Mind logger

Optimism versus Realism

noreply@blogger.com (Martin Carel) — Tue, 05 May 2009 00:00:00 +0000

Reg Braithwaite wrote an essay about 'learned optimism', a book written by Dr. Martin Seligman.

Reg summarizes Seligman's theory like so:

One predictor of success is this characteristic Dr. Seligman calls optimism, which he measures by testing whether you explain good or bad events as being personal, general, and permanent.

Reg carefully states at the beginning of his own essay:

Trust me on this one, you should not judge a book solely by whether you like what I said about it. Read it for yourself and decide.

I have not read the book, but I am putting it on my list.

Realism over optimism

In the meantime, I can't resist to criticize Reg's call (instead of criticizing Seligman's theory) to develop an optimistic mind.

As Reg puts it himself in a comment on the HN thread:

The essay calls on people to actually think in a certain and possibly different way.

That is, to encourage people to be optimistic. Here is my criticism: isn't there more value in realism? What is the point of being optimistic if you are wrong?

Have you ever discredited someone for being disconnected from reality? To take a simple example, if somebody keeps on having bad grades in a course, is it realistic that this person would qualify this fact as impersonal, specific and temporary? It strikes me as obvious that this would qualify as naivety and that this person should address the problem as personal at least. Why learn to see things in an optimistic way, instead of facing reality, to the full extent of one's cognitive powers will permit?

What I dislike about this call to optimism is that it resonates with naivety and the silly happiness theory. The less you know, the happier you will be.

Optimism/pessimism revolves around subjectivity. Realism is an attempt to get rid of this subjectivity, which leads, according to me, to more profitable decision-making.

However, I recognize that I have no data to support my intuition, whereas Seligman has research showing that optimists do better than pessimists, i.e. fare better when measuring their so-called success.

Challenging the status quo

There is one important thing with which I whole-heartedly agree with at the end of his essay: the confidence to change the world, the attack on conservatism:

Optimism is what drives us forward to create and change. The pessimists are the ones who cling to legacy technologies and old ways of doing things. They accept the bad things as permanent and deny themselves the ability to change things, to fix things.

Those who want to keep the status quo do it because they have a vested interest in it. The resistance of the labels in regards to file-sharing is just but one example of an industry fighting to keep the old models which used to be profitable, instead of adapting to an evolving reality.

Lessig on the hybrid economy and corruption

noreply@blogger.com (Martin Carel) — Fri, 28 Nov 2008 03:29:00 +0000

Lessig was invited on Charlie Rose show. The 38-minute interview revolved around the ideas in his new book: Remix, Making Art and Commerce Thrive in the Hybrid Economy. Here are my highlights.

Huge respect for Barack Obama

Lessig first met Obama at Stanford university, at a time where both were law professors. When Rose asked Lessig what he thought about Obama, he mentioned his respect for Obama's constant character and authenticity through every stage of his career. He also mentioned the intellectual pleasure to discuss with him:

"He was an extraordinary careful deep thinker, and reflective and balanced, and he wasn't on the left, he wasn't on the right about whatever issue it was, you know, he was thinking through every issue." - Lessig

A merge between 2 kinds of economies

Lessig identifies 2 kinds of economies in our world. One of them is called a 'sharing economy', e.g. Wikipedia, where people produce enormous value without getting paid. He links it with his concept of 'free culture', i.e. the freedom of people to take and build upon the culture around them. The other economy is the traditional 'commercial economy', e.g. selling books.

In the last 5 years, businesses have begun to realize that there is significant value when the commercial entities is trying to leverage value out of sharing entities. And vice-versa, sharing entities can leverage value out of commercial entities. In other words, in this 'hybrid economy', there must be a mutual respect between both economies.

Lessig emphasized that the efforts must come from the 'commercial economy' in showing respect for and encourage the creativity in the 'sharing economy'.

Cause of corruption in Congress: dependency on money

What Lessig is trying to fight is corruption, particularly in Congress. The cause of corruption is the disproportional influence of money over the political debate. As he puts it: "the system is too focused on dollars and not focused enough on sense".

Congressmen live inside a system where "everything they do has to be tuned to what would make it possible for them to raise money". They do what the money says, not what the people say. In other words: "money buys results in Congress".

Lessig sees this corruption as the very first problem to solve, since unless solved, even simple/obvious issues won't get solved. The fundamental change that must happen is to "break the connection between money and results". So that we could say a congressman changed the vote not because he had a 10000$ contribution from some interests group, but because he thought about it differently or because he got convinced by the people.

The big idea around the corner

As a final question, Rose asked Lessig what he thought would be the big idea around the corner. His answer was a consciousness of empowerment from the people (exemplified by Wikipedia, the Obama's campaign, the Internet, the read/write culture). The revival of the feeling that people can do something, which would evaporate the current political cynicism.

Paraphrasing Lessig, "the cynicism that we had in the 20th century will look very 20th century".

Wisdom of crowds in the blogosphere, by James Surowiecki

noreply@blogger.com (Martin Carel) — Fri, 07 Nov 2008 19:24:00 +0000

I watched the TED talk (dated from February 2005) from James Surowiecki, the author of The Wisdom of Crowds. Very interesting talk, where he highlights positive and negative characteristics of the blogging phenomenon, with his own concept of the wisdom of crowds.

The 2004 tsunami: a blogosphere milestone

He introduces his talk by identifying a point in time - the 2004 South Asian tsunami - as a seminal moment for the blogosphere. Unorganized, unconnected writers, video bloggers provided a "collective portrait of the disaster which gave us a sense of what it was like to actually be there, better than the mainstream media could give us."

Surowiecki then asked 3 questions and structured his talk around them.

What motivates people to blog or produce content on internet?

The peculiarity with blogs content is that most of it has been produced by its authors for free (out of a crave of attention or reputation or sharing), with no concrete reward - no money involved. The tsunami bloggers, he points out, did write for no other reason than to tell their story and share.

