Silicon Valley Watcher - at the intersection of technology and media

I caught up with Kieran Hannon the other day. He was in the Bay Area for a meeting with the Irish prime minister (he's on the board of Enterprise Ireland) and I realized it had been a good few years since I had last seen him.

He used to be co-managing director of Grey Advertising, then had gone off to Texas to work as VP of Marketing for Radio Shack, and then moved to Santa Monica, in Southern California. He's now working as COO at a promising startup called Sidebar, which has an interesting mobile technology that recommends content based on what people like, very useful for online retailers and others.

Kieran and his family had spent 18 years living in San Francisco, and I was curious what life in Southern California (SoCal) was like.

He said life was good, and that the startup scene was healthy and that there are a lot of media/technology centers there. I often write about how Silicon Valley has become Media Valley, because of all the media companies here (Google, Facebook, Yahoo, Twitter, etc) so it makes sense that SoCal, with its rich media history, would be a fertile breeding ground for media technology startups.

Earlier this week, Mark Suster, a VC based in SoCal, wrote an excellent post about startups in LA. Want to Start a Technology Company in LA?

He makes some great points:

...LA [is] the second largest city in the country with a population if 16 million. We have universities like Caltech, UCLA, USC and many more. We have many seasoned entrepreneurs who have built successful companies here and made a lot of money for investors and themselves. But LA is not Silicon Valley and we don't need to aspire to be so. We will never be Silicon Valley in the way that Toronto will never be Hollywood. But we have a great city for building technology companies.

He goes into details about how LA is not like Silicon Valley.

- Funding is different, there are smaller "A" rounds of around $3m rather than $10m here.

- Recruiting is different. There aren't huge pools of engineers, but it is possible to build 100+ sized teams.

- Commuting isn't as bad as people think it is, most people live close to where they work. And hey, commuting isn't that easy here.

- Lots of content creation skills. This is an interesting point to make because software engineers can be found almost anywhere in the world today, but content creation skills are very culture specific, you can't outsource this work.

- There are now larger numbers of successful entrepreneurs, many are on the their second and third successful company.

Here are a few success stories:

There is a lot of innovation happening in LA from places like Eqal, Deca.TV, DemandMedia's studios, Clicker, Filmaka and other initiatives.
. . .
The whole category of "sponsored search" came from a successful LA company, Overture. (my firm, GRP Partners, was an investor). LA produced Applied Semantics that created AdSense and was bought by Google. We were also an investor in the early local listing company, CitySearch - an LA company. LA was a leader in lead generation (LowerMyBills), comparison shopping (PriceGrabber, Shopzilla), social networking (MySpace ... I know, I know - Facebook won - but it was still a big business). If we extend a bit North up the coast line we have many affiliate marketing innovators including ValueClick, Commission Junction and FastClick. They also produced GoToMeeting and CallWave.
. . .
A great team from MySpace has created Gravity. Gil Elbaz from Applied Semantics has now created Factual. Zorik Gordon is tearing it up at ReachLocal. TechCoast Angels backed GreenDot should be a major IPO this year. Frank Addante has created Rubicon Project. Douglas Merrill, the former CIO of Google, is building his next company in LA. Scott Painter, founder of CarsDirect has created two new generation LA startups (Zag and TrueCar, both backed by GRP Partners). Brett Brewer (ex MySpace) has AdKnowledge, there is Adconian, Legal Zoom and many more. Hautelook, Gogii, Magento - all very high potential companies building in LA.

Mr Suster is one of the organizers of Launchpad LA V2, which was announced today. This is a project aimed at helping first-time entrepreneurs and helping to educate them and guide them in building successful companies.

We will be selecting 10 startup companies to participate. There is no cost but you must physically be based in or move to Los Angeles for the 6 months of the program. Applications are due April 6th, 2010, the form is on the website and the Twitter address is@launchpadlad

A West Coast corridor of innovation...

It won't be long before we have a West Coast corridor of innovation stretching from Silicon Valley to Southern California, and beyond.

In fact, if you fly from San Diego heading north along the coast you pass over tons of innovation centers:

- The communications and biotech industries of San Diego;

- The electronics industries of Orange County;

- The media centers of Hollywood and Santa Monica;

- Then you reach San Francisco/Silicon Valley with its electronics, software, media tech, biotech, cleantech industries;

- Then Portland with its thriving startup scene plus Intel's big presence there;

- Seattle with a thriving tech scene mostly spun out of Microsoft, and Amazon;

- Vancouver and its software industry.

Wow. 1400 miles of innovation. There's no other region like it, hundreds of miles of world-class, industry leading, innovation and creativity.

Interestingly, it's all built on top of one of the most unstable fault lines in the world. A disruptive reality. Is there a connection?

I've always said that innovation has to be disruptive otherwise it's not innovation.

The Internet is huge but it's a hodgepodge of hundreds of thousands of smaller, private networks, connected through thousands of Internet Service Providers (ISPs) and dozens of backbones operated by the large Telcos and service providers.

Moving data from one end of the Internet to the other can mean traveling across many different computers and different networks. Some of these computers and networks are old and inefficient while some are modern and very efficient.

They are all tied together into what we call the Internet, through a collection of standards. These standards determine how a packet of data can reach its destination, complete and undamaged.

Many large Internet companies own large chunks of the Internet through building their own data centers, networks, backbones, etc. This helps to keep their costs down.

Google is big...

Google is one of those companies that owns a large chunk of the Internet. It has more than 50 data centers around the world; it builds its own servers; it operates its own backbones that shuttle huge amounts of data across the world; it develops its own software for managing all of its data; it keeps banks of servers in the data centers of ISPs so that it can cache data closer to delivery; and more, much more.

How big is Google? asks Arbor Networks. It's a rhetorical question because Arbor knows, it sells network control and monitoring hardware used by the largest ISPs and corporations.

Arbor says that Google is very big:

I mean really big. If Google were an ISP, it would be the fastest growing and third largest global carrier. Only two other providers (both of whom carry significant volumes of Google transit) contribute more inter-domain traffic. But unlike most global carriers (i.e. the "tier1s"), Google's backbone does not deliver traffic on behalf of millions of subscribers nor thousands of regional networks and large enterprises. Google's infrastructure supports, well, only Google.

Based on data from 110 ISPs collected in the summer of 2009, Google was responsible for as much as 10% of all Internet traffic.

If a company wants to compete with Google on a large scale, the costs of shuttling data packets around, whether they be Twitter packets or video packets, starts becoming very important at these large scales.

Arbor says:

The competition between Google, Microsoft, Yahoo and other large content players has long since moved beyond just who has the better videos or search. The competition for Internet dominance is now as much about infrastructure -- raw data center computing power and about how efficiently (i.e. quickly and cheaply) you can deliver content to the consumer.

And that's why Google has focused on building the most efficient, lowest cost to operate, private Internet. This infrastructure is key to Google, and it's key to understanding Google.

The cost of aluminum...

Google will locate its massive data centers where electricity costs are low, such as where there is hydro-electric power. There's a shortcut to finding these locations, look for places where there are aluminum smelters -- these use huge amounts of electricity.

[Back in 2005 I was tipped off by a source that Google was looking at places for new data centers, related to aluminum smelters. But I was unable to write about it directly. I put the scoop in the form of a cryptic sentence and called it a "Crypto-Scoop."

GOOG is prophetic, rather than superstitious,
about its interest in places of power,
associated with the 13th building block of the Original Design.

(Aluminum is the 13th element in the periodic table - a fundamental building block of the Universe.) I have no idea if anyone worked it out :)]

Power and computing costs...

Google knew back then that electric power costs would be important in determining the cost of data centers. Today, it is high on the list of priorities for all data centers. That's also why it has been investing in power generating technologies, such as wind, sun, and geothermal.

It has a key goal of generating electric power from renewable energy sources at a cost less than coal-generated electric power. That would be an incredible achievement.

Always lower costs...

Google always focuses on finding the lowest costs even though it can easily afford to pay more. Google builds its own servers, made from off-the-shelf low cost components, with cheap hard drives. It has developed its own software that deals with component failure and moves work loads across huge numbers of servers. Managing failure is built into Google's data center operating systems.

It has bought up lots of "dark fiber," at a very low cost. This is optical fiber that hasn't yet been 'lit' but it is in the ground, in place, ready to be hooked up.

Because Google has so much fiber, it operates one of the largest backbones in the world. It also means that it can trade bandwidth with others.

Large Telcos and ISPs have peering arrangements with each other. This means that if they have the capacity, they will carry extra traffic for each other. These peering arrangements mean that Google's bandwidth bill for all that YouTube video is zero.

It's difficult to believe, but your bandwidth bill to watch a YouTube video is more than Google's. Because of bartering through peering agreements, its only cost is in maintaining its own networks and backbones.

Skipping the last mile...

Google still needs ISPs and Telcos for the last mile, to deliver its various services and products, to the end user/consumer. But it has been experimenting with going direct.

It has experimented with free municipal Wi-Fi, and more recently, it is setting up high speed bandwidth to communities with 500,000 people or less.

This doesn't necessarily mean that Google wants to become an ISP or a Telco. It is not a service organization and it doesn't want that headache, but it does want to spur ISPs and Telcos to develop high-speed data connections, so that it can deliver future products and services that require high speed data.

The Internet is becoming ever more Google's...

Googles growth means that it is building a much faster, and much more power efficient, and much greener Internet. And through peering agreements, it is carrying much more than just Google traffic, it is quickly, and quietly becoming an important carrier for all Internet traffic.

There are huge indirect benefits from Google's work that make the Internet a better service for every Internet user.

Essential facility...

What will this lead to? It's going to lead to regulatory scrutiny because Google will be increasingly seen as an 'essential facility' vital for the economies of regions, nations, and entire trading blocs.

Increased scrutiny by governments, and regulatory bodies, will make it more difficult for Google to execute on its business strategies. Combined with the increased scrutiny of Google's acquisitions by the Federal Trade Commission, Google's future ambitions will become ever more restricted.

Google sees the writing on the wall. It has boosted how much it spends on lobbying in Washington. [Antitrust Heat -- Google Spends Millions To Influence Washington - SVW]

A layer cake business...

Google might decide that its value lies in its incredibly efficient infrastructure, which is far more efficient and lower cost than the Internet as a whole.

Once you have the lowest cost infrastructure, you can layer and scale other business services on top. Such as payment systems, basic voice and data services, security systems, and commerce platforms (advertising).

