Why The Traditional News Media Is Becoming Less Relevant: They Didn't Adapt

from the must-read dept

Michael Skoler, over at Nieman Reports, has such an amazingly good essay on how the traditional news business lost its audience, I'm having trouble deciding which parts to quote. The whole thing is great, and is a must read. The basic thesis, though, is one you'll hear a lot around these parts. As the newspaper folks lash out at everyone, the real problem has been their own inability to adapt and change. They were built on a model where they were the sole place for a community to gather, but that community now has other options, and the news media has not kept up. Here's one snippet:

The truth is the Internet didn't steal the audience. We lost it. Today fewer people are systematically reading our papers and tuning into our news programs for a simple reason--many people don't feel we serve them anymore. We are, literally, out of touch.

Today, people expect to share information, not be fed it. They expect to be listened to when they have knowledge and raise questions. They want news that connects with their lives and interests. They want control over their information. And they want connection--they give their trust to those they engage with--people who talk with them, listen and maintain a relationship.

Trust is key. Many younger people don't look for news anymore because it comes to them. They simply assume their network of friends--those they trust--will tell them when something interesting or important happens and send them whatever their friends deem to be trustworthy sources, from articles, blogs, podcasts, Twitter feeds, or videos.

Mainstream media are low on the trust scale for many and have been slow to reach out in a genuine way to engage people. Many news organizations think interaction is giving people buttons to push on Web sites or creating a walled space where people can "comment" on the news or post their own "iReports."

People aren't fooled by false interaction if they see that news staff don't read the comments or citizen reports, respond and pursue the best ideas and knowledge of the audience to improve their own reporting. Journalists can't make reporting more relevant to the public until we stop assuming that we know what people want and start listening to the audience.

Again, don't just read this snippet, read the whole thing. It goes on to talk about how other community sites have built trust, and have done it by really involving the community and empowering them. Anyone in the news business who doesn't understand this shouldn't be working in the news business much longer.

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Bad Ideas: Trying To Build Patent Marketplaces

from the a-market-in-ideas-after-the-fact? dept

The NY Times has what feels like a warmed over press release talking up the rise of patent auctions and makes some very one-sided and weakly supported assertions that this is somehow good for the market of innovation. It's not. In any way. There have been a bunch of companies trying to "trade" in patents or patent auctions, and all they've done is help make innovation harder by separating the idea from the implementation, and encouraging more lawsuits or extortionary techniques. Patents are no longer being used for innovation or to distribute knowledge. They're used to create a tax on anyone who actually innovates, and comes up with the same concept that others have come up with. Amazingly, the NY Times notes none of this. Instead, it makes the following statement:

And patents, after all, are ideas. Any market mechanisms that speed up the process of figuring out what a patent is worth should hasten the flow of ideas into the economy, accelerating the pace of innovation, policy experts say.

That's wrong. Flat out, bizarrely, backwards and wrong. Ideas don't need a market. You want a market for scarce goods. You don't need a market for goods that are not scarce. This is fundamental stuff and has been obvious for ages. Hell, Thomas Jefferson famously noted that very issue ages ago:

If nature has made any one thing less susceptible than all others of exclusive property, it is the action of the thinking power called an idea, which an individual may exclusively possess as long as he keeps it to himself; but the moment it is divulged, it forces itself into the possession of every one, and the receiver cannot dispossess himself of it. Its peculiar character, too, is that no one possesses the less, because every other possesses the whole of it. He who receives an idea from me, receives instruction himself without lessening mine; as he who lights his taper at mine, receives light without darkening me. That ideas should freely spread from one to another over the globe, for the moral and mutual instruction of man, and improvement of his condition, seems to have been peculiarly and benevolently designed by nature, when she made them, like fire, expansible over all space, without lessening their density in any point, and like the air in which we breathe, move, and have our physical being, incapable of confinement or exclusive appropriation. Inventions then cannot, in nature, be a subject of property."

Markets are for property exchange and the more efficient allocation of property. Ideas are not property, and making a market for them and holding them back doesn't accelerate the pace of innovation, it retards it. Greatly. And, more and more studies have been showing this.

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SitePoint: Rather Than Freaking Out Over Piracy, We Decided To Adapt

from the good-for-them dept

AnonJr alerts us to the news that publisher/media firm SitePoint, has decided to do away with the passwords on the PDF versions of its books, noting that it seemed to only serve to piss off customers:

In the 18 months I have worked at SitePoint, barely a week has gone by where I have not received at least a couple of emails from customers questioning the logic behind our password protection policy. My response, based on the SitePoint philosophy, was always that we were taking an ethical (if largely symbolic) stance on the piracy issue. But how long could we maintain that line while simultaneously placing primacy on the customer experience, as all the while more and more requests to remove password protection poured in.