With a traditional economic perspective, this tells us to expand our ideas of what counts as rational, since it is possible to have brilliant products without monetary remuneration.

Do blogs have the possibility to access a collective intelligence that has previously remained untapped?

Yes it does. That's the positive side. The premises in his book "the wisdom of crowds" are as follows: under the right conditions, groups can be remarkably intelligent; they can be smarter than the smartest person within them. In this context, the blogosphere is a collection of people's voices who could not be heard before, providing a new type of information - more diversified and plural. Related to that are the concepts of participatory journalism and citizen journalism.

What are the potential problems about blogs?

There also is a negative side. And it comes from the network, from the fact that people are interconnected. Indeed, as the network shapes your views, enforces a certain way to think, the more you become connected, and the harder it is to be independent.

Surowiecki refers to this as the paradox of the "wisdom of crowds": collective intelligence requires a form of independent thinking. The networks makes it harder because they drive attention to the things that the network values. "Groups are only smart when the people in them are independent."

His departing thoughts

In order to illustrate this, he brings the example of an ant colony, where the accumulation of each ant's actions can produce amazing results. However, if a problem occurs, each ant could follow the behavior of the ant in front of it, which can lead to a "circular mill", where each ant is following the one in front of it, marching without asking questions, forming one huge revolving circle, naturally leading to disastrous results.

Not surprisingly, the challenge is to exploit the wisdom of crowds, while ensuring that the individuals in the crowd avoid to fall in a state of dependent thinking.

The provocative defense of capitalism

noreply@blogger.com (Martin Carel) — Tue, 21 Oct 2008 14:14:00 +0000

The Economist has had a take on the current ravaging financial crisis, going through the genesis of the crisis, but also exposing its position. Not surprisingly, this is a defense of capitalism and a support for minimal state intervention.

One could read in this article, the unequivocal and assertive statement:

Provocative as it may sound in today’s febrile and dangerous climate, freer and more flexible markets will still do more for the world economy than the heavy hand of government. - The Economist

And in this one, claiming proudly:

Capitalism is at bay, but those who believe in it must fight for it. For all its flaws, it is the best economic system man has invented yet. - The Economist

Reflecting the importance of the topic today, a plethora of comments (250+ to date) ensued. The vast majority of the commenters were very critical.

One of the wisest ones came from user typingmonkey:

The key philosophical point the Economist is missing is that capitalism is not a system at all. It is the absence of a system. It is the unleashing of unpredictable uncontrollable individual interests in what is supposed to be a limited arena defined by political, social, and legal boundaries. To call capitalism a system is to make the mistake of calling the anarchist movement a political party. - typingmonkey

Of course it depends on the definition of 'capitalism', but it is an interesting perspective for the unfettered variant, which is close to what The Economist is trying to defend.

And still from the same user:

While capitalism's controlled chaos is very effective at generating wealth, it is NOT "self-regulating". Competition and regulation occasionally act in a similar direction, but they are fundamentally different forces. Those who foolishly mistake the former for the latter ultimately beget corruption and "races to the bottom". If Company A is profiting by compromising society's interests in some way, will Company B stop them? No. That would be regulation. Instead, Company B will try to do even more of such business than Company A, and may join Company A in lobbying government to enshrine the practice into law. That is "competition". - typingmonkey

Nicely put.

With no regulations, survival becomes the priority, not humans. Effectivity through market rules might be a very noble objective, but it all depends on which sector it is applied to and on the practical consequences (some of which can be easily foreseen).

What is disappointing from The Economist is not the recommendation - advocating for more regulation only in the finance industry - as much as the failure to recognize some obvious failures of unfettered capitalism:

the devastating changes following the structural changes emanating from the "Washington consensus" in Latin America and Africa.
the incapacity of market-led measures to decently address issues such as health and education.

Kevin Kelly forsees the web as One

noreply@blogger.com (Martin Carel) — Fri, 01 Aug 2008 22:06:00 +0000

In the context of a TED presentation in December 2007 (published this month), Kevin Kelly is predicting what the future of the web will be.

First off, he presents the web with its impressive stats:

100 billion clicks per day
2 million emails per second
1 million IM message per second
uses 5% of global electricity on the planet

The nature and amount of connections in the web today, he says, is equivalent to one human brain. And with the size of the web doubling every 2 years, it means the web will be the equivalent of 6 billion brains in 30 years.

The One

Kelly's idea of the web is that "we're building a single global machine", a kind of black hole sucking up everything to it. Everything, he says, is increasingly connected: every screen looks into the one machine, into the cloud. In the process, we develop a dependency towards the web, driven by its usefulness, where total personalization of the users require total transparency. In order to prove his point, Kelly quotes Larry Page (Google co-founder):

What we really want to do at Google is create an AI. - Larry Page

The last slide of his presentation gives the essentials of his vision:

There is only One machine
The web is its OS
All screens look into the One
No bits will live outside the web
To share is to gain
Let the One read it
The One is us

Ultimately, the web will feel like a "large organism", made of people and things.

The evolution of the web's links

Taking a historical perspective, and using the concept of 'links' as the common thread, Kelly describes the evolution of the web as follows:

at dawn: linking computers
lately: linking pages
currently and soon: linking data (idea)
in the future: internet of things (objects)

When Kevin Kelly does science fiction

The parallel with science fiction movies is all too natural. Does the powerful SkyNet from Cameron's Terminator come to mind? Or the Matrix from the Wachowski brothers? Or then the HAL computer from Kubrick's 2001: A space Odyssey? There are plenty more examples: the interactions between machines and humans are indeed central themes for science fiction movies.

