Alex Barnett blog : economics

Chris Anderson: Charlie Rose interview discussing FREE

alexbarnett — Sat, 03 May 2008 16:51:00 GMT

I spent some time this morning watching the Charlie Rose interview with Wired's editor, Chris Anderson, discussing FREE.

The interview covers the economics and ideas driving the Internet's current (and future) state: the Gift Economy; the Attention Economy; and the Reputation Economy. Rose leads the conversation into topics such as covering the Freemium business model and consumer perceptions about the value of privacy (or lack of thereof).

The interview also moves to the topic of the Yahoo! and Microsoft merger. Rose asks: "Why is it that Yahoo! can't recruit the people at Google - through some extraordinary salary offers - that would let Yahoo! replicate what Google has?"

Anderson's answer (paraphrased): "There is a basic philosophical difference between Google and Yahoo! Google is a Machine company. Google believes that data, machines and the Algorithms will drive the company's growth. Yahoo! is a people company - it believes content created by people and the conections made between them with its drive growth."

"And what about Microsoft?", Rose asks. Anderson responds (again, paraphrasing) - "Microsoft is a pre-web software company that philosophically wants to be somewhere in between Google and Yahoo!" An oversimplified analysis, surely (hey, it's a TV interview answer), but I think the Anderson's conclusion is pretty accurate at its heart.

Freeconomics

alexbarnett — Wed, 16 May 2007 12:39:00 GMT

In discussing business models at the Dealmaker Forum this week, Don Dodge found that the "freemium" model is popular in the start-up scene. (Freemium = a free service, usually ad-supported, with an up-sell to paid premium subscriptions / services).

He asked asked each of them what kind of conversion rates they were seeing and heard that the average is less than 3% conversion.

Don did some math:

"100,000 free users convert to 3,000 paid users. They pay between $10 to $50 per user per month. Lets use $25 as an average. That is $75K a month or $900K per year. That is an excellent revenue stream for companies that typically have 3 to 5 employees. And, it is an annuity stream that continues to grow every year. By the 3rd or 4th year these small companies can be generating $3M to $5M a year, still with less than 10 employees. Most of these small companies don't take Venture Capital so they own the whole company. pretty good cash flow business."

A "one-third probability"

alexbarnett — Wed, 07 Mar 2007 02:46:00 GMT

Former Federal Reserve chairman Alan Greenspan was quoted as seeing a “one-third probability” of recession in the United States this year, according to an interview with Bloomberg.

I'd say he has a 33% probability of being right.

The Lightnet Revisited

alexbarnett — Wed, 14 Feb 2007 04:35:00 GMT

At the end of 2005 I wrote a post messing around with some ideas on the future of the net.

One of the ideas was the counter concept to the Darknet, using the term 'Lightnet'. I didn't define 'Lightnet', Lucas Gonze did that (and soon after Lucas was good enough to acknowledge me with credit for the invention of the term in the Darknet context).

Over the next few days, Mike Linksvayer, Peter Van Dijck, Kenyatta, Richard MacManus and Jon Udell did their bit of meme-spreading, then J.D. Lasica, author of 'Darknet: Hollywoods War Against the Digitial Generation', picked up on the Lightnet too, where this pic turned up:

A few days later, Lucas and J.D. Lasica were both interviewed by Jason Boog for an article Jason published at Publish, where Clay Shirky was also asked to comment.

But it didn't end there. Prompted by Raymond's post today I was curious to see how the lightnet meme has been doing so I did some searching around.. Here are some samples of the Lightnet citations I found:

December 2005 - Lightnet becomes a del.icio.us tag
December 2005: J. LeRoy connects the Lightnet with Web 2.0
February 2006 - the above lightnet pic and lightnet concept is discussed by Joshua Kinsberg in the context of political free speech
February 2006 - Dave Tool contemplates 'lightnet services'
February 2006 - Chris Ritke confrims Lucas is adament: "one lightnet but many darknets"
March 2006 - Lightnet is discussed at South by Southwest (whether 'lightnet values' can work in a secure private network)
August 2006 - Soundblog considers Lightnet in a future of open media and social networks
October 2006 - the lightnet is the P2P place
December 2006 - lightnet mused in italian
January 2007 - the term Lightnet get its very own entry in Wikipedia (a bit light on content at the moment - I haven't and won't ;-)
February 2007 - Darknet! = Lightnet
February 2007 - DTLQ believes in lightnets. Raymond wrote that today, 15 months after lightnet's birth.

