I was invited to a new event run by the Guardian yesterday, Activate09 (see the program here). It was probably the best conference I've been to in the UK to date* - TED quality with a bit more of a British "not being quite so serious about it all" air. I have made notes, but to be honest others have done a great job of covering it live (check the Twitterstream) and have already blogged copious notes, so I'm going to talk about my highlights, and specifically 9 Key Activations - things that I intend to look into in more detail:

1. Kate Lockhart - How can ICT help Failed States?

Kate was part of team sent to establish order from chaos after the Taliban was ousted from Afghanistan. It was interesting from a Collapsonomics point of view in that they found the UN, World Bank etc had no models with which to start building a state from nothing. Not only that, it seems these organisations are a bit corrupted internally - for examples with mobile phone access the UN tried to sell Ericcson, their "partner". They also found many circular problems eg security needs taxes, which needs security. Sadly, in the end warlords/criminals took over as foreign aid donors wouldn't pay for commercial infrastructure, security, and higher education to prime many of these circular pumps.

She noted that there are about 40 - 100 failed states globally, depending on your definition of "failed" and they have written a book on fixing failed states.

Can technology be used? Most failed states are offline and off-grid - what do you use ICT for? The highest impact is in:

- Market pricing
- telemedicine
- education

And how do we ensure they don't make our mistakes - she hypothesized a blend of design & market forces, and transparent accountabilty. Put budgets online!

2. Arianna Huffington - Digital Media is the only way to expose vested interests.

Arianna (of the Huffington Post) wondered how to clean up vested interests across globe and how does Tech help? Shinig light in dark places is the answer. The Sunlight Foundation was mentioned, putting government data online - but noted that data is not enough, you need to get the User Interface s right to get great data dusplay and get viral analysis tools up (she mentioned an example where a video pans around a room at a hearing and identifies each lobbyist and how much they have paid)

She feel that New Media has major role in fixing society, - eg the banks still in control despite the bailout owing to lobbying. Also she noted that "under the radar" smear campaigns get blanked on the net - Obama would not be president without the Internet for this reason, she argued. She felt new media was better able to deal with fixing the corruption of the b=vested interests as mainstream media suffer from ADD, whereas online media suffer from obsessive compulsive disorder and will carry on picking at the sores long after the mainstream have moved on. (I'm not sure - the mainstream blogosphere seems very similar to mainstream media to me).

3. Nick Bostrom - Existential risks, or how many ways Homo Sapiens can top itself.

Lest we forget, the Dinosaurs had one! Also, 75000 years ago the Toba eruption left c500 reproducing women from whom we all descend, and other homo.x's became extinct. When he looks at great human calamities (wars, massacres etc) - none are very big in scheme of things. We need a cocktail of stuff to finish us off, or a bloody great meteorite.

He then looked at the "what you have to believe" in 3 scenarios of the future Human Condition:

- Only way is up- a posthuman condition, and The Singularity?
- Disaster - we collapse and die or go back to earlier phase
- Cyclical pattern of ups and downs - but its hard to get this right without one downcycle knocking us off

No real conclusions except that you have to believe some hard stuff for the negative conditions to kill us - after all, we only need 500 wombs with a view to survival. Good news, I think....

4. Steve Papa (Endeca) - the Internet as a means of production in the hands of many and its impact of civilisation.

But he noted it could go to the fewer as vested interests will try and nudge it this way. Some points:

- Attention is scarce, (typically consumed by trivia) in abundant information worlds
- Economies of scale are different in Info Age – scale only really helps marketing and selling
- Absolute Power corrupts (Great men are nearly always bad men) - Unscrupulous pursuit of wealth eg TARP lobbying using taxpayer money to screw taxpayers, Google requires you to pay not to show competitors.

As he noted, in the First Industrial Revolution actually power/wealth got sucked up to top, US had to bust them all up in the early 1900’s. The Question for today is: Where is the Adam Smith & Teddy Roosevelt for the 21st century?


5. Matt Locke - Ch4 - - Coping with "Peak Attention"

Quoted Matt Webb saying in 2008 that we’ve hit “peak attention” – now need coping strategies. The Web is experienced as streams of content managed through a few key portals (Google, Facebook etc) – key is increasingly to get attention, which is the limited resource.

He also looked at teens organising campaigns for good eg vs knife/gun culture – “Swords into ploughshares” – “Knife into key”. Claimed that get more value outside what you control, and that "data becomes stories" (cf back to Huffington's Viral Data" - but how do you measure all this?