In the Eastern world, the intimate connection between humanity and the planet is a recurring theme. We can think of Gaya, the living planet from Hironobu Sakaguchi's Final Fantasy: The Spirits Within. Or Mako, the planet's energy (streams of life), in Kazushige Nojima's Final Fantasy VII: Advent Children. And at a more spiritual level, we could consider the principles of Buddhism...

With an amusing final note, does the East figure out the future before the West?

The dark side of the long tail

noreply@blogger.com (Martin Carel) — Fri, 25 Jul 2008 18:53:00 +0000

We often hear about the benefits of internet, this modern medium connecting together more people than before. While this is a reality, it hides from sight that it also connects people with morally-dubious intentions.

The context of the life in the tail

Because of the internet, the potential audience for anyone has been greatly augmented, making it possible to reach people worldwide with minimal costs. This technological development contributed to nurture niche products, as described by Chris Anderson's long tail concept.

The context in which online activities occur in the tail is particular. As Kevin Kelly describes it in a recent post:

[...] the long tail niche creation operates perfectly well in the realm of passion, enthusiasm, obsession, curiosity, peerage, love, and the gift economy. - Kevin Kelly

Money is thus not the currency for the activities occurring in the tail, as it is in the head. Rather, other incentives are fueling life in the tail, giving birth to activities of a - most often than not - non-commercial nature.

A nest for both the good and the ill

From such forces as passion, enthusiasm and obsession does not only follow good. It's not as if nice people would have a monopoly out there.

Evils such as terrorism and other forms of hatred are empowered just as much. Like the Economist explains in a recent article:

A decade ago, a zealot seeking to prove some absurd proposition—such as the denial of the Nazi Holocaust, or the Ukrainian famine—might spend days of research in the library looking for obscure works of propaganda. Today, digital versions of these books, even those out of press for decades, are accessible in dedicated online libraries. - The Economist

In other words, if you follow a suspicious agenda and need to reach millions of people and hope to rally them to your cause, the minimal requirement is simple: a presence online. The corollary is that there is a high probability that somebody with the same agenda as yours is already rallying people to his - as well as your - cause.

Sad, but true.

A resurrection a few years later

On a final note, I was curious about any previous usage of the catchy wording I used for the title of this post. So I googled the terms "dark side long tail" and I was surprised to see that there was only one blogger who used the expression, referring to the same concept as I am in this post.

John Robb, blogger and author, wrote about how global guerillas operations are facilitated by the Internet. Interesting read, dating from 2005.

The 3 pockets of the long tail

noreply@blogger.com (Martin Carel) — Tue, 22 Jul 2008 05:43:00 +0000

There has been some recent clarifications on the long tail, made by Seth Godin as well as Kevin Kelly, and I want to summarize them in here.

3 pockets, 3 worlds

Seth Godin, in a recent post, explains that a product owner would be clever to know which part of the tail to focus on, as the rules of the game are different depending on which pocket your product belongs to. He explains:

The most common misconception about Long Tail thinking is that if you don't succeed at pocket 1, don't worry, because the tail will take care of your product and you'll just end up in #2. That's not true. #2 isn't a consolation prize for mass market losers. Mass market losers are still losers. In order to become a mass market star you make choices about features and pricing and quality--and if you lose that game, there's no reason to believe that those choices are going to pay off for a different market. - Seth Godin

The long tail of the Dragon of Love

Kevin Kelly, in a reply to Godin's post, points to a common fallacy when discussing the long tail. And he uses Godin's post as an example of how widespread the fallacy is:

There's a blatant switcheroo that Seth (and almost everyone else) makes when explaining the Long Tail. In pocket #1 of the curve, Seth talks in terms of a creator of a work. In pocket #2 of the curve, he also talks in terms of the creator. But then when he gets to the long tail, he switches away from a creator, to talk in terms of an aggregator of other creators' work. Why is that? What happens to the creator? The creator is dropped when we get to the long tail "pocket of profit" because the long tail is not profitable for the creator. It's profitable only for the audience and aggregators. - Kevin Kelly

Rather, Kelly says at the end, the creations in the tail of the curve (pocket #3) really belong to different economy than the rest (the 2 other pockets: #1, #2):

He I prefer to think of the Long Tail as being a tail to a different animal. We've misidentified the intangible being it belongs to. It is not the long tail of the Beast of Commercial Profits. Rather it is the long tail of the Dragon of Love. The love of creating, of making, of connecting, of unreasonable passion, or making a difference, or doing something that matters to ourselves, the love of connecting, giving, learning, producing, and sharing. - Kevin Kelly

Business cases for the taking

noreply@blogger.com (Martin Carel) — Sat, 19 Jul 2008 20:43:00 +0000

Paul Graham has compiled a list of 30 ideas that his startup incubator YCombinator would like to fund. Food for thought it was, and indeed it got my mind spinning.

Inertia as a source of opportunity

A few ideas are geared towards fixing the aches of bureaucracy. For example, "outsourced IT" (#4) wants to bypass the bottleneck of large firms' IT departments. There is an opportunity in eliminating the necessary (and time-consuming) steps in the protocols of getting things done in large firms. "Enterprise software 2.0" is another example, where opportunities exist in taking care of some tasks in the (rigidly-perceived) software development cycle.

Inertia can also exist because the proper tools are missing, or because the productivity is far from satisfying. And this is the opportunity for "Something your company needs that doesn't exist" (#7) .

Monopolies focus on defense rather than value

Paul Graham is clearly not afraid of attacking the giants, i.e. the monopolies in their respective market, one after the other: Google, eBay, ADT, Craigslist. Once a company becomes the norm and acquires some form of monopoly, it usually means that the company focus changes. It moves from a focus on the value of the product/service, to a focus on a survival strategy: make sure the company has the largest customer share in the competition (if there is such a thing).