As a web development resource and learning centre, we know that we must embrace the state of flux -- not as a lofty ideal, but as a normative imperative. You can't claim to be all about the cutting edge when you're stubbornly clinging to old, outmoded processes -- especially when your own beloved customers are urging you to move on. And if we're not keeping pace with the constantly evolving face of web design and development, then we're neither a resource nor a learning centre -- we're a museum.

Kudos to another company recognizing that pissing off your best customers is hardly a way to run a business.

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James Boyle On: Strategies For The Digital Age: Beyond Mocking the Clueless

from the fun-though-it-is dept

With our CwF + RtB experiment in full swing, we've asked some of the participants involved to provide some guest posts. The post here is from James Boyle, whose book, The Public Domain is a part of our Techdirt Book Club (signed by Boyle). If you order both the Techdirt Book Club and the Techdirt Music Club before midnight PT, August 3rd, we'll throw in a free Techdirt hoodie, or a free lunch with Mike. We asked Boyle to give his thoughts on new media business models from his perspective, and he came back with this incredibly thought-provoking post that ought to create quite a bit of conversation:

The Associated Press recently released the details of their plan to develop a new metadata/Digital Rights Management format for news stories. (It wasn't described as DRM, but I agree with Techdirt that it certainly sounds that way.) Particularly ominous was this phrase "The system will register key identifying information about each piece of content that AP distributes as well as the terms of use of that content, and employ a built-in beacon to notify AP about how the content is used." (My italics) Even those without a strong dose of civil libertarian paranoia might bridle at the thought of having their practices of reading and sharing newspaper articles tracked by a central repository (other than Google, that is.) "He sure is reading a lot of articles about gay rights!" Pamela Samuelson calls DRM'd articles "texts that rat on you." Somehow it doesn't sound like a good slogan for a sales campaign. (AP says it has no interest in tracking on the individual user level.)

The response of the tech-savvy was, predictably, pretty savage. Techdirt ("it's difficult to think of anything quite this useless") at least offered some principles on which sustainable web businesses might be built. Others were not as kind. Someone even created an extremely profane and sometimes juvenile, but nevertheless quite funny anonymous graphical translation of the AP's diagram to explain the new plan. The criticisms of the plan (clueless graphics aside) centered around two tenets that are familiar to Techdirt readers.

1. an argument that DRM is a.) doomed to fail technologically and b.) has in fact already failed in social and economic practice. The general line here is that the arc of history bends towards technologies that are copy-friendly and anything that tries to turn that feature into a bug will soon fail if it hasn't already.
2. an assertion that "old media" (other names include "the clueless" "dinosaurs" "non digital natives" "the walking dead" etc.) are demonstrably incapable of understanding the potential upside of the sharing economy, or copy-friendly technologies, still less the business models that can be built on top of them. This tenet is so sweeping that it would be much harder to defend if history didn't give us such fabulous anecdata to back it up. My own favourite quote was about the technology that lowered the cost of copying in a prior technological era, "The VCR is to the movie industry what the Boston strangler is to the woman alone." That was Jack Valenti, the late head of the MPAA. Actually, unless the answer to that puzzle is "What is a savior?" Mr. Valenti would turn out to be wrong. Movie rentals to fill the -- cheap -- VCR's that the movie industry had failed to criminalize, tax or enjoin soon provided more that 50% of the industry's revenue.

Personally, I am at best agnostic about tenet #1. I am not a technological determinist. I think that DRM has failed spectacularly in some areas (root kits on CD's), provoked mild irritation and a pressure towards more open alternatives in others (the move towards selling open MP3's rather than protected streams or DRM'd iTunes tracks) and become standard (even if not loved) in others. Most of you are still being forced to watch the FBI warnings on your DVD's and fuss with region control. Sure you could get around it. But how many people bother to? Life is too short. I do think news is a particularly bad candidate for DRM or even "beacons," but that is a specific judgement not a general one.

On tenet #2, I think we are thinking too narrowly. Behavioral economists have identified specific deviations from economic rationality in human psychology-- we tend to value potential losses asymmetrically from potential gains, to use simple heuristics even when they are shown to be false and so on. In my new book, The Public Domain (freely available online, of course) I argue that we have a measurable cognitive bias against "openness" -- I call it cultural agoraphobia, and I argue that it impedes us in understanding the creative potential, productive processes and forms of social organization that the web makes possible. The source of that bias (by which I mean a demonstrated tendency to ignore certain kinds of possibilities in a way that the data does not support) probably lies in the fact that most of our experiences with property come from physical goods -- sandwiches that 1000 people cannot share, absent divine intervention, fields that might be overgrazed or underused if not subject to single entity control. Even digital natives still spend most of the hours of their day in a world in which goods are both "rival" and "excludable." Reflexes picked up in that world tend to lead us astray when we are dealing with the kind of property that lives on networks. "Like astronauts brought up in gravity, our reflexes are poorly suited for free fall." I would even argue that this cognitive bias, even more than industry capture of regulators, is one reason why our current intellectual property policy is so profoundly and utterly misguided. But its implications are wider still.