Google might decide it doesn't need to own a Facebook, Twitter a Yahoo, or an Amazon -- when it can host all the data packets. It can carry and trace a data packet from source to destination and back again -- it can mine all that transactional data. That's extremely valuable.

It's a little known fact that Google keeps all of its data, all transactional data. It erases part of the identifiable meta data, but that can be reconstructed. [Google Keeps Your Data Forever - Unlocking The Future Transparency Of Your Past - SVW]

That transactional data is incredibly valuable, and even though we can't unlock it to its fullest value today, Google is working on it.

No umbrella...

By being able to build the most efficient, private Internet, Google makes it extremely difficult for any competitor to challenge it. There is no 'price umbrella' that competitors can use.

For example, there used to be lots of mainframe computer companies because IBM, the largest mainframe computer maker, used to charge very high prices. There was a substantial price umbrella set by IBM that sheltered competitors, and allowed them to sell IBM compatible mainframes and still make a good living.

You can see similar price umbrellas in other business sectors.

Google has made sure that by building the most efficient, lowest cost infrastructure, there is no price umbrella that could be exploited by competitors. It's more like a manhole cover, try to get under it, and you fall into a hole...

This strategy means that Google leaves money on the table, it could make more money over the short-term by creating a price umbrella. Instead, it has chosen a long term business strategy which doesn't give competitors any toehold, let alone an umbrella.

Its stock ownership is set up so that founder's stock has ten times the voting rights of public shares, this allows it to avoid shareholder pressure to pursue short-term business goals.

This all adds up to make Google into a truly formidable force, and one that continually amasses greater powers and influence. 'Do no evil' is the very least it can do.

---

Please see my PearlTree on the 'Google Internet.' [PearlTrees is an SVW client and it's a great media technology that organizes web pages in a visual way.]

People like to talk about disruption but sometimes some people misunderstand the power of disruptive technologies.

I've had companies tell me: "Yes, we know we are in danger of disruption but we see it, we can adapt, we can change and take advantage of it."

Good luck. Even when you can see the train wreck ahead. You will likely slam right into it. Disruptive technologies disrupt. Technologies are not called "disruptive" just for the sake of it.

Niki Scevak, a serial entrepreneur, writing over at Bronte Media, has a nice analysis of AOL versus Yahoo. He says that AOL, under Tim Armstrong and his team, has a more realistic understanding of the advertising markets, and where things are headed.

Carol Bartz, who I am sure is an excellent manager of large companies, seems lost. See Arrington’s article on a speech she gave recently where she said: “she’s counting on an improvement in the economy to drive Yahoo growth”.

Well, let me save you some time Carol: Stop counting. The economy won’t help you...

The second thing that enrages me about that statement is that it’s completely out of her control. And what track record does Bartz have in forecasting economic indicators? Where are the statements related to things under her control?

Mr Scevak says he will short YHOO and buy AOL.

My main reason for thinking this is that AOL has a management team that is in tune with the reality of the Internet. Yahoo has a management team still grasping with the basics of advertising and that’s not mentioning the basics of online advertising.

A better strategy might be to short both because there is a huge disruptive wave moving through the media industry. The disruption is affecting every media business, old and new(er).

AOL might have a better view into the disruption but that's no guarantee of success. Just because you can see the train wreck ahead, doesn't mean you can avoid slamming straight into it.

Look at what happened with the microcomputer/PC technologies. Over a period of about a decade, that basket of technologies disrupted hundreds, if not thousands of companies, in the computer industry. IBM barely survived. It had to reinvent itself as a computer services company.

So many companies, DEC, etc, saw the disruption ahead. But they couldn't change fast enough, they couldn't downsize fast enough, they slammed straight into the train wreck. Some did make it through to the other side but many didn't. Disruptive technologies disrupt.

Even if you see things coming, as the newspaper companies now do, there's sometimes little they can do about it. The Internet is a hugely disruptive media technology and that's where we see the disruption the most.

Newspaper, and other media companies, have to act a lot faster than they are. Many won't make it through to the other side no matter what they do. Disruptive technologies disrupt.

(Oh, and by the way, every company now is a media company, every company is in a disruptive pathway. And here's a plug for my media/business strategy consultancy services, which help me publish SVW - 415 336 7547 or tom@foremski.com.)

The excellent Atlantic Monthly published this article: Have You Ever Tried to Sell a Diamond?. It's about the origin of the De Beers organization, which sells diamonds.

As I was reading it it struck me that there might be some lessons here for the news industry.

Take a look at this:

Until the late nineteenth century, diamonds were found only in a few riverbeds in India and in the jungles of Brazil, and the entire world production of gem diamonds amounted to a few pounds a year.

In 1870, however, huge diamond mines were discovered near the Orange River, in South Africa, where diamonds were soon being scooped out by the ton. Suddenly, the market was deluged with diamonds.

The British financiers who had organized the South African mines quickly realized that their investment was endangered; diamonds had little intrinsic value--and their price depended almost entirely on their scarcity.

In the online world, there's tons of news, the market is deluged with news. News stories had value when there was scarcity (newspapers were sole sources in local markets).

So what did the diamond producers do?

The major investors in the diamond mines realized that they had no alternative but to merge their interests into a single entity that would be powerful enough to control production and perpetuate the illusion of scarcity of diamonds.

The instrument they created, in 1888, was called De Beers Consolidated Mines, Ltd., incorporated in South Africa."

What can the news industry do? Merge their interests into a single entity, a type of 'De Beers Consolidated News, Ltd' incorporated in Iceland (to avoid anti-trust).

There is a huge industry that lives off of the professional news industry. Much of that could be swallowed up into 'De Beers Consolidated News,' which could become its own news aggregator, its own Google News, Digg, Stumbleupon, etc.

'De Beers Consolidated News' could provide a single point of licensing for online reprints, reuse, etc. It might even use my idea of 'adtribution' in which reusers of news copy agree to carry the text-ads of the original news site, thereby using the power of the Internet and third parties, to disseminate news and ads.

Only the online content would be aggregated in 'De Beers Consolidated News.'

Take a look at Fair Syndication Consortium. That's getting close to a 'De Beers Consolidated News.'

- News sources that were fast, and accurate, could be rewarded by the best syndication deals.

- More money would be returned to fund high quality news stories.

- It would be a virtuous cycle. Much better than the current cycle of newsroom cutbacks, crap news stories . . . more death spiral than cycle.

Today's Google Buzz introduction was impressive in that it attempts to link together so many Internet services, and there will be more added in the near future.

Friendfeed (now owned by Facebook) attempted to do the same but Friendfeed suffered from a perception that it was mainly for the geek elite. Will Google Buzz face a similar fate? It's too early to say.

What is clear is that Google Buzz can be viewed as just one version of the 'one ring to link them all' model that many other businesses are trying to attain. If you can own that ring, you rule them all.

You can see that strategy at Facebook, Twitter, and at other companies in their fields, such as Salesforce.com in enterprise apps.

Owning instead of linking...

Google says that its future plans include integrating Buzz into its other services, and that they will observe how people are using it. And this is where Google has an advantage in that it owns many web services such as email, photo sharing, document sharing, voice calls, text messaging, maps, news readers, etc.

Facebook is also trying to become the 'one ring to link them all.' And like Google, it has its own services; it is about to launch a new souped up email system; it integrates Twitter updates; it has become one of the largest photo and video sharing sites; it has event services, and more services are on their way.

Microsoft Live has a similar strategy and similar services. And other companies are moving in the same direction, for example Nokia, with its OVI push around mobile maps, and other online services.

It will be important to own your own Internet services because third party services will undoubtably start to limit how much of their user data they are willing to share with other businesses. Such data is made available through open APIs (application programming interfaces). Open APIs are essential for social networking and sharing across many different Internet sites.

Increased competition will very likely be reflected in constraints on open APIs. Why make it easier for another business to roll up your user data? Each business will try to make life difficult for its competitors, and for future ones.

From open APIs to ajar...

APIs will become 'ajar' in that they will be partially open. Limited APIs are hated by the geek community but they make perfect sense for businesses trying to stop competitors from profiting from their user communities.

Limited APIs will make it very difficult for Google, or any other company, to create a 'one ring to link them all' model. We are much more likely to have a series of separate 'rings,' each one representing a fairly closed, self-contained world, where common Internet services are aggregated.

Unfortunately, this all points to a future Internet that is increasingly closed and proprietary.

- - -

Introducing Google Buzz

Microsoft Slams Google Buzz

Yahoo: We've Had Our Own Google Buzz For Over A Year (YHOO, GOOG)

How Google Buzz Validates but Marginalizes FriendFeed

Google's poor social score

I never believed in online shopping price comparison services. Because I never believed that retailers would allow their sites to be scraped and their prices easily compared.

Why would they do that? What advantage is there in allowing third-party services to undermine their business?

I have rarely been able to find a straightforward price comparison that was able to factor in everything, such as shipping, taxes, and extras.

The East coast camera retailers, for example, would advertise low prices online but then charge you extra for flash memory, shipping, warranties, and 'camera kits,' that quickly negated any savings.

And it makes sense that retailers would try to make it as difficult as possible to get a clean price quote because otherwise they are at the mercy of the lowest price competitor. They would also be at the mercy of their stupidest competitor -- the one that charges an unrealistic price, too low to maintain profitability or viability.

Today's New York Times has a report by Brad Stone on yet another aspect of online pricing - manufacturers seeking to control what price retailers can advertise on their products.

The Fight over Prices on the Internet - NYTimes.com

On some pages of e-commerce sites selling products like televisions, digital cameras and jewelry, a critical piece of information is conspicuously missing: the price tag.

Customers have to go to the online checkout to see the price. These missing prices are more likely to be methods of thwarting price comparison engines rather than manufacturers' price controls.

Retailers have long managed to get around pricing controls by giving other things away. For example, Apple dealers aren't allowed to under cut each other on price but they can give away printers and other products, which effectively undercuts Apple's recommended retail prices.

What is much more interesting is this tidbit, buried deeper in the NYTimes article, almost at the very end:

Instead of selling e-books wholesale to retailers like Amazon.com, the publishers want to sell them directly, setting prices and having the retailer act as an agent, taking a fixed 30 percent commission.

Wow. Turning Amazon into an affiliate! How ironic, since Amazon is one of the largest affiliate marketers, offering a percentage of revenues sold by third parties.