This paradoxically does not smother business opportunities:

the product/service value is actually diminished, through generalization, and thus makes it possible to come up with a product/service with a better value
non-mainstream markets, although smaller, are still receptive for a product/service that would fit their needs (the long tail theory comes to mind)

The survival strategy requires lots of energy and resources. And that energy is not going to the product/service proper. A defense against potential competitors is devised. Graham brings a few examples of those wall-protected industries: the record labels (referred to in #1) exemplified by the strong power of RIAA's lobbying, and the shrink-wrapped software companies (referred to in #5) exemplified by Microsoft.

Creative destruction

Several ideas from the list revolve around putting into question the status quo, attacking current businesses, including monopolies. For example, Graham explains:

I suspect that if you study different parts of the enterprise software business (not just what the software does, but more importantly, how it's sold) you'll find parts that could be picked off by startups. - Paul Graham

That reminds me of Schumpeter's concept of creative destruction, embedded in his vision of capitalism:

[I]nnovative entry by entrepreneurs was the force that sustained long-term economic growth, even as it destroyed the value of established companies that enjoyed some degree of monopoly power. - Wikipedia, July 19th, 2008

And diverging a bit from economics theory, I could not prevent myself from drawing up a few top lists...

Top 3 easy-to-roll-on ideas:

A Craigslist competitor (#25)
Dating (#8)
Shopping guides (#20)

Top 3 world-changing ideas:

Startups for startups (#30)
New payment methods (#17)
New News (#3)

Top 3 favorite ideas (for my needs):

New news (#3)
Fixing email overload (#28)
More open alternatives to Wikipedia (#23)

Concluding thoughts

There is something clear - which Paul Graham keeps on repeating - if you want to be successful as a business: make something people want. Either by fixing a problem or creating something that does not exist yet. This list of ideas is no different. Quite naturally, it's full of people's needs - or what are perceived as needs.

Rehashing those 30 business cases makes me realize how much power and influence YCombinator and other startup incubators hold into their hands. They are responsible for nothing less than most of the businesses of tomorrow!

Ycombinator is making money on funding business cases of their own choosing. Is there a nicer and funnier business case than that?

Is the long tail theory challenged?

noreply@blogger.com (Martin Carel) — Sun, 13 Jul 2008 16:39:00 +0000

It's already been 4 years since Anderson has articulated his long tail theory. The concept is summarized in a recent slate article as follows:

When we buy stuff online, we can reach beyond big hits and into the "tail" of the demand curve, where we're free to indulge our most obscure passions. Anderson argued that serving our niche interests could also make for booming Web businesses. - Farhad Manjoo

Anita Elberse, an associate professor at Harvard Business School, studied the rental habits of customers at Quickflix, an online movie-rental in Australia.

Manjoo summarizes some of her conclusions:

She found that no group of customers exhibited "a particular taste for the obscure." Sure, a small number of customers regularly rented films from deep in the catalog—but they tended to be people who watched a lot of movies generally and so had much more "capacity" for venturing into the Long Tail. - Farhad Manjoo

And some more, in another passage:

[...] more often, what's in the Tail stays in the Tail. - Farhad Manjoo

Anderson dismissed some of her conclusions on his blog on the grounds that Elberse is not using the same definitions as his, specifically what is understood by the terms 'head' and 'tail'.

The challenging part from Elberse's findings, as I understand it, is that the product concentration in the head is growing with time - at least with the Quickflix dataset she was looking at - whereas Anderson said otherwise.

A few thoughts

That's really interesting. But the fact that there's more concentration in the head does not contradict the fact that internet provided an opportunity for niches businesses (with so-called obscure products), broadening their audience, by several degrees of magnitude. More diversity for the product base is certainly a win. Both Anderson and Elberse agree on that.

So maybe we could say that the spectrum on the offer side grew larger, and the demand still has to catch up? And maybe analysing recent books or music data would draw different conclusions than Elberse's on movies?

Chris Anderson: free, the business model of the 21st century

noreply@blogger.com (Martin Carel) — Tue, 08 Jul 2008 03:25:00 +0000

I've recently listened to a speech from Chris Anderson, Wired magazine's editor-in-chief, about his forthcoming book: Free. The issues he is dealing with have been up in the air for a about year now, but I wanted to nail down a few ideas from his speech.

Business models built on 'free'

He claims that the internet has been the nest of countless business models built on 'free'.

One type of those business models consists of "giving things away" - just like Gillette gave away the razors for free and made a successful business on selling the razor blades. This model corresponds for example to free web-based email with GMail, free streaming videos with YouTube, free audio communication using Skype.

Another type is the ad-supported media, where the underlying product is free. Online newspapers and social news sites are prime examples.

And one of the latest versions of this business model built on 'free' is the "gift economy", where money is no more the currency. Examples include wikipedia and craigslist, where people are willing to contribute with their time and resources in exchange for reputation, attention, expression, fun.

Reasons why Wired magazine is not free

Anderson explains the 2 reasons why at Wired magazine they charge an arbitrary sum of 95 dollars or so for an annual subscription, which has nothing to do with the underlying costs of providing the product to its customers:

qualification of the customer as truly interested (manifested by the act of paying for the magazine) makes advertisers confident that the readership has a minimum of interest for the content, and thus receptive to their ads
psychological dimension, since a price gives some kind of value to the product (a free magazine would devalue the product)

He refers to this model as cross-subsidization: a product is given away (or hugely subsidized) while the money is expected from another source, like advertising in the case of Wired magazine.

Almost all media wants to be free

Anderson's central thesis is as follows (paraphrased):

if the marginal cost of reaching the n+1 consumer is approaching zero, then the smart thing to do is to treat it as zero and sell something else. - Chris Anderson

With this in mind, he tests all online media against his theory. Music, he says, is the prime example. Most music can be cheaply produced, freely distributed (either streamed on radio or available on file-sharing services). The music revenues don't come from selling the music, but rather from the artists performance, mainly the concerts.