So far, this sounds similar to the standard technophilic critique of existing institutions -- albeit with a behavioral psychology chaser. But it isn't. Just because it's a bias doesn't mean it's always wrong. It may be that, even once one discards the bias, there may be no immediately obvious way of carrying important social functions into the world of the Net. I don't care where on the techno-optimist spectrum you are (It ranges from "get their eyeballs and their wallets will surely follow" to "the only alternative you seem to be proposing is Google ads, cover charges and lots of T-shirts.") Unless you believe that markets spontaneously self-correct for everything (hint, check your IRA balance before you answer this question) you have to acknowledge that the problem that the AP is responding to may be our problem (how to pay for the kind of expensive investigative journalism that is a real boon to democracy and liberty) as well as their problem (how not to die in the immediate future.)

Don't get me wrong. The world of the future will clearly have media that in some respects are far better than what we have today, even when measured against the most rigorous standards. I am pretty sure, in the world of 2020, pollution levels in Silicon Valley and school performance in Palo Alto will be covered with a wealth of data, expert systems, and interactive mapping in a way that would have seemed a dream in 1990. That will be true for most areas that have wealth, a wealth of data, and a highly educated citizenry with lots of personal liberty and strong personal and ethical reasons to be focused on a particular subject. It will be much less true for areas where those conditions do not hold true, particularly if you have a powerful in-group with strong reasons to want to keep the eyes of the world away. Twitter and the camera phone can do a lot. But they can provide neither the culture of professional journalism, nor the sustained effort and resources to develop a story over years. And there is an oft unnoticed corollary to the claim that the dinosaurs are clueless. It means they are unlikely to solve the problems themselves. Unless you think that markets and technologies spontaneously self-correct for everything, that leaves the rest of us.

In Robert Putnam's fascinating book Bowling Alone he describes the way in which the threads of civil society and of trust frayed during the 20th century -- and offered a convincing social science case that the implications were profoundly negative for our culture. But the book was not a depressive one. Putnam pointed back to the turn of the 20th century. Then, as now, people noticed their society changing around them -- industrialization, the acceleration of migration to cities, urban isolation. But Putnam points out that this prompted an extraordinary entrepreneurialism in civil society. Groups were founded that today seem quaint to us -- the Kiwanis. the Rotarians and so on -- all aimed specifically and solving this failure of civil society. The message was not, in other words, that these problems would self correct through markets and technology. It was that we would need an entrepreneurialism outside the market -- one that experimented with institutions and communities to solve the problems of the day. For me, a glance at AP's DRM business plan prompts the same thought. Some of the functions that newspapers now perform are going to be located elsewhere in society -- in universities, in foundations, in government, in blogs. Some of that will happen spontaneously -- but a lot of it will not unless we innovate in social organization the same way the citizens of the early 20th century did to meet the problems of urbanization.

I was lucky enough to be involved with Creative Commons from its inception and to help found Science Commons and ccLearn. Those organizations were designed to solve a particular problem for which there was a market and legal gap -- the problem of failed sharing. Jesse Dylan's brilliant video on the subject explains it better than I could. Are there equivalent institutional innovations that could help in the area of news gathering? I don't know. Journalism isn't my field. But without the kind of institutional innovation and experimentation in civil society that Creative Commons (or the Kiwani's) represented, I think that we are unlikely to solve its problems. Web 2.0 business methods alone, even with a Techdirt crystal ball, will not be enough. If I am right, mocking the clueless will be a poor consolation.

James Boyle is William Neal Reynolds Professor of Law at Duke and the author of The Public Domain: Enclosing the Commons of the Mind. He writes a regular column for the Financial Times and tweets sporadically as thepublicdomain.

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Indie Record Shops Learning To Adapt

from the it's-a-different-world dept

Over the past few years, we've talked about ways that musicians and record labels can (and have) adapted to the changing music marketplace, but the case of brick-and-mortar music retailers is an one. The big players: Tower, Wherehouse and Virgin Music have mostly all disappeared. Music sales in big box retailers (Wal-Mart, Best Buy, etc.) remain narrowly focused on top hits and don't get much shelf-space (Best Buy recently announced plans to cut music inventory by half). However, smaller, indie record shops have been learning to adapt. More than five years ago, we wrote about some indie shops recognizing that they needed to become more of a destination, rather than a "record store." And over the years, we've seen more and more and more stories of smaller record stores learning to adapt.