This is the danger that online retailers now face: what if their suppliers want to sell direct?

A search engine, such as Google or Bing, would be able to make it very easy to find the online stores of the manufacturers of many goods. This would be like a huge outlet store in the cloud.

In most cases manufacturers are already drop-shipping orders on goods collected by online retailers. Why not cut out the middle man?

In addition, the manufacturers would be collecting important customer data -- data that is currently kept by the retailer. They would be able to develop a direct customer relationship for the very first time (beyond the voluntary 'warranty' cards found with many products).

And if you know who bought what and when, it becomes easy to work out who will probably be needing a new washing machine, or computer, because the old one is on its last legs. Your marketing goes direct -- which cuts out a lot of costs.

Fortunately for the retailers, manufacturers don't know how to market well, or how to manage a direct customer relationship. At least, not yet...

Amazon has some protection from this trend in that it has layered on a lot of cool features and services, such as customer reviews, and secure online payment systems. That will help in retaining customers and making it less attractive for its suppliers to sell direct.

But it's clear that there are troubling signs ahead, that the Internet does make it possible for manufacturers to sell direct; and that search engines could create the storefront; they could aggregate customer reviews; and offer secure payment services (Google Checkout).

Online retailers are caught between a rock (search engines) and a hard place (suppliers selling direct). Both have sound business reasons to squeeze out the middle guy.

This is less true for retailers that also have physical locations such as Wal-mart or Best Buy. Will Amazon make a bricks and mortar acquisition?

Rick Edmonds, over on Poynter Online, notes that the classified ads sector dropped to $6 billion in 2009. This compares with $10 billion in 2008, and $19.6 billion in 2000.

Much of that drop can be attributed to Craigslist, which doesn't charge any money for most of its classified ads listings. With about 30 staff, Craigslist has managed to usurp a huge amount of newspaper ad revenues.

You can't compete against an organization that charges nothing. And Craigslist charge nothing for most of its classified ads because it can. It doesn't want to make money on its ads.

Craigslist founder Craig Newmark is very rich, but these are 'accidental' riches, it is an embarrassing position for him. Same for Jim Buckmaster, the CEO. Jim spent ten years at a commune in Ann Arbor, Michigan.

From Answers.com:

"We try to maximize social capital rather than financial capital," explained Jim Buckmaster in a 2006 Daily Telegraph article of the philosophy that held sway at craigslist from the start. "We get a lot of personal satisfaction from all the thank-you notes we get from people. We have it pretty darn good. We just don't see any reason to try and put a bunch of zeros at the end of bank balances that are perfectly adequate."

"We're not so much anti-capitalist," said Buckmaster, who lived in a rented house and had never owned a car. "We're fortunate enough to have built a very healthy business, even though we haven't attempted to." Newmark, who owned a modest home in San Francisco and drove a Toyota Prius, explained it thus in the San Francisco Chronicle in 2001. "I have no objections to being rich, and I'm sure not anti-commercial, but we made a conscious decision about what craigslist was all about. And it's not about making money."

How can newspaper's compete when their competitor doesn't want to make money?

Craigslist execs often say that the newspapers are profit hungry corporations.

But, classified ads revenues put a lot of dinners on a lot of tables in a lot of communities. People employed in taking classified ads were regular working people.

And the ad money supported tens of thousands of hard working journalists, earning fairly low salaries. The ad money subsidized news gathering operations that are essential to local communities.

That represents a hell of a lot of 'social capital.'

It remains to be seen if "citizen" journalism can fill an expanding hole in quality news coverage.

I'm not criticizing Craigslist specifically, because if it wasn't them, it would be someone else exploiting this opportunity. But it shows how the Internet enables a team of just 30 people to replace the work of ten of thousands, more likely hundreds of thousands of people.

If you extrapolate from Craigslist, to many other industries that are being disrupted by Internet economics, you have to question how will people earn a living?

In the past, we have managed to create new kinds of jobs. And to some extent, new jobs are being created, such as in search engine optimization, or social media experts. But these are hardly mainstream jobs.

It seems to me that all this progress in creating ever more efficient industries will require a restructuring of society. And that's never a pleasant prospect.

- - -

Please see: A Saturday Post: The Internet Devalues Everything It Touches, Anything That Can Be Digitized - SVW

Foremski's Take: My first impression of Apple iPad is that its low price of $499 is due to the fact that it's basically a storefront for Apple's iTunes and iBooks online store.

It looks like there is no Adobe Flash video support, or Microsoft Silverlight video support, which means no Hulu, no BBC iPlayer, no Netflix Direct. You won't be able to stream video from anyone but Apple.

Belt-and braces DRM...

By using the iPhone OS and its own proprietary hardware, Apple has managed to build a solid belt-and-braces digital rights management (DRM) system, that is the platform itself.

Applications and media designed to run well on the iPad will be optimized to run on the Apple iPhone OS and also, on its proprietary hardware, the A4 microprocessor.

This provides an extra level of DRM support making it more difficult to pirate apps and media onto other platforms.

Buy all media through the Apple funnel...

Apple says iPad "comes with iTunes and iBook" stores. Apple is setting itself up as the funnel for all other media.

Media creators, after Apple approval, will be able to sell their content: tunes, movies, TV shows, books, podcasts, newspapers, apps, etc through its online store, delivered to Apple devices such as iPad, iPhone, optimized to run the media at its best.

Apple takes a cut of the revenue...

By building a proprietary, closed platform, with its own hardware and software, Apple is able to capture a larger part of the value stream from selling media.

The benefit to customers are:

- cheaper devices subsidized by media sales
- A very good customer experience because the media and platform are co-optimized for each other.
- Easy access and purchase of media through WiFi to iTunes or 3G (AT&T data plans.)

Issue for media publishers...

The issue for creators is that Apple is the only way to get media and apps onto the iPad and iPhone. You have to go through Apple.

Will they try to weaken Apple's position by making their media available on other platforms? Yes. But Apple knows the customers will decide and it has a very strategic customer base of early adopters.

Fanboys...

Although Apple has a tiny share of the overall computer and phone market, its customers form a large share of the early adopter market. This is a well-heeled group with lots of money to spend on media -- more than any other comparable demographic.

From the early adopters comes the development of mass markets. The iPhone went from an elitist toy to a mass market phone in less than 2 years, in many countries -- a trend that will get larger after exclusive carrier contracts expire.

From e-media to i-media...

Apple is making a bold bid to tie up a dominant share of the future media e-commerce market -- the sale of digital books, movies, newspapers, etc.

Its proprietary hardware and software strengthen its DRM; media creators want strong DRM, which will attract them to Apple. And it's iTunes store distributes the media for them and collects payment.

In this way, through its closed and tightly controlled systems, Apple can provide a high quality experience to users, and provide media and apps creators with a highly efficient commerce platform.

This is how Apple will dominate the sales of all future forms of digital media.

- - -

UPDATE: Nicholas Carr seems to agree. He has written "Hello iPad, Goodbye PC"

Towards the end of his article, he writes:

"Today, Jobs's ambitions are grander than ever. His overriding goal is to establish his company as the major conduit, and toll collector, between the media cloud and the networked computer.

Jobs doesn't just want to produce glamorous gizmos. He wants to be the impresario of all media."

Please see:

The Mysterious Apple A4 Chip - Where's MSFT's and GOOG's Chip?

I've been meeting a lot of media people, and having the same conversation, how difficult it is to make a living. Even if you work for a 'new media' publisher, it's tough to make a living as a media professional.

I shouldn't be surprised about all the disruption going on in the media sector because I was one of the first to draw attention to the gathering disruptive forces that will affect media way back in 2004.

That was the year I left my job as a reporter at the Financial Times to make a living as a 'blogger' journalist. By being the first reporter to do that, it has given me a valuable insight into the media sector as a whole.

My business reporting background gave me the analytical tools I needed to figure out what was happening in the media industry.

I understood how the old media business worked because that's where I came from. And in my new job as an online publisher, I saw the economics of the new world.

I quickly saw that the old media world would face a huge problem transitioning to the economics of the online world.

Althoug it was five years ago I started warning people about this massive issue, few understood there would be a problem. The difficulties in the media industry were seen as part of a business cycle rather than the fact that a fundamental change had happened.

I could see that there was no way that a current media business could make the transition to economics of the online world without a tremendous amount of pain. Even a large regional newspaper such as The San Francisco Chronicle would be in trouble. In trouble because of its many costs: more than 400 editorial salaries, its admins, its pension plans, office buildings, expense accounts, its vans, its printing press etc.

There was no way online revenues would support that cost structure.

I could see that "you can't get there from here." It's a wonderful American expression that makes perfect sense in the context of the media industry.

Back in 2005 I was writing articles about this issue and asking "What will happen if the old media dies before the new media learns to walk?" What will happen if this coming disruption is so devastating that we lose the best practices of journalism that have taken hundreds of years to develop?

What happens if we lose most of our journalists, editors, and all the rest of our media professionals?

Five years ago I thought that by now we would have figured out a viable business model for most types of online media businesses.

Five years ago I thought that we would go through a tough disruptive period that would shake up the media industry but that by now we would have figured out the new media business model.

I was right about the disruption, I was wrong about how long it would take.

So I shouldn't be surprised that media is a tough place to be in right now. I shouldn't be surprised that many of my conversations at CES have been about how tough it is to be in the media business.

It's frustrating that my foresight into the media sectors future challenges has been no more valuable than hindsight. Seeing the future doesn't mean you can change the future.

I, too, am caught in the middle of the disruption, I, too, am trying to figure out how to make a living as a media professional...

I love my beat: reporting from Silicon Valley at the intersection of technology and media. Silicon Valley is now a Media Valley, driving much of the disruption of the media industry. And I love the irony that media is the worst place to be as media professional, but it's the most fascinating story around. And I love that I'm in the story too.

And it is great to be in the middle of one of the most important questions facing society: How do we figure out the new business models for professional journalism?

The software engineers have a saying: Garbage in, garbage out. We need professional journalism because we need high quality information so that we can make good decisions as a society.

We need high quality information so that we can improve our chances of making the right decisions about many important things: environment, economy, the middle east, education, energy . . . and that's just those that begin with the letter 'e' -- there's plenty more.

As the media industry transitions to a new business model and as we figure out what that business model will be, we will face a very tough period for our society. We will have a free-for-all media world that will be exploited by various self-interest groups, nefarious organizations, and criminal groups.

