real time data gives real time insight
- Data makes very accurate prediction. Tesco uses offline/ online model can predict sales to temp/season. Google could predict winner of Eurovision

The Google Opposition Alliance - rebutted the Googlepoints as they were made

- Real time data can give real time information but not insight
- Phileas Gage example - had a brain injury so couldn't connect the data processing and the feelings halves of brain - Phileas could calculate but couldn't make decisions as it wasn't linked

Debate ended about 33/67 against the motion, but I suspect the majority was heavily influenced by the view that data was the "only" currency was too strong. Hat tip to Abigail Harrison of TheBlueDoor for dragging me along (here's her post on impressions of the debate for more depth)

Addendum - I got quite interested in the concept of data as a "currency" after this, not just from my thoughts above re managing it as a currency, but the broader thought of what a "currency" is in the digital era. To my mind time (or attention, 2.0-speak) is the "Gold Standard" as that is the valuable asset that cannot be manufactured, and all currencies can be traded against time. Time of course shifts in value - For example, real time is sometimes very valuable, but it can be low value if it is just filling in time waiting for something else. No more deep thoughts at this stage apart from fundamentally disagreeing with a recent Web 2.0 Expo presentation in New York that argues that Web currencies are about the economics of abundance. This topic deserves fuller treatment later.