The latest, sent in by Dave W looks at a bunch of shops in the UK that appear to have realized that they need to completely change -- including one that's really focused on being a destination for people to hang out and buy coffee... while hearing music (often live music) and then selling only special physical goods: limited edition box sets and vinyl. And, apparently for some of these shops, business is better than before. Despite the disappearance of regular CD sales, they've more than made it up selling other music-related goods. It's about recognizing that people still do want physical goods, but they view it as a souvenir, to show support for the musicians, rather than buying "the music" itself. The music, to them, is free. But that doesn't mean they won't pay for goods of value. And retailers can absolutely support that new market as well.

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The Problems Of A Legacy Business: Verizon's Union Freaks Out That Verizon Wants To Look Forward

from the what-a-shame dept

It's really sad to see some of the struggles that legacy businesses go through in trying to adapt to a more modern world, but not all of it is the fault of those businesses themselves. Look, for example, at what's happening with Verizon. Subsidiary Verizon Wireless -- which is 55% owned by Verizon -- began a marketing campaign pushing people to ditch their landline phone and go completely wireless. That's not a bad marketing campaign (and, in fact, might be a very good marketing campaign these days). So what happens? The union that represents Verizon's landline telco workers flips out and accuses the company of trying to undermine the union by helping Verizon get out of the landline business, so it can get rid of those workers. Seriously. First of all, there's little evidence to suggest that's true. Like most traditional telcos, Verizon still sees its basic landline business as a useful cash cow that I'm sure it intends to milk for as long as possible. Chances are, since VZW is a separate company, the marketing plan had nothing to do with the parent's marketing efforts. But, either way, at some point the company should be pushing customers to ditch landlines and other older technologies and embrace better solutions. Not because it puts old union guys out of work, but because it's where the market is headed.

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Kodak Kills Off Kodachrome; Entertainment Industry Take Note

from the changing-with-the-times dept

Back in 1997, while I was in business school, I was working with a professor who was doing some consulting work for Kodak, and I ended up writing up an analysis and a report about what Kodak needed to do, facing the obvious coming onslaught of digital when its business had been based on analog photography for ages. We basically made the case for how Kodak could shift its focus to digital, and that it needed to get started right away. We actually got significant pushback on the analysis (not surprisingly), and it took a few years before Kodak woke up. But, around 2003, the company really started to bet everything on digital, and recognize that, as much of a cash cow as analog film represented, everything about the future was digital. So it's quite a milestone to hear that the company is finally killing off Kodachrome, the company's iconic color stock film.

The reports about it note how Kodak's business is now 70% digital and the company has very much embraced the digital age. It certainly hasn't been all smooth sailing, and some still question whether or not Kodak can really survive in this new world. Yet, the company has made the switch much more effectively than many imagined was possible, and folks there seem to live and breathe digital these days (though, there was heavy turnover associated with that change).

Still, as one reader sent in, it's rather interesting to compare the experience of Kodak with, say, the recording industry, which is still fighting the move to "digital" to some extent. The big record labels fought every new efficiency at every turn, while Kodak quickly learned to embrace digital efficiencies and look to see where its own core skills could be applied to make them better. The record labels? Not so much. After fighting the entire concept for ages, they just handed the business over to Steve Jobs and still have done very little to see what they can do to make the digital experience better, based on their own skills and knowledge. Just as the Kodak transition hasn't been perfect, if the labels had embraced digital and things like file sharing early on, they wouldn't have been perfect or easy either. But the labels would be in a lot better position than they are today.

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Video Game Companies Still Bitching About Used Game Sales

from the give-it-up dept

This has been discussed before, but apparently one of the big topics at E3 last week was video game publishers again being upset about the fact that they don't get a cut of used game sales. What they never seem to mention, however, is that there's simply no reason for them to get a cut of those sales. When you sell your house, do you get a cut of every sale after that? When you sell a book do you get a cut of every sale after that? Of course not. And for a very good reason. Studies have shown that an active used goods market increases the value of a product. This makes sense. If I know I can resell this widget for $10, I'm more willing to pay $20 for it in the first place. But rather than focus on ways to make it worthwhile for people to buy new video games, the execs want to sit around, complain and scheme for ways to wipe out the used video game market... or at least get a cut of any sale. Once again, we're seeing companies with a sense of entitlement to something they have no rights over.

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Finally, A MLB Team Gets A Deal For In-Market Online Streaming

from the water-stone-etc. dept

Major League Baseball has long contended that fans should watch games in the manner in which it chooses, rather than how the fans themselves want to. This is the thinking behind its local blackout policies, first intended to "protect" ticket sales by not allowing the TV broadcast of games that weren't sold out, and lately, intended to "protect" local TV broadcasts by making it impossible for fans to watch their local team online. It takes the blackouts so seriously that it's even patented a way to black out local users from online streams, an absurd show of pride in something that basically just frustrates fans and customers. But there may be some cracks appearing in the local online blackouts, as the New York Yankees, Cablevision and MLB have reached a deal for in-market streaming of games. At first glance, the negotiations sound pretty convoluted, especially considering the Yankees own a stake in YES, the local TV rightsholder. But not surprisingly, the result -- that people in the Yankees' local market can only buy the online subscription if they're Cablevision subscribers that get the YES network in their cable package -- seems like it's par for the course for MLB, which has a penchant for trying to lock down everything baseball-related online.