I'm optimistic that this coming Wild West world will be short-lived and its effects transitory but that's just a guess.

In the meantime, it would be great if we could speed things along, speed the disruption in the media industry but not throw the baby out with the bath water. We need to make sure that enough of the old media world transitions into the new, so that it can teach the new media world how to walk.

A common discussion I've been having at CES with other journalists, bloggers, and publishers of new media sites, is about how difficult it is to make a living. It's not just the traditional media companies that are struggling.

You need a huge amount of traffic to make a living as an online journalist, news site or blog site. I keep hearing from other online publishers a similar story: 'I can't do this for much longer.'

One publisher asked: "Why aren't large advertisers such as Microsoft, Cisco, Intel, supporting our work?"

I can sympaphize because I'm in the same boat. Intel, Tibco Software, Infineon, Edelman, were early sponsors of SVW and I'm very grateful for that support. But I haven't had any sponsorship in close to a year and I know many online news sites run by veteran journalists, unable to win any support from large companies.

But this is the precise time that companies such as Cisco, Intel, Hewlett-Packard, IBM, Adobe, Dell, and others, should be stepping in and investing in the new media publications, choosing those that are run by experienced veteran journalists, ensuring that what emerges from the disruption of the media industry is quality media.

Otherwise it will take years to rebuild the integrity of the media sector because we will have lost our best people, they will close down their sites, they will get other jobs.

This is the best time for large companies to spread some sponsorship monies around and help birth the next media industry.

If they don't, they will have huge problems dealing with a future media sector that has to relearn, rediscover its best practices, its ethics, and its integrity.

Dell, for example, did a lot to help online news sites such as CNET, when they first began to publish in the 1990s by providing generous advertising deals.

Of course, I have an enormous self-interest in all of this because I want to continue to doing what I love to do, publishing SVW. But I'm having to branch out into consulting and other work, so that I can support my journalism. I'd rather spend my time working full-time on SVW.

I have a self- interest but I am not self-centered. There are many others in the same position as myself. There are many journalists trying to build great news sites, create unique content, and striving to maintain the best practices of their profession.

Now's the time for large businesses to step up and to support those ventures through sponsorships and other deals. Now's the time because those opportunities won't be there for long. Those nascent media ventures will be gone. The opportunities to promote the best media organizations will be lost.

Five years ago I pointed out that every company is now a media company. That means every company has to develop the skills and expertise of a media company. Without a vibrant independent media sector there will be few models, few professionals, to help companies with one of their most important business transformations.

The dirty little secret about all of this is that it's not just the media industry that is being disrupted, that's just the visible part of a much larger issue.

If every company is now a media company, then every company is now vulnerable to the disruptive forces affecting media companies.

We're all in it together but we don't all yet realize it.

With all the fuss around Google's Nexus One phone I was reminded of the words of @shitmydadsays:

"Son, no one gives a shit about all the things your cell phone does. You didn't invent it you just bought it. Anyone can do that."

Anyone can spec out a phone and have it manufactured. Google needs more than a phone, it needs the network it runs on. That's because Telcos have total control over what features and services they will allow. A phone is nothing without the network.

Google needs its own wireless Telco business because otherwise it risks being blocked from the mobile Internet -- the fastest growing ecommerce sector.

What good is a Google phone if you don't have any control over the applications and services that run across the network?

Google risks being cut out of mobile search services on mobile platforms, or being positioned a click or two away because of future business decisions made by a Telco. And on a mobile phone, if you are a click or two away, you might as well be in Siberia. Net neutrality laws won't protect you from such a scenario.

Telcos block innovation

The Nexus phone does nothing to challenge the power of the Telcos.

The Telcos have invested heavily in technologies such as VOIP and faster data networks and have brought down their costs of operations tremendously, yet the cost of mobile plans hasn't gone down, it continues to rise.

The Telcos have the government on their side, it is a regulated industry, and one that brings in huge amounts of money to state and federal government agencies — take a look at your monthly bill and see the dozen or more taxes and fees. This relationship between government agencies and the Telcos helps keep out competition and keep monthly fees high.

Yet wireless data communications lies at the heart of many innovative products and services being developed by Silicon Valley companies.

The Telcos are holding back innovation because they control who is allowed to offer applications and services.

- They regularly block innovative features within cell phones.

- And the high cost of their monthly plans has created a digital divide far greater than the one on the desktop.

It is important to bring real competition into the wireless space to bring down costs, to bridge the digital divide, and to ensure that Google and tens of thousands of other companies can offer their applications and services on an even playing field.

A Google phone won't do it.

If Google acquired a Telco it would own its own network and it would also own a billing relationship with millions of customers. It could then introduce new services knowing that it couldn't be blocked. It could also ensure that its partners and application developers would have open access. It would become a true platform.

If it doesn't do this it risks being blocked by a Telco that decides it is a competitor.

A phone is nothing without the network.

A massive dislocation in the crust of the media landscape caused by self-publishing media technologies will raise a media Tsunami that will wash away at the value of all media.

The media is dead, long live the media. We now have more media, in more formats, in more times of the day and night, from more people -- than at any other time in history. And we will get even more in 2010.

The many different forms of media will continue to flourish and splinter and to compete with each other in 2010, only at a far greater scale.

This is all made possible because of the availability of very powerful and inexpensive self-publishing tools and services:

- Blogging software helped make self-publishing easy. Movable Type was a breakthrough product in the early 2000s, the 'Pagemaker' of its day. But you had to know how to install it and configure it. These days, there are multitudes of hosted publishing platforms that make everything simple. Posterous, for example, allows you to blog by simply sending an email to your account.

- Twitter makes self-publishing even easier, using the simple text message format to send a short post.

- Facebook and other social networks are set up to make self-publishing tremendously simple. Facebook, for example, automatically creates a news feed based on what you did: Tom uploaded some photos, Tom is going to Jill's party... all without having to actually write anything.

- Same for video, music, podcasts...

The single most important technology of the past decade has been the development of self-publishing tools and services.

And very importantly: we have now traversed the cultural change that questioned whether we needed these tools, whether blogging or Twitter or Facebook or YouTube really mattered, or have a future. We've moved on.

We're now entering the full-blown creation and publishing phase. It's not just a relatively small group of early adopters that used and evangelized these tools and services, it has now moved mainstream. It is now involving millions, tens of millions, and soon hundreds of millions of people.

We have all the elements in place for a media Tsunami. A giant wave of media of all types will wash over us.

And it won't be all dross — there will be a huge amount of great media, great blog posts, great Tweets, great videos, great discussions, great music.

What will this mean?

This Tsunami will wash away at the value of all media. By value I mean the monetary value.

-If you are trying to make a living as a media professional it's going to be even tougher this year. You will need something else to sell aswell.

- The advertising model will continue lose value simply because there is more competition for attention and it is tougher to aggregate large numbers of readers or viewers. This will affect established media brands and also new brands entering the market.

- All the ills affecting the media industry in TV, radio, newspapers, book publishing, etc, will continue, and will accelerate in 2010.

- PR and marketing will be even tougher in 2010. It will cost more for a company to rise above the noise. But few companies will realize that they need to spend more on PR and marketing because they think that you can use 'social media,' which is free. When in fact it's all media and it's not free because people's labor isn't free.

- It will become tougher to have good government, to make good decisions as a society, to vote for the right solutions because it will be difficult to communicate amidst all the noise and clamor for attention.

The media Tsunami will come in waves but it will eventually break. And much of the freely generated media will eventually come under commercial control.

The media brands that survive the Tsunami will do very well. From a highly fragmented media landscape will emerge some very large and very profitable media businesses -- unencumbered by the restrictions that currently govern media conglomerates.

However, we face a tough time, a disruptive period, a wild west of sorts. A very interesting time. Paradoxically, media is the worst business to be in right now but media is the best story around.

Welcome to 2010 and a decade that will be defined by its media and will redefine media — time and again.

- - -

In an effort to make a living as a media professional in 2010 I realize that I will need to expand into consulting services to support my 'habit.' You can contact me at 415 336 7547. Or Tom at Foremski.com.

The British call this decade (2000s) "The Noughties" from "nought" also known as zero in most English speaking countries.

John McCrea, from Plaxo, writes about his top ten events of this decade.

These are:

- The Dot Com Bubble Collapse.
- Broadband and Wi-Fi.
- Google IPO.
- Blogging.
- YouTube.
- Facebook.
- Twitter.
- Ereaders (Kindle, nook, and more to come).
- Apple, iPod, and iPhone.
- The Social Web.

You can read his reasons for each choice here: Silicon Valley: Top 10 of the 2000s « The Real McCrea

I agree with many of Mr McCrea's choices. I would say that the top one for me, would be the AOL/Time Warner merger.

I remember in the late 1990s chatting with my friend Carol Dukes, who was at the London School of Economics at the time, and later became one of the UK's top female entrepreneurs.

We were discussing the dotcom madness going on, and she said she could predict when the bubble would burst.

I was intrigued. She said she couldn't tell me the exact date but that it would happen when a 'new economy' dotcom company acquired a large traditional company. She made that prediction a couple of years before the AOL merger with Time Warner was announced.

And she was right. That merger marked the start of the dotbomb.

That merger never made any sense to me. Why would shareholders of AOL want to own a 'brick and mortar' company such as Time Warner with its slow growth strategy? Why would shareholders in Time Warner want a high risk fast growing business such as AOL?

Both sets of shareholders were completely different in their investment strategies and their risk tolerance. It made no sense and neither did the two different management styles and objectives.

The AOL/Time Warner merger was a ridiculous deal and the madness of the deal was the sign that the bubble had burst. What followed was several years of hard times for Silicon Valley. And it's taken years to recover from the dotbomb.

Now that AOL/Time Warner have broken up maybe this is a sign that a new era has emerged and that finally, we have repaired the deep, gouging effects of the dotbomb.

Maybe this next decade will be one of new growth rather than one long recovery from the excesses of the 1990s...

Ribbit, the SIlicon Valley based subsidiary of BT, the UK telecom giant, this morning launched its Ribbit Mobile service which offers a suite of products ranging from control over phone lines to transcription of voice mail--all managed from a web browser.

Users can make free phone calls over the Ribbit network; they can switch calls to other numbers in mid-call; they can create a "clone" of their phone through a web browser; they can have voicemail messages transcribed, and many other services.

The cost for the premium service is $30 per month. Although Ribbit calls this a "consumer" service it is really designed for the mobile business person, a "road warrior." There is a free, and a $10 a month version with certain limitations.

