Daily Archives: November 16, 2007

MacroMyopia

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Don Dodge has a nice post on an incurable disease which afflicts both mainstream media and the blogosphere…

There is a severe case of MacroMyopia spreading across the blogosphere. Today it is The Death of Email. Yesterday it was Inbox 2.0 – Email meets Social Networks. Macro-Myopia is the tendency to overestimate the short term impact of a new product or technology, and underestimate its long term implications on the marketplace, and how competitors will react.

Straight up and to the right – It is human nature to extrapolate the early success of a “new thing” to world domination, and to the death of the “old thing”. Insert any variable for “new thing” like; Facebook, Twitter, Text Messaging, Open Source, Linux, YouTube…and you can finish the sentence with the death of the “old thing”.

The best of both worlds – In most cases the early innovator of a product or technology wins some early success in a narrow market segment. The big winners come in later by incorporating the new technology into an existing product or service and creating a best of both worlds solution that appeals to a much broader market. I call this the “Innovate or Imitate – Fame or Fortune” scenario…

Lots more where that came from. Good stuff.

Social networks overtake webmail

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Interesting graph from Hitwise.

For the first time last month, UK Internet visits to social networks overtook visits to web-based email services. As the chart below illustrates, our custom category of the top 25 social networks, which includes Facebook, Bebo and MySpace, accounted for 5.17% of all UK Internet visits, compared to 4.98% for Computers and Internet – Email Services, which includes Hotmail; Yahoo! Mail and Gmail, amongst others.

What’s wrong with OpenSocial

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Tim O’Reilly has put his finger on it…

If all OpenSocial does is allow developers to port their applications more easily from one social network to another, that’s a big win for the developer, as they get to shop their application to users of every participating social network. But it provides little incremental value to the user, the real target. We don’t want to have the same application on multiple social networks. We want applications that can use data from multiple social networks.

And data mobility is a key to that. Syndication and mashups have been key elements of Web 2.0 — the ability to take data from one place, and re-use it in another. Heck, even Google’s core business depends on that ability — they take data from every site on the web (except those that ask them not to via robots.txt) and give it new utility by aggregating, indexing, and ranking it.

Imagine what would have happened to Google maps if instead of supporting mashups, they had built a framework that allowed developers to create mapping applications across Microsoft, Yahoo! and Google as a way of competing with MapQuest. Boring! That’s the equivalent of what they’ve announced here.

Would OpenSocial let developers build a personal CRM system, a console where I could manage my social network, exporting friends lists to various social networks? No. Would OpenSocial let developers build a social search application like the one that Mark Cuban was looking for? No.

Set the data free! Allow social data mashups. That’s what will be the trump card in building the winning social networking platform….

micro-elites: how to get the best user-generated content

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Andy Oram has a good idea…

The idea of micro-elites actually came to me when looking at the Peer to Patent project. There are currently 1611 signed-up contributors searching for prior art on patent applications. But you don’t want 1611 people examining each patent. You want the 20 people who understand the subject deeply and intimately. A different 20 people on each patent adds up to 1611 (and hopefully the project will continue, and grow to a hundred or a thousands times that number).

Even Wikipedia follows this rule in some cases. There are some subjects where everybody in the world holds an opinion and a huge number actually know some facts. But other subjects would never see articles unless a couple of the few dozen experts in the world took time to write it.

A corollary of the micro-elite principle is that one of the best ways to help a project requiring a micro-elite is to find the right contributors and persuade them to help out. We should also examine the rewards that such projects offer to see whether they offer enough incentives to draw the micro-elite. The key prerequisite for good writing is good writers.

Ed Felten on Radiohead’s experiment

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In a typically thoughtful post, Ed Felten challenges the gloomy conclusions some people have drawn from the Radiohead ‘choose your own price’ strategy for their latest album.

Comscore released data claiming that 62% of customers set their price at zero, with the remaining 38% setting an average price of $6, which comes to an average price of $2.28 per customer.

Ed points to a basic economic point missing in this debate: Lower average price does not imply lower profit. Radiohead may well be making more money because the price is lower.

To see why this might be true, imagine that there are 10 customers willing to pay $10 for your album, 100 customers willing to pay only $2, and 1000 customers who will only listen if the price is zero. (For simplicity assume the cost of producing an extra copy is zero.) If you price the album at $10, you get ten buyers and make $100. If you price it at $2, you get 110 buyers and make $220. Lowering the price makes you more money.

Or you can ask each customer to name their own price, with a minimum of $2. If all customers pay their own valuation, then you get $10 from 10 customers and $2 from 100 customers, for a total of $300. You get perfect price discrimination — each customer pays his own valuation — which extracts the maximum possible revenue from these 110 customers.

Of course, in real life some customers who value the album at $10 will name a price of $2, so your revenue won’t reach the full $300. But if even one customer pays more than $2, you’re still better off than you’d be with any fixed price. Your price discrimination is imperfect, but it’s still better than not discriminating at all.

Now imagine that you can extract some nonzero amount of revenue from the customers who aren’t willing to pay at all, perhaps because because listening will make them more likely to buy your next album or recommend it to their friends. If you keep the name-your-own-price deal, and remove the $2 minimum, then you’ll capture this value because customers can name a price of zero. Some of the $10-value or $2-value people might also name a price of zero, but if not too many do so you might be better off removing the minimum and capturing some value from every customer….

What the discussion about this misses is the change in the cost-structure of music. Some time ago, William Fisher published an analysis of the cost structure of a CD. It turns out that distribution and retailing accounts for nearly half the cost, with artists getting only 12 per cent. Take out the costs of physical distribution and you have a very different picture.