6. Umair Haque - Zombienomics and what ICT 2.0 can do

Umair talked about why this crash is different and why what comes next will be different too. Whats different? Everything is hyper-connected, new economics apply. (The historians among you may know that the pre-WW1 world was more connected trade-wise than at anytime until the 1980's again, so it may be deja vu......)

We are currently seeing the end of the Zombieconomy – can’t innovate or create value – its flatlined – dominated by the focus of its resources on producing cr*p (eg 6 bladed razor rather than 5). His view is that “(Linear) Strategy is Obsolete” – 20th century capitalism is not fit for 21st century world. On verge of shifting to new form of capitalism.

What wasn't clear to me (and I spoke to Umair afterwards) is how this all gets shifted given the compelling evidence that the vested interests keep their hands on the levers without fairly robust effort (Roosevelt or Lenin)

7. Tom Steinberg, “this new media revolution is not the revolution you’re looking for”

Practical thoughts - noted the difference between real and digital protestors:

"do you know the difference between the fall of the berlin wall and the twitter revolution in iran? The wall fell."

Very pertinent after the whole "turn your avatar green" thing on Twitter. Weak tell or what.

Also made a call for action, Amazon didn’t change the publishing industry by wringing its hands and filling acres of newsprint about industry travails - It just starting doing things better.

So, what actions could nudge politics and society the right way?

- the next generation of public servants could refuse to comply with current norms and conventions.
- change in computing usage which makes it harder to keep secrets (somewaqg noted the best way to do that was to give all state servants USB sticks to leave on trains ).
- some sort of law that introduces new ways of distributing and allocating power under the radar - radical social media?

8. Sugata Mitra - things to do with a hole in the wall

Amazing talk - essentially put a hole in the wall, stick a computer in it, and let kids rip with it. Amazing results:

- kids don’t need to be taught how to use computers, or even the language: “you gave us a machine that worked in English, so we taught ourselves English”
- sharing a computer was more effective for learning than having one each, as it forced discussion and learning
- This was amazing - put DNA theory on a computer in English in Indian rural village - 2 onths later, Indian kids had gone a huge wat to understanding subject and language. Came about as kids competed for status of knowing the most.

If thats what you can do with one hole in the wall......

9. Bradley Horowitz and the Darwinian Internet

Two key points:

- There is no master plan for the internet. It’s made up of billions of contributions, evolves more like an ant colony than anything else (Is Eugene Marais' "The Soul of the White Ant thus the best Internet book?)
* Ideas (or ‘memes’) are being selected for in natural selection, and great number of web 2.0 startups have not survived. Darwin did not say the fittest survived, he said the most adaptable survive.

We need to keep this in mind - start-ups are a primordial soup from which successful companies evolve. How do we enrich the soup?

Well done the Guardian team......looking forward to Activate10

*Update - MediaFutures, which I attended 2 days later, was pretty damn good too - and I spoke at that one so it must've been good too

Went to see Wired Editor Chris Anderson talking about his new book, Free, at the RSA earlier this week (slides above, ht Made by Many who also covered event). What a difference a year makes. This time last year I was railing against the original Freeconomic vision that Chris Anderson originally had (see here for The Economists' debunking). A year later, and the vision has been pegged back somewhat. The title has been shortened to "Free", the Ad and VC funded binge that Freeconomics was based on has been replaced. At the RSA we were treated to the full history and detailed exploration of various permutations of giving away something to catch a bigger prize - permutations of the "Razr and Blade" (give away device, sell consumables) and "Freemium" (Free for the bulk and Premium for a few).

All in all a very nice time was had by all galloping through the Economics 101 of Indirect Payment, until the questions. There were some other bits in the book, assertions which had been glossed over inm the presentation - such as the assertion about Free, that:

"It's the animal force of economics. The internet is the most competitive market we have ever seen and costs are nearly zero. The law of physics means that if you do not make your product free, gravity will do it for you."

First off was the little matter of "Near free" not quite being the same as "free", and even a small number (say price per digital video copy) multiplied by a very large number (like number of YouTube downloads) still equals a stonking loss if you aren't making any money. Now ordinarily this doesn't matter in the selling of a New Thing, because it only gets pointed out by economists, mathematicans and irritating small-cap bloggers.

Unfortunately, this time it had been pointed out, in public, by an equal but opposite Guru, Malcom Gladwell, who had noted that "Free" drives a huge demand, and:

When you let people upload and download as many videos as they want, lots of them will take you up on the offer. That’s the magic of Free psychology: an estimated seventy-five billion videos will be served up by YouTube this year. Although the magic of Free technology means that the cost of serving up each video is “close enough to free to round down,” “close enough to free” multiplied by seventy-five billion is still a very large number.