Ribbit is a platform...

Last week I met with Ribbit CEO Ted Griggs, Don Thorson CMO, and Crick Waters EVP Strategy and Business Development.

It might seem that Ribbit is a developer of telephony applications such as Ribbit Mobile but that's not the case. Ribbit enables applications like Ribbit Mobile.

It has built a technology platform that merges voice and data telecommunications networks over the Internet using a software switch approach. Developers use its APIs to create a wide diversity of telephony services and to integrate them into other applications.

"Ribbit Mobile is a complex service, but yes, a third-party developer could have created it," said Crick Waters, EVP Strategy and Business Development.

A Silicon Valley phone company...

Ribbit likes to call itself "Silicon Valley's first phone company." I have written about the company several times and recognized its potential to disrupt the larger Telco companies.

When it was acquired by BT last year, I was disappointed. I wrote:

It is disheartening if we, as journalists, pick up interesting companies to write about only to see them being acquired by the very companies they are supposed to be disrupting.

Ted Griggs, CEO, said: "The BT acquisition enables us to scale our technology across a large telecoms network. And BT's international business connections become very beneficial in helping us to enter new markets -- it would have taken us much longer if we were to try and do this ourselves."

The acquisition of Ribbit was masterminded by BT's JP Rangaswami, managing director of innovation and strategy.

I met with Mr Rangaswami in July, during a visit to London, and I was impressed with his understanding of how Ribbit's technology could be used to move BT into new markets. I was also impressed by his strategy of moving BT into many types of innovative services, recognizing the business potential in becoming a platform for thousands of third-party developers rather than trying to own the applications.

Google Voice and other competitors...

While there are competing services to Ribbit Mobile such as Google Voice, there isn't any competition in terms of the combined telecoms platform that Ribbit and BT can provide.

This is something that Google will have to address, not just for Google Voice but also for other services. Google will have to partner or acquire a large telecoms platform otherwise it can be blocked in its future ambitions.

Showing developers the money

The key test for Ribbit will come from its ability to attract developers.

Don Thorson, CMO, has come up with an unique way to reward developers. "We will offer the applications for free and then split the revenues with developers based on how much usage they get per month per user."

This is a much better model than for iPhone or Android developers. Apple likes to point to the more than 85,000 iPhone apps but this is not a sustainable business model if just a tiny fraction of developers are making money. The winning platform will be the one on which developers can make money.

Plus, Ribbit developers get access to BT's billing systems and BT's existing relationship with millions of households and businesses.

Clone your phone...

There is another aspect to Ribbit that is very interesting, it allows you to "clone" your phone. A web based version of your phone is available from any computer device. If you were to lose your phone you would still be able to access it from any web browser.

This potentially provides an end-run around all the phone wars and takes BT beyond the phone and beyond the confines of its own network. Android or iPhone, it doesn't matter in Ribbit's world.

Ribbit becomes the point of the spear for BT's new business ambitions while at the same time allowing third-party developers to share in the action.

It's a potent business strategy and one that I don't see at any other telco. It'll be interesting to see how competitors will react. In the meantime, Ribbit and BT have a head start.

- - -
Please see additional coverage:

Ribbit challenges Google Voice with Ribbit Mobile | VentureBeat

Ribbit Mobile's Launch Shows BT's Strategy Isn't Just All Talk

Ribbit Mobile Launches to Challenge Google Voice, VoxOx

Mary Coughlan, the Tanaiste, or Deputy Prime Minister of Ireland, is in Redwood City this evening announcing a deal between Ireland's innovative telecommunications company Cubic Telecom, and Qik, the popular cell phone based video blogging service.

Cubic Telecom is founded by Pat Phelan, one of Ireland's top entrepreneurs. Cubic Telecom provides the MAXRoam service, consisting of Travel SIMs that can be used with any cell phone and provide users with local call rates no matter what their location.

The deal with Qik will enable MAXroam enabled cell phones with cameras to stream live video from more than 160 countries without the high charges from roaming fees. Their slogan is "Go mobile, not broke."

- - -

Please see:

Here is a quick 3 minute interview with Pat Phelan when he was in town last September.

I come across a lot of people that believe that the media is making the downturn worse because it reports on negative stories. I wish it were true because then the media could turn around this recession by writing positive stories--it would be a lot cheaper than any stimulus package.

I don't think there is any risk in making things worse by reporting a fascinating post on the Facebook ACTA Open group--an excellent source of global financial analysis. Here is a recent post on the massive collapse in Japanese industrial production.

Japan's industrial production fell almost 10% in December compared with November, worse than the METI (Ministry of Economy, Trade and Industry) forecast. METI has re-done its forecasts for January to a 9% drop, and February down another 5%. That knocks almost 30% output since September, putting it back, at the level of the early 1980s. It took 25 years to reach levels that have been unwound in five months.

This is unprecedented destruction of Japanese industrial production--far worse than any comparison with the Great Depression.

The numbers coming out of Japan are no longer about degradation, but historically unprecedented destruction.

Here is the entire post:

I couldn't agree more with the following essay on the current economic crisis from David Roche, submitted to the ACTA Open dialogue: Using public debt to fund private debt delays the inevitable and could extend the economic recession.

There is too much comparison of the current situation with the period of the Great Depression and the Japanese economic problems of the 1990s. Mr Roche states that "We have created our own very serious, but quite unique, mess."

Using public debt to prevent deflation of assets will extend the current crisis. A better approach:

. . .forcing the banks to write down their assets to market and take the hit to shareholder capital before recapitalization begins. Without this, there is no way of knowing how much capital is needed and no telling which institutions are solvent or distinguishing between good and bad banks.

In the US, about 90 per cent of all the measures to deal with the credit crisis aim to prevent asset prices falling to market levels, at which they would clear. The balance sheets of borrowers and creditors will remain encumbered by dud assets and liabilities, slowing the resumption of credit expansion and risking stagnation of the process of intermediation between saving and investment.

It is a hard pill to swallow but it must be swallowed if we are to reset our economy.

Also, I continue to be amazed at all the economic experts that come up with bailout packages of one kind or another. It seems clear to me that none of them, including our chief regulator, Alan Greenspan, have a good grasp of how the economy functions\. Mr Greenspan's recent visit to Washington was astounding, he admitted that there was a serious flaw in his understanding of financial markets! For forty years he and his staff "regulated" the US economy based on faulty assumptions!

YouTube - I Was Wrong! Alan Greenspan

Since no one really knows how things work the best thing to do is to let the economy correct itself without interference.

That means we write down the inflated assets, and take the bitter pills, and let the economy unwind its huge leverage, and then we can clearly see where the economic stimulus packages can be applied. Trying to fix things based on assumptions can only make things worse, imho.

Here is the full essay Thrift is the Future: Interventions will only Prolong the Credit Crisis by David Roche:

The current economic crisis has yet to make itself felt in all of its fury. One of the most sensible commentators is Nassim Nicholas Taleb, a former "quant" on Wall Street. I've been recomending his book "The Black Swan" for more than a year.

Here is a very recent interview with the author on Charlie Rose, note: it is not for the faint of heart!

One piece of silver lining is that Mr Taleb recommends a portfolio balance in safe cash/bonds and only 10 to 20 per cent in high risk investments because the "medium risk investments" have hidden risks. That could be good for venture funds. Somebody should start a Black Swan Fund.

Here is Mr Taleb's web site: http://www.fooledbyrandomness.com/

"My major hobby is teasing people who take themselves & the quality of their knowledge too seriously & those who don’t have the courage to sometimes say: I don’t know...." (You may not be able to change the world but can at least get some entertainment & make a living out of the epistemic arrogance of the human race).

Here is Mr Taleb getting angry about bankers and economists. "The crisis might not even have started yet..."

Great interview with Mr Taleb.

Nassim Nicholas Taleb: the prophet of boom and doom - Times Online

The reason we have such a huge choice of low cost computers and all sorts of gizmos and gadgets, smart phones, and electronic toys is because of the amazing advances in chip designs. Hundreds of small chip design firms are producing incredibly advanced semiconductors that power a slew of innovative devices.

But the reason we have so much innovation in the chip industry is because of a manufacturing revolution that began more than twenty years ago. In 1987, Taiwan Semiconductor Manufacturing Company (TSMC) was founded as a new type of chip company--it was a semiconductor foundry--it made chips for other companies.

This completely transformed the chip industry and ushered in an innovation explosion. Chip designers didn't have to build their own chip factories, they could buy production time from chip foundries. Previously, chip startups had to raise hundreds of millions of dollars, primarily to pay for chip production--yet their value was in the designs.

Chip foundries led to a dramatic cut in the cost of establishing a chip company. Investment now went into chip design, not building a manufacturing line and learning how to run it.

This simple manufacturing revolution is responsible for all the innovation in electronics. And that's a model that could be effectively applied in the automotive world, and unleash a wave of innovation.

Manufacturing expertise . . .

I support a bailout of the automakers for one key reason: manufacturing expertise. If they shut down then we lose many decades of manufacturing knowledge and processes--it would be hugely expensive to recreate.

That manufacturing expertise can be used to build a Hummer, or it can be used to build hybrids, electric cars, and anything with wheels and an engine.

There is a tremendous amount of innovation in transportation that could be unlocked if you didn't have to have build your own factory to make the vehicles.

General Motors and the other car makers know how to re-tool lines to make all sorts of vehicles. They know what designs, and components work, and what doesn't; they have relationships with parts manufacturers, they have software design systems, test systems, air tunnels, algorithms...

They also know how to get through the red tape of qualifying vehicles for US roads. There is a massive amount of knowledge and expertise within the Big 3 that could be applied to producing the greenest of green vehicles.

My proposal is to use government monies to convert the Big 3 auto makers into car making foundries, in a similar fashion to chip-making foundries. That way, small startups with great ideas could quickly get their designs into production without requiring massive amounts of capital and learning how to build and operate a car factory.

Tesla Motors . . .

Take a look at Tesla Motors, one of the most innovative car companies of the past decade. The Tesla Roadster is an innovative all-electric sports car made with a carbon fiber body that has a range of 244 miles and does zero to sixty in less than 4 seconds. It received Time Magazine's 2nd best inventions of 2008.

But you have to very rich to buy one of these $109,000 cars primarily because building a manufacturing line is so expensive. It also means that Tesla had to raise massive amounts of capital to fund the manufacturing lines. This means the innovative Tesla technology will take years to trickle down to mainstream models--yet that's where it's lower carbon-footprint would have the most value.