The amount of baseball that's broadcast on TV has boomed over the past couple of decades, having escaped the thinking that making the game harder for fans to follow on TV was somehow actually good for it. Now, the same thing is playing out online, where MLB seems hellbent on frustrating fans who want to see all of their teams' games online. What makes online different than TV, in that putting up these walls in front of the game's most dedicated fans is somehow a good thing?

Carlo Longino is an expert at the Insight Community. To get insight and analysis from Carlo Longino and other experts on challenges your company faces, click here.

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What If You Could Invest Directly In Shares Of Intellectual Property?

from the bad-bad-incentives dept

We're always interested in alternative proposals to the current mess with intellectual property, and Dr. James Lyons-Weiler, Director of the Bioinformatics Analysis Core at the University of Pittsburgh, recently asked for our thoughts on his proposal (for which he forgot to send us the link!) about creating an IP share market. The basic idea is that rather than just letting people invest in companies that own certain IP, you would create shares in the IP itself -- so you could buy a piece of a patent, and potentially receive dividends if the patent were licensed. The benefits that he notes are that companies would receive immediate revenue for certain patents, while also getting a clear sense of which patents the market thinks are most valuable. In fact, he notes that this could help organizations invest more wisely in R&D, getting a better sense of which concepts are most likely to be monetizable.

Lyons-Weiler has certainly put a lot of thought into this, and is clearly open to understanding what the downsides of such a proposal might be, so I'm hoping he doesn't mind my criticism of the idea. While the "pros" he list sound reasonably accurate, I would think that the cons greatly outweigh the pros. Most specifically, they focus the investment on the patent (i.e., the invention) rather than the actual innovation that is necessary to make it work in the market place. That's the distortionary effect of patents (putting too much emphasis on the invention over the innovation), and such a market would likely increase that. It overvalues the idea and undervalues the execution. On top of that it would damage one of the areas where many patent system supporters insist patents are most necessary: long-term investing in inventions. Such a market would undoubtedly favor ideas closer to monetization, but supposedly the reason for granting such long patent terms is to give inventors a longer time horizon in which to monetize. So, while it's nice to see new ideas suggested, I don't find this one particularly compelling.

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Just Because A Market Benefits From A Gov't Handout Doesn't Mean It's Good Overall

from the looking-at-the-bigger-picture dept

Arnold Kling rips apart a particularly silly New Yorker article by James Surowiecki which attempts (and fails) to show that libertarian economists are hypocrites. The basic reasoning from Surowiecki is that libertarian economists believe strongly in market forces -- but, at the same time, the stock market has reacted positively to news of a potential economic stimulus package. Thus, he concludes, libertarians should support the stimulus package (the market says so!) even if the concept of an economic stimulus package goes against libertarian ideals.

This is silly and wrong for a number of reasons, but it brings up a mistake that I've been seeing made around here all too frequently: the idea that if one market benefits from a certain government handout, then clearly "the market" has benefited overall. So, of course the stock market is looking forward to a government handout -- because those involved in the stock market will benefit from such a handout. However, that does not mean that it's really the best thing for the wider economy. Surowiecki's mistake is thinking that the stock market is a proxy for the overall economy. That's the sort of mistake made by someone totally unfamiliar with the stock market -- so it's a bit surprising to see Surowiecki make it.

As for the similar arguments I've been seeing around here, some of our more vociferous patent system defenders have been posting links to studies that have showed that certain industries have benefited from patent protection. Well, duh. But, of course, those industries don't represent the larger market. So, for example, there is some evidence out there that pharmaceutical companies have benefited from patent protection, but there's also even more evidence that doing so has come at a huge cost to actual healthcare, which has a huge multiplier effect on the economy (in a bad way). The fact that one single segment of an industry benefits from government handouts -- whether in the form of a stimulus package or a gov't granted monopoly -- is hardly proof that the wider market is aided by it. In fact, historical evidence suggests just the opposite. Investment is put towards these more inefficient (on purpose!) markets, rather than what would best serve the wider market.