And he went on to note that, via example, the bit that is going free is not the only cost in the supply chain that needs paying for - using the example of the falling cost of biotech, he notes that its not just the drug design thats in the supply chain:

... he’s forgotten about the plants and the power lines. The expensive part of making drugs has never been what happens in the laboratory. It’s what happens after the laboratory, like the clinical testing, which can take years and cost hundreds of millions of dollars.

Ditto the internets - at the moment those costs are being resolved by letting us pirate content (IP law hasn't kept up) and buy our bandwidth and devices (DSL, iPhone = Not Free).

Mr Anderson chose to ignore this question, and dissembled magnificently (and unhelpfully). However, the next question unsportingly came at it again from a different angle. Someone pointed out that the cost of any good is set by 3 inputs - time, resource input and quality. If resource input was minimal, what about time (oh, instant), and quality.

"Quality is a very semantic thing" said Mr Anderson, and off he went again in another flight of fancy, but we got the message. Caveat Emptor.

At this point may I just point out a very old law of economics, which I think should be called "The Freemium Law" as it addresses this issue very well. In essence it says:

"If you ain't paying for it, you ain't the customer"

The Customer is the one who pays the bills. So you are not Google's customer - the Ad Industry is the Customer. And you are the user, so your role is to get used. To adapt the old poker adage, if there is a free lunch and you can't see anyone else at the table who is paying, you're the lunch. This typically takes the form (in digital media) of extracting your future net present value in 3 ways:

- Advertising
- Datamining your clickstream for better advertising or on-sale
- Getting you to contribute content for free that is then sold on - or sold out (Bebo et al)

This is all covered in Freeconomics Parts 1, 2 and 3 - start here for the full essays or here for the slideshow, but we didn't cover Freemium in any great depth.

Freemium simply means that a small % of users pay a price for a premium service so that the rest are subsidised to go free. At its simplest it means in any Freemium service, you have to ensure that those paying get their moneys worth and the Free users get what you can afford from the fees you collect. Other revenue streams such as advertising, datamining etc can then be added to the mix.

The challenge of Freemium is this: typically only a small % of users will pay - say 10% (its typically less than this) - and they have to pay the costs of all the free users. Clearly the lower the marginal cost and the cheaper it is to serve extra users (ie the higher the fixed over the variable cost ratio is, and the lower all costs are) the better. But there is also the dreaded supply/demand curve effect - push the premium price up, and the volume prepared to pay goes down - and finding the optimum price that premium people will pay AND that will pay for the free users costs is a non trivial exercise.

Simple maths says that its best to have many premium users paying a small % fee, but as premium penetration is usually a small % of all users, a low premium fee means that in effect not a lot of free stuff can be given away - but raising the price usually reduces penetration (its trying to balance 2 different siding scales where each impacts the other, ie its a dynamic system).

Here's the kicker. In essence the removal of the "Ad funded" model, and the melting away of VC money, has now left the Freemium model to carry the banner as default Business Model for all these Web 2.0 companies still standing and many a startup. And, just as we showed Advertising wasn't a big enough bucket to fund everything, it is unlikely freemium will work in all cases either.

Those services that work best are those that gain incremental benefit from having extra free users on board, as they get a network effect of increasing returns at a faster rate than the linear increase of costs (dotcom era chatroom and dating sites essentially let paying customers peek at more of the data on other user's profiles and activity). As long as they can monetise this extra benefit at a higher rate than it costs, they are fine (which is why revealing user data is so appealing - its near-free to provide and has voyeuristic value-add. (This may well explain Facebook's recent activity on privacy restructuring, it potentially allows premium peek-usage services as well as data on-sale)

That is Freemium in a nutshell. Anyway, on with the show.

There was then a question about the boundaries of the Free system - if everything depended on free content to copy, and no one was paying for using anything, how ya gonna pay the mortgage?

It was at this point that Mr Anderson revealed the Deus Ex Machina of this Freecosystem, the thing that actually keeps the wheels turning in this economic perpetual motion machine. "Thats for the Day Job"

The Day Job! Of course! Yes, the Day Job is what earns the Real Money. You then use your Free Time to make Free Stuff to sell on the Free World. But if your Day Job is making stuff that people that people are making for free, then what?

There followed another meandering ramble up to the heights of cloud computing and the depths of the Open C community, but the upshot is this - the Silicon Valley Model (of which Wired is the Bible and its Editor the Prophet) wants free content to run on its Big Aggregators, get a Free Ride on the (evil, not Net Neutral Yah Boo) Telcos/ISPs and come painlessly onto your (Another SV Company - Yay!) groovy Gadgets. If you are so churlish as to suggest your creative content should be worth something, well you aren't with The Program.