Tesla ran into lots of delays because of manufacturing problems, and also problems with some of the components.

What if Tesla contracted with GM to make its cars? GM would know how to quickly tool up a production run, it probably would be able to help out with some of the drive-train problems Tesla had. GM would know what things work and how to avoid many problems that Tesla had to learn the hard way..

It is this kind of manufacturing expertise that could be leverage across a new industry. Small startups with great designs and technologies could quickly come to market without having to build their own production lines.

Car foundries could set off a huge wave of innovation at precisely the right time when we are searching for more responsible and sustainable forms of transport. And the US could grab a leadership position with such a plan.

Let's turn the Big 3 auto makers into foundries that can create a platform for a new type of innovative auto industry.

DK Matai, chairman of the ATCA Open has written a terrific essay about how global shipping has come to a halt because of the lack of letters of credit.

Just five months ago it cost about $234,000 to rent a 170,000 tonne Capesize bulk carrier. That priced has collapsed 98 per cent to less than $5,000!

That means that globalization has come to a screeching halt. Read more:

The Global Shipping Halt: Is The Great Unwind Disrupting The Freight Market?

By DK Matai

Freight shipping prices for transporting dry raw materials have collapsed in November 2008. The Great Unwind is like a Tsunami that is engulfing and halting the shipping world at an accelerating rate. The Baltic Dry Index sounds like a weather report, but what it really does is track the price of shipping bulk cargo -- such as coal, iron ore, cotton and grain. Recently, the Baltic Dry Index has fallen through the floor. It has slumped by nearly 95% over the past five months. In real dollar terms, at the peak of the market in June, a 170,000-tonne Capesize bulk carrier cost USD 233,988 to rent. Recently, it was available for USD 4,793 - that is a crash of 98% and is below the cost of paying for crew, insurance, maintenance and lubricants. Why?

1. Of the USD 13.6 trillion of goods and materials traded worldwide per annum, 90% rely on letters of credit or related forms of financing and guarantees such as trade credit insurance. International shipping works on "letters of credit." These financial guarantees are issued to buyers of bulk cargo by their banks. This system has greased the wheels of global trade for the last 400 years by transferring payments internationally from buyer to seller once shipments have been delivered. With the collapse of the credit market - and banks now sitting on their hands, refusing to lend - the fast-moving wheels of global shipping have come close to halt.

2. There is a collapsing demand for credit driven expensive product purchases like cars and as a consequence, the transport of associated raw materials and sub-assemblies. Auto sales are falling in double digit percentages across most of the G7, ie, the US, Japan, Germany, UK, France, Italy and Canada. The pace of car sales growth is slowing down across most of the remaining G20 nations as well, including China and India.

This is a massive disruption in the freight market with asymmetric consequences for world trade, which poses systemic risk for many nation states. Liquidity has to return because if there is insufficient money to provide standard finance, world trade is being sharply cut back and economic growth is not only stalling but likely to implode. If cargo trade stops, a whole lot of supply chain disruptions start. For example, if the iron ore does not go to the refinery, there is no plate steel. If the plate steel does not get shipped, there is nothing to fabricate into components. If there are no components, there is nothing to assemble in the factory. If the factory closes the assembly line, there are no finished goods. If there are no finished goods, there is nothing to restock the shelves of the shops. If there is nothing in the shops, the consumers cannot buy. If the consumers cannot buy, there can be no sales!

On a more sobering note, if bulk shippers cannot buy cargoes, then a lot of US and world grain could end up rotting in warehouses while big portions of the world go hungry. For example, the Saudis are the biggest importers of food in the Middle East. They probably have the money to pay cash for their food shipments and may not therefore need letters of credit. But for the approximately 2.7 billion people in the world who spend 80% of their income on food, a disruption in the global shipping trade could mean the difference between quiet poverty and going hungry day-in, day-out. That will not last for long before there is social disorder on a massive scale.

The Baltic Exchange based in London is the world's leading maritime marketplace. Their dry index, a measure of shipping costs across different ship sizes, hit a record high of 11,793 points in May but has since fallen by 93% to 815 points last week. The UN Conference on Trade and Development (UNCTAD) has said that the financial crisis had begun to affect international trade, noting sharp falls to key shipping indices. Much lower shipping costs mean national markets are more contestable by foreigners, which should limit the ability of domestic firms to raise prices and therefore this should reduce the possibility of inflation. We can safely conclude that the majority of The Great Unwind's forces moving through the markets now seem to be deflationary, and not inflationary.

The ravaged worldwide demand for cargo ships is due to the chronic global financial crisis affecting credit availability, an unprecedented synchronised economic downturn across most of the major national economies in the world caused by massive demand destruction, and the resultant collapse in commodity prices. At the same time, container rates in the Asia-Europe routes have plummeted by around 75% this year and a price war between companies seems to be driving rates lower and lower, destroying the profitability of container shipping and placing huge stresses on companies struggling to meet their commitments. A significant component of the dramatic decline in shipping indices has been due to the difficulty in arranging trade finance during the credit crunch. Demand has been slashed because the global credit squeeze has made it very difficult for buyers to attract funding. At the same time, perceived counter-party risk in the physical markets has slowed trading to a trickle, exacerbating the freight slide. Many big players involved in the shipping of dry commodities and goods cargo are unwilling to trade with some parties fearful of their financial footing. There are big chains of owners of the chartered ships in the supply chain, so if someone goes bankrupt half way through the chain, it has a knock-on domino effect for everybody else. Another problem is that there are quite a significant number of players walking away from cargoes at present. So anyone who has taken cargoes to hedge the vessels they have chartered is now finding themselves with the ship without the cargo to carry.

ArcelorMittal, the world's biggest steelmaker, on November 5th said its global output will decline by more than 30 percent. Cia Vale do Rio Doce, the world's biggest iron-ore producer, said last month that it will cut production.The fall in demand for many raw materials, which began at the beginning of June, first squeezed the profit margins of producers since they faced fixed high raw material costs and falling prices for their finished products. This was followed shortly by a squeeze of freight costs as they tried to pass the pressure from the profit margins to the freight market. One could be forgiven for not noticing what the world has experienced in recent years by way of an unprecedented growth in shipping and shipbuilding, fuelled by cheap imports from Asia and the seemingly unstoppable rise of economies such as China and India with their insatiable demand for raw materials. For some time charter rates went through the roof and reached a zenith in May/June this year and demand for new ships out-stripped supply. A different picture is now emerging. Companies are starting to struggle with too many ships chasing ever decreasing rates.

This slump not only means a fall in revenues but also less revenues to service debts. In turn, the current 'credit crunch' means extreme difficulties for struggling shipping companies seeking to raise capital. UNCTAD revealed in its annual maritime transport review that the world's merchant fleet had expanded to a record 1.12 billion deadweight tons, with the order book for new vessels reaching a peak of 10,053 ships in 2008. However, from mid-2008, companies were cancelling new ships on order, even when they were losing their 10% deposit in tens of millions of dollars. Mitsui OSK Lines (MOL), Japan's largest bulk shipping company is said to be considering laying-up and even scrapping vessels as revenues collapse. MOL may mothball some of its largest vessels. The company is considering scrapping seven of its Capesize dry bulk ships from its fleet of a 100 vessels. This suggests that MOL may be getting ready for a protracted down turn lasting several years. Reports are already filtering through of companies seeking sheltered waters to lay up their giant vessels to weather the financial storm. Just as in the days following the oil crisis in 1973, we could see the same happening with the great lumbering bulkers and container vessels, which now seem less and less attractive as they ply the waters with their great bellies less than full. In the space of less than half a year we have seen the shipping world ride the crest of a massive globalisation expansionary wave and then plunge into a financial storm that could sweep most vessels off our oceans, and with them, companies who cannot weather the crisis caused by The Great Unwind.

We welcome your thoughts, observations and views. To reflect further on this, please respond within Facebook's ATCA Open discussion board.

Best wishes

DK Matai

Chairman, ATCA Open

LaLa has launched a unique online music service that has the potential to be a one-stop music web application for most people. It cleverly blends people's personal collection of MP3 songs with a choice of more than 6 million songs available for streaming--and accessible from any Internet connected device.

Users let LaLa scan their PCs for the MP3 files they already have and the music service matches them automatically with its online catalog. If it's not in the catalog, its Music Mover application automatically uploads the songs to make them available online.

In addition, users have access to 6 million songs in the LaLa catalog that they can listen to for free--once. For 10 cents per song users can buy lifetime access to a streamed version of that song. If they then want to own that song on their local hard drive, they can buy it for 79 cents.

What makes LaLa even more compelling is that it recommends music that you don't have, and enables discovery of music that you might like. Plus you can subscribe to other people's playlists, create your own playlists, and also gift music to others. If they don't like the track, they can keep the credit.

Bill Nguyen, founder of LaLa, gave me a demonstration of the service earlier today. "This service goes beyond owning CDs, it goes beyond owning music files, for ten cents a song you get lifetime access to that song over any Internet connection. Our research shows that people listen to 30 per cent of their own music and the rest is music that they don't yet own. Search and discoverability of music is a key part of this service."

LaLa does not believe that a subscription based monthly music service, or an advertising supported music service, can be successful.

"If you are a subscriber there is no incentive to encourage you to listen to more music because you become less profitable to the service, it costs them money for every song you listen to," says Mr Nguyen. And with advertising based models, music services have to place adverts between the user and the music they want to listen to to pay for the service, which harms the user experience.

Foremski's Take: LaLa has come a long way from its start in early 2006 as a CD swapping service using snail mail. This latest incarnation of LaLa leapfrogs the many varieties of online music services available with a great user interface, and a business model that integrates licensing agreements with four major labels and 175,000 independent labels.

Behind the scenes is LaLa's data center which is designed to be scalable and to use any cloud computing platform available. "We built a data center to get things started but our system can run on Amazon or any other platform," says Mr Nguyen.

The key to LaLa potential success is that it has incorporated a commerce platform into the music service that can then cross-sell new music based on a user's existing library as a guide.

I love the idea of scanning my drive and having access to my music from any internet connected device without needing to upload gigabytes of music. I also like the discoverability within the system in that I can find new music easily and get one free play of any music in the LaLa catalog.

Even though 10 cents per song isn't expensive, I like the Yahoo Music monthly "all you can eat" service for one low payment--but I'm sure I can get used to this risk-free method of discovering new music.