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Time For Journalists To Take A Lesson From (Smart) Musicians

from the the-model-has-changed... dept

These days there are a few types of stories we see and write about consistently: (1) the legacy recording industry's troubles in adapting to a changing market, (2) the ability of a bunch of motivated, smart musicians, bucking the old way of doing things and finding tremendous success and (3) the legacy newspaper industry's troubles in adapting to a changing market. Given (1) and (2), you would think that (3) might lead to the obvious (4) of a bunch of motivated, smart journalists, bucking the old way of doing things and finding tremendous success. And, in fact, that is happening, particularly with upstart blogs, but it's not getting as much attention. Romenesko points us to what should be a must-read essay over at the Columbia Journalism Review, highlighting the fact that worried journalists should be studying up on the success stories of musicians who are succeeding even as the legacy recording industry struggles.

It makes a few key points (which I'm summarizing and paraphrasing in this list) that apply to both, but which don't always get as much attention in the journalism field:

• Give away as much content as possible to build a following
• Share, don't hoard
• Really engage and connect with your audience
• Be authentic
• Build your personal brand

Some journalists (and musicians!) will likely push back on some of these, but it seems pretty clear that the market is rewarding people who follow these steps, and punishing those who don't.

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EU Will Do More Harm Than Good In Banning The Incandescent Bulb

from the backwards-thinking dept

The EU has now followed the US and Australia in coming up with plans to ban incandescent lightbulbs in favor of more efficient bulbs, such as compact fluorescent bulbs or LED-based lighting. I understand why these bans are being put in place. The incandescent bulbs are inefficient and wasteful, and the thinking is that forcing the move to CFLs or other types of bulbs will be good for the environment.

However, this doesn't take into account the unintended consequences of this move. Already, there's been a big push to move people to CFLs, and that's created a situation where the makers of CFLs have worked hard to improve the quality of the bulbs (a big complaint) as well as add in features that used to not be found in CFLs, such as dimming. It's also pushed the makers of CFLs to find efficiencies by which they can make the bulbs cheaper. They're doing this because they know they need to compete with incandescent bulbs -- and in many cases it's working.

Yet, banning incandescents from the market place means that the makers of CFLs now have a lot less competition. They don't have to work as hard to make the lights better. They don't have to work as hard to make them more efficient and cheaper. They've basically been given a gift that means they can slow down the process of making those bulbs that much better for the environment. That seems like a mistake.

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Piracy Is A Part Of The Market

from the it's-not-the-enemy...-and-it-may-not-be-competition dept

Out-law.com has an interesting discussion with a so-called "anti-piracy expert" where he tries to make the point that pirates are not the "enemy" but are "competition." This is a step in the right direction -- though, one ignored by many industries threatened by unauthorized file sharing. As the MySpace Music offering shows, very little thought is given to actually competing with piracy. Most of these solutions simply try to pretend it doesn't exist -- which is a pretty difficult way to compete.

But it's important to recognize that the market shift goes further than just seeing unauthorized file sharing as competition. To succeed in the marketplace, it shouldn't even be viewed as competition, but as a tool that can be used to your advantage. The business models that embrace file sharing and use it to drive business to other parts of a business model are doing great, realizing that file sharing isn't the enemy and isn't competition, but is a great, efficient distribution mechanism that reaches a lot of people very quickly and effectively. Ignoring ways to make use of that seems pretty dangerous.

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Google Isn't Unique In Embracing The Economics Of Free Complementary Markets

from the open-your-eyes,-Nick dept

We've pointed out for years, that Nicholas Carr is one of the smartest, most astute thinkers out there -- and he always writes interesting articles, that make interesting points and get you to think about things in a different manner. However, it's frustrating that he continually makes all these great observations, and then at the end jumps to a totally bizarre and often outright incorrect conclusion that isn't supported at all by the points he made earlier in the article. Yet, because he leads people down the garden path so beautifully, many people take that fanciful leap with Carr, missing the fact that there's really nothing holding up the structure on the other side.

He did this about a year ago, in pointing out that Google's main business was in driving all sorts of complementary businesses forward by making them cheaper (or all the way to free), such that they helped its main business (getting eyeballs to sell to advertisers). That's a good, and important observation -- but where Carr went wrong, was to claim that building up complementary businesses was somehow unique to Google, and couldn't (and shouldn't) be replicated by most other businesses. That's simply incorrect. As we've been pointing out, if you want to succeed in today's digital market, you absolutely need to recognize the complementary markets that impact your business -- because all markets have those complements.

Yet, it appears that Carr liked his mythological Google-uniqueness scenario so much that he's trotting it out again, suggesting that Google is in a dangerous position because as it drives prices in those complementary businesses down, it's apparently wreaking havoc on all sorts of other companies and business models, even if the end result is better for consumers.

