Silicon Valley Watcher - at the intersection of technology and media

I was glad to see Joel Postman's post on his Socialized blog: Social Media Isn’t Conversation, It’s Publication because this has been a subject close to my heart.

Joel writes:

...I mentioned one of my favorite Marshall McLuhan quotations, “Publication is self-invasion of privacy.” We threw this idea around a little and together came up with the idea that online communications are a form of publication, not conversation, and a failure to understand this distinction can be troublesome...

I agree, social media is about publishing, not conversations.

About a year ago, I wrote about "The Myth Of Online Conversations: Lots Of Chatter But Not Much Discourse

What is so striking about the online world is how little conversation takes place, how little two-way communication happens.

One comment to an article is not a conversation. 300 comments on an article is not a conversation.

Yet everyone talks about social media being about "conversations." A PR firm I sometimes work with is called "The Conversation Group."

Social media is not about conversations it is about publishing.

Social media represents the fact that we have now wired up the other end of the Internet, your end.

The Internet enabled us to publish to any computer screen no matter where. Now, any screen can publish back. This is huge.

That's what social media is about. It's about publishing, allowing anyone to publish back. It's feedback, it's a response, it's not a conversation.

A printing press in your pocket...

What is extraordinary, is not the 'conversational' nature of the Internet, but the fact that now every screen is a printing press.

I can publish from any screen, small or large, yours or mine. I have the equivalent of a printing press, with the potential to reach of tens of millions, in my pocket. And so do you.

It's no wonder Rupert Murdoch is pissed. You used to have to be a media mogul to have a printing press.

It's not the content...

Let's not get distracted by the content, the endless Tweets about inane things, the blog posts about nothing-in-particular...

The content is not the message. The message is that we now have an online printing press, (and TV studio, and radio studio) nearly anywhere, and everywhere we are. That's huge.

Internet 1.0 was about being able to publish to anything with a computer screen. Now, anything with a screen can publish back.

That's what social media represents...the 'me' in media.

We've wired up the other end of the Internet. It's a two-way Internet now. This is the Internet on steroids.

If you thought Internet 1.0 was amazing, you ain't seen nothing yet.

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.]

[I'm reprinting some of my favorite posts of the year - just in case you missed them the first time around - happy holidays to all!]

Ever since I first heard about the Internet and then saw its incredible development and application across industries, I've been on the look out for the economic effects of this powerful platform technology. The specific economic influence I've been looking for is a strong deflationary trend. That's when we will know when the Internet has truly begun to reach its potential.

Let me explain why.

The Internet is a communications technology that also carries its own computer processing technology. We can deliver computing power to any connected computer platform, pocket or desktop based or otherwise, wired or wireless. We can see this quite clearly today in the Internet based technologies of AJAX and beyond, which offer browser and non-browser based applications delivered over the Internet.

Distributed computing power that is communicated in a two-way medium across the Internet. Take a look at the cloud computing based technologies where applications can be dynamically provisioned across scalable information architectures. While a lot of these technologies still have to go through an adoption process, which is partly cultural, we aren't too far off from a world where powerful applications can be delivered anywhere, anytime, for little more than the cost of electricity.

Internet based applications represent a class of very powerful technologies. Powerful, not in the sense of processing millions or billions of instructions per second, but powerful in the sense of dramatically reducing the costs of doing business . Yes, processing power is important but its the delivery of highly effective disruptive business technologies that is the game-changing and ultimately, deflationary trend that this essay seeks to discuss.

And Silicon Valley is at the heart of the development of what could be called Internet-based disruptive business technologies (IBDTs). We are investing tens of billions of dollars in developing IBDTs. Not all of them succeed but there are plenty that do succeed. Software as a service (SaaS) is a good example of a recent IBDT.

The chief characteristic of an IBDT is that it is at least 10 times more effective at one-tenth the cost.

That's what defines the disruptive nature of an IBDT: it is so much better, and so much cheaper, that its success cannot be resisted by continuing to use older means of production. This is also my definition of innovation -- it's not innovation unless it is disruptive. ("Incremental innovation" is not innovation it is an incremental improvement in a production process.)

Looking at the continuing development of IBDTs and their relative low cost of development and nearly free distribution, it is easy to see that once they become widely used and implemented, we will see a massive reduction in the costs of doing business.