Movies and games are two other media that would be free if they were not so heavily protected. As an example, he mentions the ad-supported online video games, such as Neopets.

Finally, it seems like books is the only media that is not approaching this free realm. The reason being that the physical product is better than its digital counterpart. Anderson gives a few reasons:

it has excellent battery life
it has fantastic screen resolution
it is portable
it looks good on the shelve
it is easy to flip through

So if books are kept in their physical form, they still reside in the scarcity economy, and the marginal cost of producing and distributing that book is not zero, and therefore would not follow the "relentless digital march towards free".

A few thoughts

In the case of books, I personnaly prefer the digital form in several scenarios. I might not be alone, and therefore I believe books could also fall in the category of media that wants to be free.

But is this force towards free so intense and irreversible, or, in Anderson's own words, a "relentless digital march towards free"? Do the same rules apply for movies, just like it does for music?

If you are a fan of a band, and you have acquired their music through file-sharing services, you are still going to buy tickets for their concert. But if you have acquired a movie for free, really enjoyed it, it is rather unlikely that you're going to go to the movie theater and watch it again (although you might buy the DVD). Therefore, the consumption of movies online would require business models which can generate enough revenues to offset the movies' production budgets. In other words, the movie industry has still to find the equivalent of concerts for the music industry.

And why Anderson's "books argument" could not be applied to movies instead? You could argue that watching a movie in the movie theater is a much better experience than watching it on a computer screen, which would render the physical product better than its digital counterpart.

An ecosystem of business models

On a final note, this adoption of 'free' as a business model is a process, and therefore takes time to proceed by definition. While the picture becomes clear for the music industry, it is still blurred for the movie and books industry.

In addition to that, Anderson's theory might not apply the same way in all industry sectors. The process will most probably bring about an ecosystem of business models of both the 'free' and 'non-free' type, with varying characteristics depending on the sector.

Why social networks are not making (the promised) money

noreply@blogger.com (Martin Carel) — Wed, 25 Jun 2008 01:01:00 +0000

Facebook is now worth $15 billion, after Microsoft chew a 1.6 percent bite ($240 million) of it last March. Yet it will probably lose $150 million in 2008, according to Mark Zuckerberg, Facebook's CEO. Joining the same chorus, Google - who paid $900 million in 2006 for the right to deliver ads on MySpace for 3 years - says the ad revenues from MySpace have been hardly satisfying.

The current issue of Technology Review provides 3 reasons to explain the disappointment. According to Bryant Urstadt, the problems with social network advertising are three-fold:

lack of attention for ads

In social networks, [...] users show up to find friends; ads are, at best, irrelevant to that goal. [...] While around 2 percent of Google users actually click on a given ad (and the number is much higher when users are conducting searches for purchasing reasons), fewer than .04 percent of Facebook users do, according to a media buyer's report obtained last year by the Silicon Valley blog Valleywag. - Bryant Urstadt

users are concerned with privacy issues

[...] in order to get your attention, advertisers need to let you know what your friends are buying or thinking about buying, or they must somehow get you to send each other ads. It's either a beautiful idea or a creepy one, depending on whether you're an ad executive or the user of a social network. - Bryant Urstadt

advertisers complain about content adjacency

The concept is called "content adjacency" and refers to the unpredictability of the nature of the content with which ads are associated with. Brands who seek to project a certain image might not want their ads to be displayed along side dubious or dodgy content, as could be the case with profanity or explicit content.

It seems reasonable to say that the lack of attention for ads by the users should account for most of the problem. The first reason users are online is entertainment; they are not actively searching for something (which is by far the main successful scenario for advertisement, as I will detail in a forthcoming post).

Despite the lack of return on investment, investors still keep the faith:

Roger McNamee remains convinced that Facebook is too alluring, too useful, and too established not to be profitable somehow. The answer is out there, even if he doesn't have it. "Someone," says McNamee, "is going to have to get creative. I take it on faith that it will emerge. After all, I'm an investor. I'm hopelessly biased." - Bryant Urstadt

So far the profits have not met the hype (I always like to recall that Facebook's userbase is greater than the population of France, and MySpace has twice as much). If the amount of eye balls (i.e. the traffic) is usually related to revenue potential, the rule does not hold true with social networks yet: they still have to figure out strategies to monetize their business.

The business model of highlighting online

noreply@blogger.com (Martin Carel) — Sun, 22 Jun 2008 16:26:00 +0000

Highlighting in a book is a common practice because it has some real value:

you force your brain to focus on what's essential
you can share with others what you thought was important
you're saving time in case you would return to the same text in the future

Awesome Highlighter is the latest of a few attempts to use this technique online.

I tried it and I found it simple, easy to use, and practical. According to this Techcrunch post, the revenue stream would come from selling their "awesome highlighter" functionality to media sites.

The incentives for media sites to buy it?

nice feature for their users to share highlights with anyone
possibility to survey what their users find interesting

I believe there is some revenue potential in this. And when you think about it, that's just another real-life practice translated into the online world.

It just strikes me how simple business ideas can be. Once again, value is the key, not complexity.

The mistake of governing in terms of historical cliches

noreply@blogger.com (Martin Carel) — Sun, 22 Jun 2008 01:03:00 +0000

I've just had an educative and interesting read, with an article from Newsweek. I need to start with that quote:

It may be true, as the saying goes, that leaders who ignore history are doomed to repeat it. But it's also true that leaders who carelessly or heedlessly use historical analogies, who twist or hype the lessons of the past, may be destined to make even bigger mistakes than their predecessors. - Evan Thomas, from Newsweek

The article surveys some major events in world history from the perspective of American presidents, starting with World War II until today's US presidential election. All events are seen through the prism of historical cliches such as Chamberlain's politic of appeasement in Munich or Vietnam's failure.

It shows how politicians are influenced by these historical cliches, casting their strategies for action in terms of those historical cliches, even accusing each others of repeating history for worse.