(Did anyone note Umair Haque's post pointing out that Michael Jackson, over his entire lifetime, earned far less than the CEO of even a moderate Hedge Fund socks away in a year, or a YouTube founder in one sale? And imagine how much money poor old MJ would make if he started today)

Anyway, there endeth the lesson. You are welcome to create your user generated content, and even Freemium services - but keep the Day Job, eh .

Update - the FT doesn't think its much cop either.

For any company tempted to spend money on buying Twitter followers like this below (from the BBC):

Australian social media marketing company uSocial is offering a paid service that finds followers for users of the micro-blogging service.

Followers are available in blocks starting at $87 (£53) for 1,000. The biggest block uSocial is selling is 100,000 people.

USocial said businesses and individuals were queuing up to use its follower finding service. Leon Hill, chief executive of uSocial, said the company finds potential followers by searching Twitter and working out what individual users are interested in. It also profiles where people are so it can more closely match users with those they might want to follow.

USocial then sends messages to potential followers telling them about the new Twitter user they might want to follow.

"It's up to the user to follow them or not," said Mr Hill. He added that uSocial continues to look for followers until the specified number had signed up.

USocial has about 150 customers that had bought followers and had another 80-90 campaigns about to roll out.

But how will it work?

Anyone trying to do that to me, I'm going to block them as spam, as I suspect so will many others - maybe not the first time, but certainly the 3rd or 4th. And unless they have some kind of special deal with Twitter, that behaviour will get them removed in short order, or having to continually spam from new addresses, which - again, unless they have some kind of special deal with Twitter - will get them removed in short order.

In other words for this to work you have to believe there are a large number of followers out there (true) who will follow DesperateCo Nos 1(unlikely), No 2 (bollocks), No 3 (f*ck off) etc etc amd no one will complain, block, write filter scripts etc or just ignore.

Not to mention the cringeing bad publicity it will bring in this unfamiliar Habitat ( Second Life Second time round anyone? )

Clearly this scheme could only have been invented by those who know how much we love telephone spam, internet spam, popups etc etc - and bought by those who know how much companies who do this are loved. In non-connected media it maybe worked - its an externality cost on the 99.8% of the users to gain the 0.2% who sign up. On interconnected Social media it backfires very fast as everyone starts to talk about it etc etc, and works in concert to stop it.

Far, far easier to manufacture your own users and sell those to these desperate clients. Real Twitter users are left unmolested, DesperateCo thinks they are "on Twitter" but don't actually irritate any real users (thats good for them actually, no bad publicity!) and SocialCo laughs all way to bank.

Hmmm..I wonder how many of the new Twitter users we read about are actually machine generated for these services. Lessee, at £50 a thousand, assuming you want a c £5m pa turnover thats 100 million users I have to "invent" per annum.

(In other words, Twitter's entire 20m user base is worth a mere £1m a pop......assuming this is market pricing, that $500m price tag for Twitter is looking a tad hard to justify)

I will be giving an update at the Media Futures - Beyond Broadcast conference to the work we did last year for the Telco 2.0 Initiative on the Future of Online Video. Its been a fairly fascinating time, since we completed the report (which you can buy, over here ) the landscape has changed fairly radically - the pressure on YouTube to make money has intensified, and just this week Joost has come off the rails (which we predicted in the October talk, by the way).

Here is a precis of the report, it's the original talk I gave last October:



I will be talking specifically about the following areas tomorrow:

Updating the structure of the emerging market - it changes on a monthly basis, though (and I would say this of course) much of it is fairly predictable if you dig under the hype and look at the economics. It has also become far more rational now that "Ad-venture" capital (dumb money venture capital based on the belief that Video Advertising will be easy) has drained out the market.

The economics of the New Media, and comparing YouTube and Hulu. I will also go through the "what you have to believe" to believe either that YouTube is doomed (the Credit Suisse numbers) or is actually fine and dandy (YouTube proxy claims). We don't think its out the woods yet.....

Scenarios for the Future, especially the chaotic "Pirate World" that will emerge in the 2 to 5 year horizon, and strategies that traditional and new media need to look at adopting.

In addition (and by popular demand ) if time allows I will look at the media value chain as a general case and see what we can learn about the future of Newspapers*......trailing our next major report, of course

*In essence, the future of Journalism and the future of Newspapers, or Journalists, are not travelling in the same directions.

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.