We will know when this scenario has occurred, or is occurring, because we will see the signs: a strong and continuing deflationary trend. We will see a continual erosion in the value of products and services.

In simple terms, the Internet devalues everything it touches. Anything that can be digitized. I'm using the term "devalues" in a strictly material definition and not in a cultural "values" sense. And I'm using the term "Internet" to denote a class of distributed technologies and applications.

I believe this scenario is already occurring and we already see the deflationary effect of the Internet in many sectors of the economy and this will continue -- and it will accelerate.

Here are a few examples:

- The Internet enables the outsourcing of knowledge workers.High salaried workers in many professions are losing their jobs to workers in foreign countries where the costs of doing business are far lower. Vivek Ranadive, CEO of Tibco Software, likes to say that India is broadband's killer application. It's a graphic example of how the Internet allows the export of jobs.

Here we have call center jobs, and also IT jobs being performed at a lower cost. In this example, we can see how the Internet has made it possible to devalue the salaries of call center employees, and also IT employees in many different categories. Yes, there are still high paying jobs in IT, for example, but anything that can be shifted will be shifted to lower cost centers where ever their location.

- The value of music has dramatically fallen. I used to pay nearly $20 for a CD with about 10 songs or about $2 per song. Now I use Lala.com and pay just 10 cents per song for lifetime streaming rights. And there are many, many examples of free or almost free music available. Thanks to the Internet and Internet based technologies such as streaming data and browser based MP3 players -- music is so much less expensive than it once was. It's an incredibly deflationary trend made possible by the Internet.

- Movies and TV shows cost less to watch. I used to pay Comcast about $60 per month for basic cable service. I ditched the service more than a year ago and watch TV programs through a variety of Internet based services such as Hulu.

Instead of renting movies from my local video store at $4 each, I switched to Netflix, which lowered my DVD rental costs. Even better: Netflix Direct -- I watch tons of movies -- as many as I want for just $8.99 a month. My per movie costs have fallen dramatically.

- Newspaper and magazines are available online for free. I used to subscribe to daily newspapers and many magazines. I don't anymore yet I get nearly the same access to those products for nearly free - just the cost of my ISP. I save several hundred dollars a year - that's a lot of value taken out of the publishing industry. Take a look at books and the disruptive power of Kindle and vanity publishing web sites.

- Graphics and design work. There are plenty of sites where you can post a project and have designers and artists compete for the work. This drives down the income of designers and artists. Their work is devalued.

- The cost of distribution is a lot less in many industries thanks to better management of inventories and improvements in the management of supply chains. Again, it is thanks to Internet based applications that enable greater efficiencies and thus lower costs of doing business resulting in lower prices for products and services.

- We don't have to buy much software anymore because there are free or nearly free applications available online. And this trend will continue. For example Google buys up software companies and then offers those product online for free -- this instantly devalues competing software applications. This is true for businesses too -- I can;t tell you how many startups I've spoken with who tell me that they pay nearly zero for software--their entire business is built on open source software stacks.

- The open source software movement has created tremendous amounts of value by devaluing software that you used to have to pay a lot of money for. Operating systems and many other software components are available for free and supported by a large community of developers distributed around the world. Again, the Internet has enabled this type of distributed development to occur.

- Journalism jobs are fewer and pay less because there is more competition, there are more people willing to do the work for less money. Reuters, for example, is dramatically expanding its Indian based editorial teams.

The same trend is seen in many other media professions. For example, my colleagues in video production are not able to get the rates they once could, and you see this again, and again. The amount of work that needs to be done hasn't changed, it has gone up, but the rates have gone down.

Also, each single job is far more productive. For example, to produce a video would require a large crew of specialists and hefty costs in studio time and the use of expensive equipment. Video cameras, and editing equipment is a fraction of what it used to cost and the work can be done wherever, and whenever, thanks to the Internet. Again, the value of video production has fallen dramatically.

- There is devaluation in public relations. Fewer people can do the work of more people. Smaller teams can do the work of larger teams thanks to Internet technologies.

- Magazines staffed by just one or just a few people can pull in the readership of what used to be a 30 plus person magazine editing and production team. I'm an editor-publisher-reporter-photographer-videographer-webmaster-and-a-dozen-more-hats single worker producing, publishing and distributing Silicon Valley Watcher and I get a larger readership than the magazine I worked for when I first started in this business, and that had a 25 person editorial team.