The conclusion? There's no black and white politics:

In the reality of power, presidents generally realize that the choice between negotiation and force is rarely clear-cut or either-or. - Evan Thomas, from Newsweek

Good judgment is the key. Every situation needs its assessment before taking action. Hardly breaking news, but wise words nevertheless.

Leveraging the non-profit to make profits

noreply@blogger.com (Martin Carel) — Fri, 20 Jun 2008 15:07:00 +0000

Jama software, a software company which makes a web-based management application, has grown tired of spending so much to Google in order to get its traffic. The solution? To kiss Google goodbye and give to a non-profit organization instead.

The organization is Kiva, the very popular micro-lending non-profit organization tailored to cater to the developing world. The search marketing budget that Jama Software used to give to Google will now be given to Kiva instead. The more traffic Jama Software gets, the more money they will send to Kiva. As they say on the company's blog:

[...] we’d much rather help a chicken farmer in Cambodia feed her village than fund a Google billionaire’s hobby of flying to space. - Jama Software

Dont' believe it? See the loans from Jama Software on Kiva's site. Will it work? It all depends on the buzz it will create. ReadWriteWeb - 10th most authoritative blog according to Technorati - picked up the story (that's where I read it first), so it seems to start on the right foot. As reported on the ReadWriteWeb post, according to Jama's Director of Customer Outreach & Marketing, the strategy is to display the "commitment as a company to giving back, whether big or small", and to rely on the blogosphere and the press coverage to relay the news.

There's certainly some value in this innovation in what we could call "social marketing strategies", which goes beyond the usual social networks, and I hope it will work.

The objective of a for-profit organization is to make profits by definition, but that does not prevent it from being human. Or is it what they want us to believe? The company's reputation will tell us with time.

Behavioral targeting is not evil

noreply@blogger.com (Martin Carel) — Fri, 06 Jun 2008 16:43:00 +0000

Behavioral targeting is a sensitive topic, because of privacy issues. But it is not evil in essence. That is the message from this article from The Economist.

We have ads shown in front of us everywhere: ads in the streets, ads in the bus, ads on TV and ads online. The latest fashion is behavioral ads, adequately selected to fit your own tastes and needs.

Personally, I don't see why it would be a problem if you are presented with products or services that are relevant to you. Amazon is a very recurrent example in this case. I do see a value in the recommendations - based on my previous purchases - that Amazon is giving me. The spectrum of products is not comprehensive (and there exists other tools to reach that objective), but they are often sound pointers.

Of course those recommendations are incentives to buy (just like any ads really), but you're always free to buy it or not, aren't you. And I prefer to spend my money on the most relevant products out there that will fit my needs.

In order to deal with the privacy issues, the article goes, the advertising industry needs to handle them the proper way:

[...] as behavioural-targeting systems become more sophisticated and invasive, it is vital that the companies behind them are open with users about what is going on, and give them control over their personal information. The Economist

Or from this other article, on the same subject:

Behavioural targeting is not necessarily a bad idea, but imposing it without telling people is likely to annoy them when they find out about it. Without adequate disclosure, an “opt out” system looks like snooping; but an “opt in” system, given all the fuss, now looks like a tough sell. The Economist

Behavioral advertising is just a smart evolution of the previous online ads. And it must be smart enough to keep the user in control.

Psiphon: a tool to bring the information inside China

noreply@blogger.com (Martin Carel) — Sun, 18 May 2008 19:28:00 +0000

It's old news that sites like the BBC, Wikipedia, as well as all those sites relating the recent agitations in Tibet are not accessible from within China. According to this article from Alternatives, the decisions as to what will be accessible from inside the Chinese borders or not is made by a governmental agency employing 30 000 people, with a budget of 28 billions dollars per year.

Citizen lab, a research center from University of Toronto, developed a software called Psiphon, which allows to circumvent government restrictions to keep the information out. According to Dr. Ron Deibert, the architect behind the Psiphon, there are about 40 countries in the world with such restrictions, and China is one of them.

The site describes the software in those terms:

[Psiphon] allows citizens in uncensored countries to provide unfettered access to the Net through their home computers to friends and family members who live behind firewalls of states that censor. - Psiphon website

While this software is an attempt to bring the information to the people - to allow people to exercise their basic human rights, in the words of Dr. Ron Deibert - the top 3 search engines companies are paying lip service to the Chinese regime. According to the same article:

Yahoo! was accused by Amnesty International to give confidential information to the Chinese regime about his online users, which has lead to the arrest of 2 journalists. Microsoft shut down a blog, as was requested by Beijing, and Google has launched a censored version of his search engine to meet the Chinese requirements. - Alternatives (my own translation from French)

It is certainly sad to see a medium like the internet, which was created to freely exchange data, being censored for political purposes, by some countries like China. And it's ironic to see that some people from outside are trying to change things inside.

The FCC grants Verizon the monopoly

noreply@blogger.com (Martin Carel) — Fri, 16 May 2008 03:20:00 +0000

Although the auction game the FCC uses to dish out the waves spectrum to operators may seem fair in the spirit of free markets, we need to think about what happens once the auction is won.

You can see the winner of this auction game as the legitimated owner of a monopoly. Verizon - America’s second largest mobile carrier (after AT&T) - now owns the larger part of the C-block of the 700-megahertz frequencies for a fat $4.7 billion. The Economist makes a parellel with AT&T:

Verizon says it will allow new devices and applications on its network “provided they meet minimal technical standards.” Verizon will be free to set those standards, as well as the charges for access—just as AT&T did before the courts finally ended its stifling monopoly over the American telephone system with the landmark Carterphone decision in 1968. - The Economist

Instead of having one single private entity to own this part of the spectrum, an alternative could be to have a consortium of companies. This consortium would have more plurality (bringing together different interests in the industry) and legitimacy (having the consumers in mind).