Here is my "Forecast" from LaLa which you can listen to for free:

Last week I popped into SDForum's first "Corporate Innovation and Research Fair." I recorded part of the lunchtime panel on video and there were some very good points made by a stellar panel.

Here is an edited highlights version:

From left to right:

Roger Meike, Sun Microsystems

Harold Yu, Orrick

David SMith, Tynax

Deborah Magid, IBM

Roy Levin, Microsoft

Dr. Ike Nassi, SAP

Towards the end I ask a question about the term innovation and if it has been over-used. Dr. Nassi agrees, and says it has lost all meaning.

Harvard Business Review published a feature article by Anita Elberse: Should You Invest in the Long Tail?.

She concludes that there really isn't much profit to be found in the "Long Tail." This is very very bad news for the many Silicon valley startups that have business plans heavily dependent on "Long Tail" economics.

Anita Elberse writes:

For Chris Anderson, the strategic implications of the digital environment seem clear. “The companies that will prosper,” he declares, “will be those that switch out of lowest-common-denominator mode and figure out how to address niches.” But my research indicates otherwise. Although no one disputes the lengthening of the tail (clearly, more obscure products are being made available for purchase every day), the tail is likely to be extremely flat and populated by titles that are mostly a diversion for consumers whose appetite for true blockbusters continues to grow. It is therefore highly disputable that much money can be made in the tail.

She adds:

The companies that will prosper are the ones most capable of capitalizing on individual best sellers.

This is why book publishers compete fiercely in bidding wars to secure blockbuster titles. She describes the fierce competition for a specific book:

Hyperion was determined to get it; New York magazine quoted an industry insider as saying that “jaws hit the floor over how much they paid.” Everyone recognized it as a high-stakes gamble in a high-risk genre. But ultimately it paid off big.

What was the title of the book? The Long Tail by Chris Anderson. It seems that there are plenty of profits in the Long Tail, at least for Chris Anderson and his publisher!

Backachya . . .

Chris Anderson hit back after a "quick read" and basically concluded that nothing had changed and that it all depended on where you say the "head" is and where the "tail" is located. Debating the Long Tail - Harvard Business Online's Conversation Starter

My point is not to suggest that Elberse is wrong and that I'm right, it's only to point out that different definitions of what the Long Tail is, from "head" to "tail", will generate wildly different results.

Foremski's Take: Well, if you get widely different results depending on where you slice the head and tail then there really is no "Long Tail." You can prove or disprove the concept as much as you wish.

As a business you want to be in the "head" because that's where the profits are the fattest. You don't want to be in the "tail" you'll get there anyway.

If you are a startup start well in the "head" is my advice. Don't try to build a "Long Tail" business or you'll get your head handed back to you.

Please See:

Choking On The Long Tail - The Unbearable Burden

Long Tail Economics - Bonanza Or Bogus?

Rave reviews find out why! - Order the The Amazon Kindle Electronic Book Reader!

You need video services! Creation, Distribution, Attention. Contact Aron Pruiett at SF Media Collective- 415 533 4487 - Here is a demo reel.

Silicon Valley Watcher Consulting services - call Tom at 415 336 7547

Ribbit is on my SVW 2008Watch list. It is a very impressive company with a spot-on business strategy and technology for leading the telephony sector in enterprise, and in consumer sectors.

At the Demo conference in Palm Desert, CA, Ribbit unveiled Amphibian, a consumer application based on its technology that demonstrates the versatility of its telephony platform. Amphibian provides a mobile phone user with unprecedented control over their incoming and outgoing calls.

Through a web browser, it provides users with services such as visual voicemail, you see a picture of the person, plus you can choose to view a transcript of the voicemail. The transcript can be emailed to you along with the MP3 sound file. Or it can be viewed through SMS.

When a call comes in, Ribbit goes out to the Internet and brings back information about the person calling, such as blog posts, videos, photos.

If you don't answer your mobile phone, the caller is routed to Ribbit which will record a voicemail or route it to another phone, or allow the user to take the call from the web browser on a "virtual phone."

You can also call out through the Ribbit virtual phone and it will carry your mobile phone caller ID, which is very useful since many people won't pick up ID-blocked calls or numbers that are unfamiliar.

There is more info and screenshots here:

* Enhanced Visual Voicemail

* Caller ID 2.0

* Web Portability

Foremski's Take: Reasons to watch Ribbit...

Amphibian as an application is impressive. But what is even more impressive is that this is just one example of what can be achieved with Ribbit's telephony platform. By opening up the platform Ribbit is able to quickly spawn a huge number of applications.

There are already more than 2,500 developers integrating telephony features into thousands of other products by using Ribbit's API. This is going to create an explosion of innovative telephony applications.

Ted Griggs, CEO of Ribbit, said,"If you were going build a telephone company today, you wouldn't build it the way telephone companies are today."

By using software and Internet based communications technologies, Ribbit has built a totally new type of telephone company with a flexibility to offer services and applications that weren't possible before.

For example, the iPhone offers visual voicemail, but that service required AT&T to make a large investment in its infrastructure, and commit to a lengthy development time. Using Ribbit technology, a small company can build an application that offers a similar, but better feature, in days. Time to market for telephony applications has been dramatically shattered.

Ribbit has leapfrogged the established telephone companies, which are holding billions of dollars in much older and less versatile, legacy telecoms infrastructure.

E-commerce is built in...

And most importantly, it has created an e-commerce infrastructure that allows developers to charge users. Developers only need to focus on their apps, and not on trying to figure out how to monetize their work.

That same e-commerce infrastructure could potentially be used to monetize other services or products offered through Ribbit based apps, a type of Ribbit PayPal. The e-commerce platform might turn out to be the most valuable part of the company.

It will be interesting to see the types of applications Ribbit enables, and if it can scale its services. Amphibian is a consumer application and consumers are much more forgiving than business users of Ribbit based applications.

Wireless companies don't want to be forced to advertise the full cost of monthly plans, which include hefty taxes and fees to state and federal agencies. The Supreme court declined the case. (Hat tip Jeff Nolan.)

From Cnet by Anne Broache: Supreme Court rejects cell-phone tax case

The case at hand, which pitted Sprint Nextel and T-Mobile USA against state utility regulators, centers on whether states should be allowed to forbid wireless carriers from breaking out various state and local taxes as line-item fees on a customer's bill.

...The wireless companies, naturally, maintain they should be able to establish a visible separation between the base prices of their services and the fees required by various regulators. States and localities have increasingly been passing laws prohibiting those line items expressly in order to "hide" arguably unpopular taxes and fees from consumers, Sprint Nextel and T-Mobile said in their brief to the high court.

I have no sympathy for either side. Cell phone rates are way to high. Let's have truth in advertising and show the full cost of monthly service.

The state and federal agencies are in cahoots with each other anyway, to make sure that no technologies get around their stranglehold on wireless communications. Regulation means you have the government on your side and competition is pushed well to the outside because of onerous requirements.

This cosy relationship between the two sides in this case, enables a wireless digital divide that is bad for innovation and bad for Silicon Valley. Europeans say the US is way behind in mobile comms, and they are right, and this is why.

The wireless companies have shown themselves to be anti-technology. They dumb down the cell phones, they restrict access to the latest communications technologies that could swiftly decrease our cost of providing wireless communications.

And with the regulators on their side, the wireless companies can keep a firm hold on a gatekeeper role that does not offer a level playing field for competition.

The wireless carriers have become the center for a thousand spokes of innovative online services, many of them from large and small SIlicon Valley companies. This is an incredibly powerful position because the wireless carriers have no obligation to carry competitive services over their networks, in what is sometimes called "net neutrality."

Let's see the true price that these modern day Luddites are charging us and let's recognize the true cost to society and to this country's business innovation.

I just had lunch with Peter Adams, president of MatchPoint.com, which is one of many online businesses hoping to break into multi-billion dollar local business markets, territory that has long been dominated by Yellow Pages.

Later this month, MatchPoint will unveil details of its services for local businesses. Although I can't talk about the details of its new service I can talk about its strategy and its bid to provide a better match for consumers and local companies.

Peter Adams is a veteran of LookSmart, the Australian search company. It's good experience for his role at MatchPoint, which is to find a way to connect consumers with products and services, and have local companies compete and bid for that business.

As it seeks local consumers for its services, MatchPoint is offering local online publishers a revenue sharing deal, which potentially would generate more money than partnering with Google's AdSense network.

Key to its strategy is convincing users to part with some information. "Consumers fill out a very short questionnaire about what they want and we pass that onto businesses in their zip code. Those businesses then bid on those leads and they get a phone number, created on the fly, that they can call prospective customers. With local businesses, nearly 100 per cent of their business is done through the phone, not online," said Mr Adams.

On the Matchpoint site there are service categories such as student loans, Lasik eye surgery, interior decorators, career counseling, printing services, and removing a tattoo. "Users trust us to keep their information private, any communications between them and the service provider goes through us."

At the end of this month MatchPoint is launching a national campaign to roll out its services to millions of local businesses using technology from GetVendors.com, which it acquired last year.

Foremski's Take:

Internet users hate filling out anything online and have come to expect search engines to guess what they want. Priming the pump with sufficient numbers of users filling out questionnaires will be a challenge for MatchPoint but it is not an insurmountable challenge if users start quickly seeing results.

The questionnaires are very short, three or so questions, and once filled out it should result in better conversions for advertisers and a better experience for consumers. Matchpoint will need to do some follow up to be able to refine its questions for each category and check with consumers about their level of satisfaction.

If MatchPoint is successful with its approach, it would be a welcome boon to many media and other online publishers that currently eek out a miserly living running Google AdSense ads. MatchPoint is offering a partnership to publishers in which they host a MatchPoint widget and share in the commission it earns from businesses. With the potential for a much improved conversion rate than through Google AdSense, revenues for publishing partners would be higher, plus they would be providing a valuable service to their readers and their local business community.

- - -

Please see:

MatchPoint Blog:

Click Fraud Hits 28% on Content Networks

Do Publishers Need An Alternative to AdSense?

MatchPoint FAQ

Technorati Tags: adsense, matchpoint

BrightIdea.com is one of the companies on my 2008 watch list. The company offers enterprises a process in which they can encourage and manage innovation. Last month I sat down with Matthew Greeley, CEO and founder, at my favorite business meeting place, the "Lucky Penny" diner in San Francisco (24hr breakfasts!).