I also have the equivalent of what used to be a large data center out in the cloud for less than $100 a year -- not to mention all the free open source software I use.

- Telephone communications are dramatically less expensive today thanks to services such as Skype and other VOIP based products. It used to cost me nearly $2 a minute to make a transatlantic telephone call -- now it's about 5 cents a minute or even less. The value of a transatlantic telephone call has been devalued.

- Advertising is much less expensive today. You have to pay about ten to 20 times more for a print advert in a newspaper compared to a newspaper's online advert. That is true across the board -- todays advertisement costs measured by any metric -- are much less today. And this is disrupting the entire media industry from print, TV, radio, and online.

- Take a look at the classified ads business. The Pew Center reportsthat in 2000 this was a $19.6 billion a year business. In 2008 it had fallen to $9.9 billion because of online classified ads -- mostly Craigslist.

And Craigslist doesn't charge for the vast majority of its classified ads. Craigslist has managed to pull the majority of nearly $10 billion out the classified ads industry in a single year using an operation staffed by just 30 people. There are estimates that Craigslist could take in $100 million this year.

Again, we see the power of the Internet and how it devalues everything it touches. In this case, Craigslist's use of Internet technologies has managed to transmute $10 billion in value into $100 million. It's the opposite of the dreams of alchemists - Craigslist has managed to transmute gold into lead.

That's what the Internet provides -- the means to dramatically devalue an existing industry.

- There are many more examples. I'm sure you know of many examples in your line of work -- where the use of Internet technologies has enabled a massive devaluation in the work being done and the products and services produced.

It is important to note that that these are not business cycles - they represent trends that won't be reversed.

With so many examples to be found, the cumulative effect will be shown as a deflationary trend. Do we see it today? Yes, we do see a large deflationary trend.

Is it caused by the use of Internet technologies? Yes, a large part of it is being caused by Internet technologies but it is not clear how much because we are in the midst of an economic crisis.

However, it could be argued that the economic crisis was helped by the use of Internet based technologies, which enabled loans to be made more quickly, which more easily enabled the transfer of risk to third-parties thousands of miles away, and which enabled massive amounts of speculation in a diversity of markets from oil to real-estate. The whole process was made more efficient through the use of IDBTs.

Yes, Internet technologies do enable the creation of new markets and services that didn't exist before. Take virtual worlds as an example. But by and large, if something can be digitized, its business model is very vulnerable to being devalued by IDBTs.

Is this a bad thing? No, it just is what it is, just as gravity just is - neither good or bad.

Where it will leads us as a society is interesting.

If we have the means to produce just about anything, product or service, for a tenth of the cost and make it 10 times better -- we have the means to build a tremendous amount of value that we can all share in.

However, our society is not set up for sharing -- but our online world is. It is all about sharing every online photo, text, video, song, etc.

We clearly have the cultural capacity to understand the value of sharing. And that culture will be transfered into our wider society and ultimately create a new society -- but not without considerable birth pangs.

- - -

I will return again to this concept and I'm happy to publish your comments or guest posts on this topic: The Internet devalues everything it touches.

- - -

Please see:

"Google Devalues Everything It Touches" - Wall Street Journal Chief

Saturday Post: If You Are In The Path Of A Disruptive Technology You Are Toast - Goodbye Newspaper Companies

WeekendWatcher: The Sheer Number Of Things Will Devalue Them

- Pandora's Box 1981: The Online Newspaper Experiment

Irving Wladawsky-Berger, one of IBM's top strategists, has an interesting post about a panel he moderated: Social Media Implications for Business.

Panelists included Marc Cooper, Jonathan Taplin and David Westphal from the Annenberg School, and Melissa Cefkinand Steve Canepa from IBM.

I'm always interested in stories of how Internet technologies are able to devalue businesses, anything that can be made digital.

Here are some extracts from the post:

Jon (Taplin) gave two examples. First, he talked about newspapers:

"Every single blog, every social network, every site in the world can have as much advertising as they want. So we all learned that value comes from scarcity, and in a world where there's no scarcity, when everyone can be an advertiser, then essentially the value of any individual ad unit is going to decline."