Long live the Lightnet.

CopyBot and Napsterization of Matter

alexbarnett — Fri, 24 Nov 2006 19:28:00 GMT

Last year I wrote up a post called 'Napsterization of Matter - A Thought Exercise'. The point was to consider the social and economic impact of a technology could allow real world objects to be copied and rendered by anyone without restraint.

It seems that this scenario is being played out the Second Life virtual world. 'CopyBot' is the culprit:

"CopyBot allows the user to create a replication of an object, including textures, that is fully permissive. Needless to say this product has caused tremendous worry among content creators who want to understand how its use may possibly affect their business. In particular, they are concerned about theft of their creations, and the potential for unscrupulous people to undercut their prices and essentially take away their business."

The discussion goes on regarding the impact to the Second Life ecomony and the analogies to the real world. Ralph Koster' take is interesting (via TechMeme). In fact, this paragraph sounds an awful lot like the advice one might have provided traditional software vendors and content businesses a few years ago given the advent of the internet (i.e. build Software and Content as a Service):

"Microtransactions for digital assets and virtual goods is a rising, potentially multibillion dollar industry. To succeed, entrepreneurs who are building networked systems based on user content (be they citizens of Second Life or the makers of virtual worlds themselves) must realize that anything displayable is copyable; the value lies instead in service and in server-side functionality. Content is like songs around a campfire: destined to be enjoyed for free. Those who build businesses around hosting campfires would be wise to focus on making the campfire experience great, rather than charging listeners by the song."

Nobody knows how to make a pencil

alexbarnett — Sat, 18 Nov 2006 15:18:00 GMT

I watched an excellent 1994 interview with Milton Friedman earlier this week, a day or two after the news of his death. In it, the Nobel Prize winning economist retold the story of how the pencil is the quintessential example of free markets at work, Adam Smith's Invisible Hand and Friedrich Hayek's understanding of the power of dispersed knowledge, the role of pricing as information and emergent, spontaneous order.

Friedman originally introduced the pencil story to popular public consciousness in his 1980's television series 'Free to Choose' (You can watch the clip here):

"Nobody knows how to make a pencil. There's not a single person in the world who actually knows how to make a pencil.
"In order to make a pencil, you have to get wood for the barrel. In order to get wood, you have to have logging. You have to have somebody who can manufacture saws. No single person knows how to do all that.
"What's called lead isn't lead. It's graphite. It comes from some mines in South America. In order to make pencils, you'd have to be able to get the lead.
"The rubber at the tip isn't really rubber, but it used to be. It comes from Malaysia, although the rubber tree is not native to Malaysia. It was imported into Malaysia by some English botanists.
"So, in order to make a pencil, you would have to be able to do all of these things. There are probably thousands of people who have cooperated together to make this pencil. Somehow or other, the people in South America who dug out the graphite cooperated with the people in Malaysia who tapped the rubber trees, cooperated with, maybe, people in Oregon who cut down the trees.
"These thousands of people don't know one another. They speak different languages. They come from different religions. They might hate one another if they met. What is it that enabled them to cooperate together?
"The answer is the existence of a market.
"The simple answer is the people in South America were led to dig out the graphite because somebody was willing to pay them. They didn't have to know who was paying them; they didn't have to know what it was going to be used for. All they had to know was somebody was going to pay them.
"What brought all these people together was an enormously complex structure of prices - the price of graphite, the price of lumber, the price of rubber, the wages paid to the laborer, and so on. It's a marvelous example of how you can get a complex structure of cooperation and coordination which no individual planned.
"There was nobody who sat in a central office and sent an order out to Malaysia: 'Produce more rubber.' It was the market that coordinated all of this without anybody having to know all of the people involved.".

Friedman's story of the pencil is inspired by the 1958 essay, I, Pencil, by Leonard E. Read. Read's essay concludes:

"The lesson I have to teach is this: Leave all creative energies uninhibited. Merely organize society to act in harmony with this lesson. Let society's legal apparatus remove all obstacles the best it can. Permit these creative know-hows freely to flow. Have faith that free men and women will respond to the Invisible Hand. This faith will be confirmed. I, Pencil, seemingly simple though I am, offer the miracle of my creation as testimony that this is a practical faith, as practical as the sun, the rain, a cedar tree, the good earth."