Managing innovation is easier said than done and large organizations are notoriously bad at being able to generate and monetize great ideas. Xerox Palo Alto Research Center is the poster child for such things, yet all organizations have similar difficulties.

Innovation seems to happen in haphazard ways, if at all. Yet virtually all large organizations love to trumpet how innovative they are, as if by using the term innovation often enough they can make innovation happen. That's one reason why the term innovation is way over used these days.

[Innovation inflation is why Silicon Valley Watcher changed its description from "reporting on the the business of innovation" to "reporting on the business of disruption."]

BrightIdea.com provides a process and tools that help real innovation occur. And the company has had a great 2007, winning large clients such as Cisco Systems and it is on a roll to win more in 2008.

Mr Greeley says that Cisco is using BrightIdea to harvest innovative ideas that it will then fund and develop into businesses:

...the Cisco I-Prize, a competition open to entrepreneurs and innovators around the world. The Cisco I-Prize aims to bring together global teams to develop technology business ideas using Cisco's collaboration technologies and to run those ideas through Cisco's process for identifying emerging technologies to take to market. The winning team may have the opportunity to join Cisco as founders of a new emerging technology business unit. Depending on the value of the idea, Cisco may also invest up to $10 million over three years to fund the new business unit.

Cisco Announces the Cisco I-Prize to Identify New Business Ideas

Other software companies such as Salesforce have begun to recognize the need for a similar service. But BrightIdea has been at it since 1999 and its software is being used by 250 companies, including Hallmark, Bristol Myers Squibb, Bosch, Emerson, ING Financial and the U.S. Department of Defense.

BrightIdea has processes already in place that do the following:
Idea Collection; Team Evaluation; Collaborative Development; Campaign Management; User Profiles; Promotions, Rewards & Recognition; WorkflowAutomation; Real-Time Alerts; Process Monitoring; Key Metrics & Analytics Dashboard; Employee Directory Integration; Microsoft Word & Excel Integration.

It has a wealth of features that aren't found in any other software, and it is scalable to encompass large numbers of users.

I'd love to use BrightIdea's software as a type of brain trust for Silicon Valley. We all have way too many bright ideas to try and monetize them all, why not throw them into a central pool and get a 1 per cent gross revenue return on any that others figure out how to monetize?

Keep an eye on BrightIdea for 2008....

Brightidea.com - On Demand Innovation Management Software

Technorati Tags: brightidea

Comcast's blocking of large file transfers is just the tip of the iceberg. And it is only a matter of time before other cable and telco companies will follow suit.

This is the start of a battle for bandwidth that has been caused by enormous amounts of digital media hitting the Internet and the private networks of the cable and telco companies. It is a battle that nearly all Silicon Valley companies are unprepared for and won't be able to win.

Comcast and the others can legitimately limit third party services because they have a contract with their customers to deliver a slew of digital services from digital phone calls, digital music, and high definition TV. They don't have a contract to deliver the digital services of others.

How long before they kill the video stars? For example, YouTube relies on file uploads up to 100 MB in size, other video hosting platforms take larger files.

How long before they kill most of the Web 2.0 companies? They all seek to share files and information between groups, including video and audio. FaceBook, for example, lets users upload 300 MB video files.

What about new services such as Fabrik's Ultimate Backup Service, which offers unlimited backups for $5 a month. Will Fabrik and others be able to build such businesses?

Why should they provide quality access to digital services (YouTube, BitTorrent, etc) if they don't have a contractual obligation? Access to those services comes second or third to their own services and those of partners.

Corporate Luddites

The cable and telco companies are the most powerful Luddite organizations in the US. They hold a duopoly control over the lines that connect consumers with digital services.

The cable and telco companies are slow in bringing in new technologies, and their wireless operations turn off many technologies, such as wi-fi in cell phones. They have slowed technological progress in the US in so many ways. For example, We have some of the lowest adoption rates and the slowest broadband in the world. We have a huge digital divide.

They will protect themselves from technologies that would disrupt them in the same way early 19th century English Luddites broke industrial machines to save their livelihoods.

The English dealt with their anti-technologists in this way: "Machine breaking" (industrial sabotage) was made a capital crime." (Wikipedia.)

No such luck here. These Luddites have the government on their side, they have among the strongest lobbying groups in Washington, built up over a period of more than 100 years.

The cable and telco companies are anti-competitive and their actions will make sure that the US becomes uncompetitive.

Technorati Tags: Fabrik, corporate luddites, startups

Josh Hallett has joined Voce Communications, which is quite a coup for this Palo Alto PR firm. Voce is one of my favorite Silicon Valley PR firms because they really understand new media/social media and are building a great team of leaders in this area.

Josh has been working with many large newspapers, creating the infrastructure for their blogs and online forums. He is what I like to call a media architect, a software engineer that knows how to implement the media technologies that make up Internet 2.0.

Voce's Mike Manuel writes:

. . . “conversation” and “community” are words that easily roll off the tongues of marketers these days, but too often it’s without knowledge or regard for the technology that’s required to carry these things from conference room concepts to real-world experiences.

This is where Josh excels. The guy’s a master translator between marketers and web developers, between ideas and experiences, and ultimately, between companies and customers.

Josh is the newest addition to our growing team of social media strategists here at Voce. Earlier this spring Andrea Weckerle, a DC-area blogger and author of New Millennium PR, joined our gang, as did Scott Sigler, author, podcaster and social media provocateur. And yeah, yours truly continues to act as this team’s lead wonk.

From Voce Nation - Now With More Cowbell

Earlier this year I published a video of Josh talking about his experiences building media systems for companies such as New York Times. There is tons of great advice and stories here:

Social media in the enterprise: How to deal with IT roadblocks

Technorati Tags: voce

I wasn't sure if I'd be able to make the Outcast PR After Hours party Thursday night because I had four back to back meetings and events. But I managed to catch part of it.

I've worked with Outcast for many years so it was good to see familiar faces. And it was also interesting to hear some feedback on my latest posts about the changing economic models for PR, such as my Wiley E Coyote post.

It was quite clear that I had hit a nerve with many of my PR contacts and hopefully they will have the courage to take our discussion online so we can share it with others. Some took my post very personally, as if I were attacking them by name, which I wasn't. I was pointing out clear economic trends, that's all. That's my training as a financial journalist, to follow the flow of money within industry sectors.

The world has changed for both the media and PR industries, except the media sector is a further along in experiencing the painful disruption of those changes. The PR sector will eventually go through similar painful changes. This is not a welcome message when the PR industry is booming, and hiring like crazy.

PR industry parade

The PR industry is happy because revenues continue to climb 9, 10 per cent and more annually. New media technologies offer PR firms new business opportunities, they aren't viewed as a threat. PR firms charge clients for additional services. New media/social media is a very good add-on business in the PR world.

But when clients realize they can meet their PR goals using new media approaches for far lower costs, then why pay for both? They won't. There many that already don't.

This is a trend that will be played out in different ways by different companies but its overall effect will be the same.

Technorati Tags: disruptive technologies

Thoughts on Strumpette Amanda Chapel resignation...

I've long warned the PR industry that it is on borrowed time. The media industry is undergoing traumatic changes yet PR is thriving. Media and PR industry fortunes have always followed each other in lock step.

PR today reminds me of the Roadrunner cartoons. The times when Wily E. Coyote is chasing the Road Runner and notices he is running on thin air, at which point he plummets thousands of feet to a distant canyon floor. That's how I envisage the PR industry today--about to plummet from a great height.

Strumpette and Amanda Chapel tried to stir up changes in the PR industry and encourage a new form of PR, by openly discussing ethical issues, and all the unpleasant aspects of knowing how the sausage is made.

But nothing changed despite all the transparency around the process of public relations.

Is this a failure of transparency? Yes. Because nothing changes unless you have to change. And you only have to change when you have to change because things have become fiscally painful. The PR industry is awash with money unlike the media industry, so it doesn't change.

Traditional media is changing rapidly because it can't make money the way it used to make money. That business model is being hacked to pieces.

Advertising is moving rapidly online, and it is moving towards search engine advertising, not journalism.

Selling products and services next to a column of journalism is not as effective as selling next to a search engine query--which magically reveals what you are looking for. This is way more useful to advertisers than revealing what you read.

In the PR world, unlike the media world, the companies are hiring like crazy and still doing business the old fashioned way: press releases, white papers, case studies, media (dwindling) relations, etc, ....

Yes, every PR firm offers "social media" or "new media" services but how many of them practice what they preach in terms of using such technologies to drum up business for themselves? Shockingly few.

It is clear that this old model of PR is going to end. In fact, it has already ended but most PR firms don't know it, just like Wily E Coyote's sudden lack of solid ground...

I keep running across Silicon Valley companies that have spent no money on PR or marketing. Zero dollars.

Slide.com, for example, has managed to attract millions of users for its online apps on Faceback and MySpace for no dollars.

There are many smaller startups who have done the same: zero dollars spent on PR and marketing. They have gotten incredible results from the viral nature of their products, services, and their personal abilities to establish though leadership through blogging and other online engagements.

What happens when venture capitalists start demanding that same type of business strategy from their startups?

Consider this: The whole outsourcing trend to India, Phillipines, etc, was significantly boosted by the VCs and their demands that their startups take advantage of the economic benefits from an outsourcing strategy. As a startup, if you can't show you have a viable outsourcing strategy in your business plan, you won't get funding.

Next: Startups will have to show VCs that they have a viable viral marketing and distribution strategy. That means cutting out about $120k to $200K of annual expenditures for basic traditional PR services for a startup.

And larger companies will be tapping into this same trend. They will be cutting back on traditional PR services and investing in their own viral marketing methods. I already see this about to happen at big companies such as Intel (an SVW sponsor), Hewlett-Packard, Cisco Systems, IBM, and this trend will grow.

Dell, for example, recently hired Andy Lark, one of the top new media strategists in SIlicon Valley, imho. What do you think Dell intends to do with that hire? It won't be marketing-and-PR-as-usual, that's for sure.

No Pain, No Change

Change in the PR industry will happen because the old ways won't be as good, or as cost effective as using new media technologies to publish and engage customers. Traditional PR doesn't provide the same bang for the buck.

It is when the PR industry feels the same pain that mainstream media is feeling right now, a kick in the pants to its core revenues, is when change will happen. But without pain, no change.

Technorati Tags: andylark, mediasphere, social media, strategy