The FCC, as its mandate requires, will supervise the usage made by Verizon, but it could have been stricter while attributing those frequencies. The article goes on:

The one thing the FCC could have done, but didn’t, was to insist that open access also meant the winner of the C-block of frequencies would be required to lease airwaves to competitors. [...] The FCC ducked the issue, and left Verizon to determine who can operate on its airwaves and why. - The Economist

Verizon paid $4.7 billion to the FCC for the C-block. No doubts the profits will follow soon enough. It's just a pity that the current big players will grow even bigger.

Google's late move to standardize the value of a click

noreply@blogger.com (Martin Carel) — Thu, 10 Apr 2008 05:39:00 +0000

ComScore generated some noise when its report in February came out and exposed a diminution of the amount of paid clicks compared to the previous month. As a matter of fact, Google recently changed its criteria as to when to display its search ads and it apparently had some repercussions in the number of paid clicks.

Those changes are meant to increase performance or the quality of the traffic, which, in the affiliate marketing business, means a traffic with more value since it will lead to a business transaction. In the process, sites generating poor quality traffic have been penalized. As Marc Porcelli says, "for publishers doing arbitrage and sending poor quality traffic, many were negatively affected." And a recent post on Google AdSense's blog, kindly suggests to shy away from such practices.

So in short, Google might have fewer clicks than in the past, but those clicks might, with time, carry more value. Put in other words:

So if the drop in paid clicks turns out to coincide with more conversions into actual sales, Google's revenue for each individual click ought to shoot up, since the marketers would be prepared to pay more. - The Economist

This move towards performance is all but new in this advertising network business. CJ and TradeDoubler, major players in this industry, have been using this technique for a long time already. Linking the amount of sales generated after the click when determining the cost per click (CPC) seems like a natural evolution . It will probably become the standard, as the move now comes from the largest ad network. But the ultimate consecration for calculating the CPC will be done on the day Google announces its next financial results. As BusinessWeek notes :

To allay the concerns swirling around Google, the company will have to post strong financial results for the upcoming quarter. Doing so will be the only thing to convince Wall Street that, when it comes to online ads, it's about much more than the number of clicks. - BusinessWeek

The big picture of the materials economy

noreply@blogger.com (Martin Carel) — Thu, 13 Mar 2008 10:16:00 +0000

The Story of Stuff features Annie Leonard dedicated to spread the message that something is wrong with the American materials economy: the current rate of US consumption is unsustainable for our planet.

Focusing on the USA, Annie explains how the economy is articulated around consumption and brings evidence how our society generates so much waste.

Although some of her claims are questionable - like the alleged decline in Americans' happiness or the pillows sauced in toxics - I found her message simple, well-structured and compelling.

Some would mistakingly tag Annie Leonard's initiative as anti-capitalist. But she is not saying that capitalism is the crux of the problem. She rather sheds light on the fact that lots of the externalized costs of production of global corporations are hidden from view. Nuance. Businesses are not bad in itself, but general consciousness is needed to bring checks and balance to those businesses.

In short, "the Story of Stuff" is a wake-up call on our greedy consumption habits and successfully stresses the need to see the big picture if we want to be conscious of the whole production chain, which in turn will enable us to make better consumption choices.

The business model for spam

noreply@blogger.com (Martin Carel) — Wed, 05 Mar 2008 06:14:00 +0000

Last week, there was a notable precedent in the US: a "very successful" spammer from North Carolina was found guilty and will serve 9 years in prison. Defying legislation and jumping through hoops in order to reach our inboxes, spammers account for not less than 96% of all emails according to Commtouch, a security-software company. Despite the hatred most of us have towards spam, the fact remains that it is a very profitable business. What is the business model behind spam?

If it works so well, that's because there is a market for it. There are of course the clicks from credulous people that do not understand what spam is, but there are also clicks from people receptive to spam. Those customers need to fulfill needs that they can't fulfill elsewhere, because it is not socially accepted or are afraid to ask for them on the regular (visible) markets.

What are those needs? 70% of all spam email topics concerns sexual enhancers. The rest is shared among counterfeit goods, software, financial, gambling and pornography.

In this context, spam is a cheap way to reach out to those customers. And as the commenter (who heavily inspired me for this post) in the article said, the "distribution of spam topics is [the] result of customers feedback and shows what customers are afraid of asking for."

Is Google threatened?

noreply@blogger.com (Martin Carel) — Fri, 22 Feb 2008 12:13:00 +0000

According to ComScore, Google's modest search box collects 64% of all searches worldwide. Yahoo is left with 13%, Baidu with 5%, and Microsoft with a tiny 3%. Clearly, Google is the dominant player. But for how long?

In an interesting article, heavily relying on analyst Charles Knight's AltSearchEngines resources, Newsweek touches this question and describes a few areas in the search business where we can see Google's rivals:

semantics: search results based on the semantics of your query, trying to guess what you're looking for, e.g. searching for "Australia", "Canada", "England", and "history" might guess you want results on the history of the 19th-century British empire.
focus: search results from a selected domains, e.g. real estate, pictures, children.
guided queries: narrow your search with pruning options, e.g. for the term "bush", have the option to go either with politics-related or the tree-related results.
community: NosyJoe, Squidoo and Del.icio.us are all examples where the community decides what pages are relevant.
local content: focus on local content, localized data, e.g. searching for "political scandals" will bring up current scandals for a specific country (and not just any scandals).

Indeed there exists some search-related use cases where Google is far from ideal - and that probably explains why Google has bought several smaller search companies. This vacuum is where innovation grows, eventually bringing competition to Google:

The damage could take the form of a slow leak of searchers to a variety of search engines that each have some special appeal. - Newsweek

Although we might have the impression that Google is unstoppable when we look at things today, the reality is otherwise. In addition to all the search areas mentioned above, Google does not always have the edge in non-English countries. Naver, a South-Korean search portal strong on local content, receives 75% of all queries, leaving 2% to Google. In China, Google is behind Baidu. In Japan, Google is behind Yahoo.