What Carr's missing (and this is common to much of Carr's writing) is that these complementary markets where the price is being driven to zero isn't a bad thing, but the natural efficiency of the marketplace, driving goods with zero or close to zero marginal cost down to their most efficiently priced positions -- where they then help make many other businesses and markets (those the focus on scarce goods, such as selling attention) much more valuable. It's the same thing as Luddites complaining about technology making things more efficient. Yes, automated phone switching equipment made phone operators obsolete, but it also enabled much bigger markets and the net benefit to society was huge. Making a market more efficient, even if it changes the business model of those who lived off of the inefficiency before, is not a bad thing. That's the natural state of the market, and contrary to Carr's assertion, it's not just a few companies that are benefiting from this. Plenty of companies and individuals are understanding this every day, and using this basic concept of using infinite complements to make scarce goods more valuable. Carr does a huge disservice to his readers in suggesting that it's somehow unique to companies like Google and Microsoft. It's not.

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Is Military Spending the Key to the Next Silicon Valley?

from the sources-say-no dept

At the end of an interesting post about the changes in the American economy during the latter half of the 20th century, Dane Stangler has an interesting aside about the role of the military in the early development of Silicon Valley. He notes that the Silicon Valley started out as a hub for defense contractors and only later became a center for the private semiconductor industry and (still later) for the software and Internet industries. Stangler suggests that a city looking to become the next Silicon Valley might want to view military spending as a key driver for regional growth. He's right that the military was crucial to Silicon Valley's early growth, and of course it never hurts to have the military creating jobs in your city, but I'm not sure a city today could repeat Silicon Valley's route to high-tech prominence. A big reason the military was so important to Silicon Valley's early development was that a lot of the technologies pioneered there were so expensive that only the military could afford them. Silicon Valley firms were building radars, guidance systems, communications systems, and other stuff that was totally out of reach for ordinary consumers. And the Internet, of course, started its life as a military research network because each connection cost tens of thousands of dollars. But prices dropped steadily, and eventually, Silicon Valley firms created commercial spin-offs that became cheap enough that ordinary consumers could afford them, and the rest is history.

Today, private capital markets are a lot deeper and the consumer market for high-tech products is a lot larger than it was 50 years ago. As a consequence, the military just isn't as important to the semiconductor and communications industries as it was a few decades ago. The military still spends a ton of money on high-tech toys, but private firms also spend billions of dollars on R&D, and their spending is more squarely focused on consumer and business markets. Smart technologists don't have to chase military contracts, they can raise capital and go straight for the consumer market. Of course, it's entirely possible that the military is currently incubating some other category of technology that will become an important private industry in the coming decades. But if you want your city to become an important center for the IT sector, luring military contractors to your area is probably not going to do it.

Timothy Lee is an expert at the Insight Community. To get insight and analysis from Timothy Lee and other experts on challenges your company faces, click here.

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Flexible Spectrum Markets Would Improve The Wireless Marketplace

from the spectrum-for-sale dept

Mathew Ingram notes that Google is continuing its campaign to use television "white spaces" for Internet connectivity, a promising concept that hasn't panned out so far. I think the most interesting tidbit in Ingram's post comes from an interview with Richard Wiley, the guy who chaired the committee that developed what became the current digital television standard. Ingram says Wiley told him that one of the broadcasters' criteria for the new standard is that it use as much spectrum as possible. That sounds backwards, but it made sense for the broadcasters, because they knew they'd have to give back any spectrum they didn't use. And it's consistent with past experience; we've written before about the broadcasters' spectrum-hoarding tendencies.

Perverse incentives like this are an inevitable consequence of the FCC's Soviet-style process for assigning spectrum usage. As long as the uses for spectrum are decided by fiat by the FCC, current licensees are going to play these kinds of games to ensure they get the biggest slice they can, even if they waste spectrum in the process. A better way to handle the transition (and still a good idea today, for that matter) would have been to give the broadcasters a fixed spectrum allocation and then allowed them broad flexibility on how to use it—including the right to lease or sell unused portions to third parties. That way, if they found a way to transmit television signals with less spectrum, they would have been able to lease out the unusued portions to third parties who could put it to more productive use.

In addition to promoting more efficient spectrum use in the short run, putting more spectrum on the market (as they're doing in the UK) would have positive effects on the overall telecom market. By driving down the price of spectrum it would make it easier for new firms to get into the wireless market. So far, the relatively small number of licenses that have been put on the market has allowed incumbents to snapped them up and keep out new entrants. Putting more spectrum on the market would make this strategy a lot more difficult to pull off.

Timothy Lee is an expert at the Insight Community. To get insight and analysis from Timothy Lee and other experts on challenges your company faces, click here.

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The March Of Mobile Phone Progress Isn't Always Smooth Or Direct

from the be-patient dept

Tim Wu is discouraged. Writing in Slate last week, the telecom expert lamented the terms he's facing as an aspiring iPhone 2 owner: a two-year AT&T contract thanks to the handset's newfound inability to be unlocked and a move toward a more conventional subsidized handset model. Wu sees this as emblematic of a shift in the mobile industry:

The fact that someone like me is switching to AT&T is a sign of the times in the telephone world. The wireless industry was once and is still sometimes called a "poster child for competition." That kind of talk needs to end.