"If you look at The New York Times' business plan, they never imagined that they would have 20 million unique users a month, but they never imagined that the individual worth of an ad unit would be so low. And so it's totally screwing with any business plan that they have or any transition into a digital world."

The second example is about the music industry:

"They all look at the record companies and say, well, . . . there was a gigantic reallocation of value from four big media companies to Apple, right? Apple stock is 200 bucks and Warner Records stock is $1.20 or something . . . so all the value was taken away from the media record companies and reallocated to Apple. The [big media companies] are all afraid that's what's going to happen to them." .. .

Coping with increasing fragmentation and cannibalization

Steve Canepa, General Manager for IBM's Global Media and Entertainment Industry talked about the changes in the media industry, as it transitions from a B2B business model in which analog content is distributed over physical networks, to a B2C model in which digital content is distributed through digital networks to a variety of intelligent devices.

All of a sudden you have all this content, some still professionally produced, but a lot of it generated by users, available to consumers over a variety of devices. In the end, the average consumer has about the same amount of time they ever had to consume this new avalanche of content and experiences. The result is massive audiencefragmentation.

"What scares the media companies a lot is that it becomes incredibly hard to attract, retain and sustain a core audience around a brand, a network architecture, or a platform, because you have this fragmentation happening. It's really challenging the core foundations of the business models in the media industry in all the different segments. . . . music is just one example."

. . . The reality is most social sites that have video on them operate in the range of about 10 percent to 40 percent of the value that the same content would earn in a traditional television broadcast model."

Video of the panel can be seen here. You can read the full article here: Irving Wladawsky-Berger: Social Media Implications for Business

Forty years ago today, October 29, 1969 marks the birth of the Internet.

The first command typed in was "lo" which crashed the entire Internet - all two machines. Internet Reaches 40th Birthday Milestone

Undergraduate Charley Kline was given the simple job of logging on remotely from UCLA to the SRI machine; his one command was "login".
The first attempt, however, proved too much for the "interface message processor" or IMP for short - the system crashed as young Charley reached the letter "g".

... 12 years on, only 213 computers being linked up to the network.

The Guardian is collecting stories for its "A people's history of the internet."

To mark the 40th anniversary of the first stirrings of the internet we asked you to tell us your experiences of life online. Hundreds of you responded, and here we present an interactive documentary of your stories and videos, alongside our own research and interviews with key figures (About this project)

Foremski's Take: The Internet is the most significant collection of communications technologies ever created. It enables huge numbers of new types of businesses and services, many of them replacing pre-Internet businesses.

Anything, any service, business, that can be digitized is open to disruption because of the Internet. The Internet devalues everything it touches.

I define "devalues" in a monetary sense, dollars and cents because clearly it creates tremendous amounts of value. But that value often cannot be quantified or measured, or recovered, in a financial sense. For example, look at the transition to online journalism -- it creates tremendous amounts of value because huge numbers of people read online journalism but we don't have (yet?) a good way to recover the value of that work in dollars.

Journalism is not the only sector being disrupted in this way because of the Internet.

The challenge for Internet based businesses is to figure out how they can transform the value that they create into dollars and cents and then hang onto it.

The challenge is that competitors can continually undercut each other because the costs of providing Internet based services are relatively low and it is difficult to lock up customers. Switching costs are very small for customers.

It helps if you are government regulated. The Telcos, for example are able to make use of VOIP and other advances in communications technologies to reduce their costs of doing business yet they are still able to raise the price of their services. Being a government regulated industry helps them keep competition away.

But if you are in the music industry, movie industry, journalism, software services, cloud computing, if you are a software engineer, if you are a web designer, if you design logos -- if you do any kind of digital work you are exposed to a huge amount of competition, you are exposed to the lowest cost provider in your sector -- thanks to the Internet.

It's interesting that countries spend billions of dollars to protect their living standards by limiting immigration because they know that low-cost labor hurts the living standards of their citizens. Yet there are no controls on exporting jobs via the Internet.

That will change or at least there will be efforts made to change this and other aspects of Internet use, because of the disruptive effects that it enables.

I believe the Internet will eventually enable a new golden age but getting there will be very messy.

These are interesting times. Happy birthday Internet.

---
Please see:

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