It should be clear: Google is indeed threatened on the world market. The question is how long will it last.

Best friends: advertising and GDP

noreply@blogger.com (Martin Carel) — Mon, 11 Feb 2008 00:51:00 +0000

I read an article about the mid-term future of advertising against the backdrop of an allegedly coming recession. Nothing far-fetched: advertising in general will slow down, but not as much as in previous recessions, because of internet advertising growth (which arguably lags behind compared to offline advertising). No big surprises.

Rather, what I found interesting was this little graph plotting ad spending and GDP curves. Have a look and see how those two waltz together.

Advertising spending is an "exaggeration" of the real GDP curve. Although that is probably logical, it gives credibility to all those analyses pointing to advertising spending as a good reflection of the US economy's health.

A new definition of value redefines business models

noreply@blogger.com (Martin Carel) — Tue, 05 Feb 2008 06:10:00 +0000

There are posts that make you tick, as if you'd be peeping through a hole to see what the future is like. Kevin Kelly produced one of those recently.

The world of today is a world where anything going through the wires can be copied, free of charge. This is what fundamentally transformed our economy and he explains why, quite simply. His premise is that:

When copies are free, you need to sell things which can not be copied. - Kevin Kelly

Since (digital) copies can be copied, and copied again, they become super abundant, and as a consequence, they lose their value (no scarcity means no value). A new definition of value must be created. That's where Keller proposes 8 candidates, or generatives as he calls it, where value now resides:

Immediacy
Personalization
Interpretation
Authenticity
Accessibility
Embodiment
Patronage
Findability

This is where it becomes interesting (please refer to the original article for the details on each of the generatives), because each one of those candidates can spawn a family of business models.

As those new business models come into existence, old business models are eroding, and will eventually disappear. Those who have vested interests in those old models will fight to resist the (inevitable) changes to the previously established order. The movie and music industries, in their crusade against "piracy", are the first examples that come to mind.

In short, Kelly summarizes his argument as follows:

In short, the money in this networked economy does not follow the path of the copies. Rather it follows the path of attention, and attention has its own circuits. - Kevin Kelly

A recast of the advertising model

noreply@blogger.com (Martin Carel) — Wed, 23 Jan 2008 13:52:00 +0000

Hodgkinson compares the old and the new when he draws a parallel between the advertising model of newspapers and that of Facebook. Both businesses are using the advertisement model, showing ads along side content. But newspapers sell ad spaces (online and offline) to businesses trying to reach out to the newspapers' broad readership, whereas Facebook sells ad spaces (online) to businesses trying to target very specific users.

According to Hodgkinson, Facebook's recast of the advertising model thus becomes more sophisticated for 2 reasons:

One is that newspapers have to put up with the irksome expense of paying journalists to provide the content. Facebook gets its content for free. The other is that Facebook can target advertising with far greater precision than a newspaper. Admit on Facebook that your favourite film is This Is Spinal Tap, and when a Spinal Tap-esque movie comes out, you can be sure that they'll be sending ads your way. -Hodgkinson

Of course this type of consumer targeting is possible since websites started to collect consumers habits from their online behaviour (for example what they bought earlier). But with Facebook users voluntarily offering their characteristics and preferences on several facets of their life (not only what they bought earlier, but also their civil status, their position in society, their favourite consumer products, the type of networks the belong to, etc.), Zuckerberg's project seems to have a higher potential in its role of a selling machine platform.

I guess I'm not mistaking in saying that Tom Hodgkinson, who has recently pulled the plug on email, melancholically misses the "good old days" with less technology. Although I have a different perspective, he certainly has an interesting story to tell about Facebook.

The other man behind Facebook

noreply@blogger.com (Martin Carel) — Thu, 17 Jan 2008 12:09:00 +0000

Tom Hodgkinson, instead of focusing on Facebook's founder Mark Zuckerberg like the mainstream media do, draws attention on a venture capitalist of Facebook. According to Hodgkinson, Peter Thiel, one of the three members on the Facebook board, has his own agenda to extract money out of friendship. And the long-lasting Facebook buzz is a prologue for a lavish return on investment.

Peter Thiel is the co-founder and CEO of PayPal, the virtual banking system that allows cross-border money transfers. Hodgkinson quotes Bloomberg Markets:

For Thiel, PayPal was all about freedom: it would enable people to skirt currency controls and move money around the globe. - Bloomberg Markets

Thiel's next big step was Facebook: a platform to attract pockets of consumers and serve them highly-tailored ads.

The creators [...] simply sit back and watch as millions of Facebook addicts voluntarily upload their ID details, photographs and lists of their favourite consumer objects. Once in receipt of this vast database of human beings, Facebook then simply has to sell the information back to advertisers, or, as Zuckerberg puts it in a recent blog post, "to try to help people share information with their friends about things they do on the web.

"Share" is Facebookspeak for "advertise". Sign up to Facebook and you become a free walking, talking advert for Blockbuster or Coke, extolling the virtues of these brands to your friends. We are seeing the commodification of human relationships, the extraction of capitalistic value from friendships. - Tom Hodgkinson

With the marxist glasses from Hodgkinson's newspaper - The Guardian - Facebook is no more the catchy second largest social network in town, but rather a nice-looking trap strategically and primarily designed to (let the consumers) build a database of consumers preferences extracted from the online activity - the "sharing" between "users" in "communities" - so that it would be easy to know precisely on which ads those consumers would click.

From that perspective, Facebook certainly looks more like a highly efficient American advertising platform and its tagline - "social utility that connects you with the people around you" - can be read as pure rhetoric.

The fact is that Thiel still needs to reap the sweet apples from his initial half a million dollars investment.