He's right -- but then, that kind of talk shouldn't have been started in the first place. The mobile market was defined by long contracts, locked handsets and a lack of prepaid options long before Apple arrived on the scene. Now it appears that it'll remain that way long after Apple.

Admittedly, this is a disappointment. Many looked at Apple's choice of a second-rate carrier -- one they could bully around -- as a sign that everything was about to change. Finally a handset manufacturer had arisen that was powerful enough to break the industry's self-serving revenue model and empower consumers! With the recent declaration of the iPhone 2's retreat toward conventional industry shadiness, those counting on Apple's benevolent technological dictatorship have found themselves disappointed (as they have before, and no doubt will again). They were fooling themselves anyway: did anyone really think Apple was going to tolerate phone unlocking forever?

But the outlook isn't all grim. As Wu notes, the Google-led Open Handset Alliance is trying to follow in Apple's footsteps with its own game-changing, must-have handsets -- only this time there seems to be a more expressly ideological slant to the effort. And Verizon's Open Development Initiative, while less than perfect, is perhaps even more encouraging in that it shows the industry has begun to acknowledge the market's need for more flexibility in data services.

And that's the real reason for hope: the march of progress. Anyone who tries to paint the mobile industry as the picture of efficient market competition is either in denial or deeply dishonest. But wireless services will inevitably become more important and more available, whether thanks to WiMAX, revived municipal wifi projects (now without capital costs, thanks to the magic of bankruptcy!), spectrum freed by digital broadcasting, or some other wireless technology. The mobile carriers haven't been great at competing amongst themselves, but you can bet they'll begin responding once consumers have reasonable alternatives.

Tom Lee is an expert at the Insight Community. To get insight and analysis from Tom Lee and other experts on challenges your company faces, click here.

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Bad Ideas: Instituting Artificial Scarcity To Annoy Fans Into Buying Now

from the economics-of-destroying-value dept

The more you look at the economics of abundance, you realize how ridiculous it is to ever artificially create scarcity. It only serves to shrink a market and leave open huge opportunities for competitors to wipe you out. Most of the time, though, we're talking about things like copyrights and patents -- which many people (who haven't considered the matter thoroughly) don't think of as artificial scarcity. However, it's quite rare to see someone be totally open in defending artificial scarcity as a smart business model option. Reader Mart writes in to point to just such an editorial, over at Gamasutra, where Matt Matthews tries to make the case for why video game makers should create artificial scarcity in an attempt to have more control over their markets.

Specifically, he suggests that games should only be released and available for limited times before being pulled, with the idea being that this artificial scarcity would cause people to rush to buy now. This is part of the common misconception about artificial scarcity. It assumes a somewhat static market, where all the scarcity does is make the same number of people want to buy in a smaller window. That's simply untrue, and plenty of economic research in the space has shown that to be false. It's not difficult to understand why either. A purchase decision involves a variety of different factors, and if one of those factors is that the company selling the product is toying with you by putting extremely annoying limitations on the product, that's going to turn a lot of people off. It also opens up much wider opportunities for competing companies who don't toy with their customers and offers a product to whoever wants -- embracing the wider opportunities of the long tail, rather than shutting them off. The whole point of the long tail is that it expands your market -- whereas Matthews seems to want to destroy that expanded market in favor of additional control over a smaller market.

What seems to really get Matthews are two things, which he notes as being the core of the problem: "An infinitely long tail gluts the market, confounds the consumer, and commoditizes developers." As for "gluts" the market -- that's not a problem that you solve by artificial scarcity (limiting choice), it's a problem you solve by having better filters and better recommendation systems. As for commodtizing developers, that's shorthand for "I don't want to compete." But, of course, the second you do something so silly as limiting the timeframe in which your fans can buy your games, the faster you hurt your own business by letting your competitor get their business. That seems a lot worse than having to actually compete.

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How Long Until People Start Worrying About The Decline Of The MP3 Player Market?

from the convergence dept

We've been pointing out for a while that analysts who try to measure "the PDA market" are wasting everybody's time. The addition of personal organizer functionality to mobile phones (or we could just as easily say, the addition of wireless telephony features to PDAs) meant that phones and PDAs were now part of one big "mobile communications device" market. The next step in that trend, already underway, is the gradual merging of the smart phone and MP3 player markets. An analyst is predicting that half of all cell phones will double as MP3 players by 2011. The cell phone market is getting close to saturation in the developed world, which means that manufacturers have to keep adding new features in order to convince customers to upgrade. I really hope this doesn't mean we'll have to spend the next five years debunking silly stories about the decline of "the MP3 player market."

Timothy Lee is an expert at the Insight Community. To get insight and analysis from Timothy Lee and other experts on challenges your company faces, click here.

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