why O’Reilly can’t read
Tim O’Reilly is one of the few public figures in technology who honestly deserve the term “futurist.” He’s a vibrant speaker and thinker; every time I’ve seen him talk, he’s set my mind spinning around a universe of amazing ideas. The future is unevenly distributed because he’s got more of it in his head than most mortals.
This is of course the kind of encomium you give right before you try to criticize someone who knows a hell of lot more than you do. Ah well, that’s what blogs are for, aren’t they?
With the launch of Amazon’s Kindle 2, O’Reilly looks into the future and says that the best e-book reader today will be gone in three years. He makes a comparison to Microsoft’s effort in the mid-’90s to make a portal for delivering proprietary information over the Internet. Tim quite correctly told Microsoft’s then-CTO that the open standards of the World Wide Web would provide a far superior means for dissemination of information, so that publishers that did not embrace the Web would get left behind, along with the proprietary platforms that compete with the Web.
He was right then but he’s wrong now to extend the analogy to books. I don’t think O’Reilly understands books, or at least, he’s chosen to hide his understanding for polemic purposes. I realize that I’m entering into serious chutzpah territory here – not only does this man see the future in ways I can’t imagine, but he’s been a successful book publisher for over 20 years. He’s forgotten more about books than I’ll ever know. And maybe that’s the problem.
O’Reilly apparently looks at books as just an arbitrary format for delivering information. He makes the question of the Kindle simply one of determining the most efficient means of delivering information over an interconnected web. And so you can look into a future of free content and open standards and conclude that there’s no room for a proprietary e-book reader. Supposedly everyone will be reading books on their laptops and iPhones and the only e-book readers that will survive will be computing devices that adhere to the same open standards as these other devices.
But that vision of the future ignores the properties of the book as a format. For some kinds of books, the format really is only an obstacle to efficient delivery of information. A perfect example is the book used as an example in O’Reilly’s article, iPhone: The Missing Manual. The purpose of this book is to describe how to use an iPhone; it’s not meant to be read cover-to-cover but to be dipped into in order to retrieve information. This is not a book so much as, as the title says, a manual. Virtually all of the books in the O’Reilly catalog have this property – they are manuals for delivering information, not books that deliver a narrative.
O’Reilly would disagree with the contention that technical manuals can’t be narratives, so let me be clear that I’m not saying that. I’m saying that even if a manual has the form of a narrative, delivering a narrative is not the purpose of the manual. The purpose of the manual is to deliver information. As opposed to what I’ll call a “book” – the purpose of a book is to deliver a narrative. You may also get lots and lots of information, but the primary goal of the reader is to experience a narrative, not to simply learn the information.
Sure, it’s a cheap trick to try to win an argument by defining terms, but there’s a reason it should work here. Say that manuals are works that are read to receive information – I agree these will need to be on open standards, and I agree that proprietary e-book readers for these will not exist. And say that books are works that are read to enjoy a narrative – I think this activity has special features that will support proprietary e-book readers. So you see what happens if I am right? All manuals will disappear into the Intarwebs, and the only things left on e-book readers are the things that I am calling books!
And what are those “special features” for reading a narrative for narrative’s sake? Well, the dry terms are these: form factor, display characteristics (electronic ink), weight, weatherproofing, keyboard layout and peripherals (or lack thereof). And the magic of books are these: the feel in your hand, the pages racing under your fingertips, reading all day curled up on the couch, reading in the bath, reading with a flashlight under the covers, reading until you disappear into the book. All right, finally I’ve tipped my hand, you might have guessed it all along: I love books. I’m not alone:
I’m very fond of paper books. I have run out of wall space in my house for bookshelves. One of my hobbies is to collect old editions of bestselling books from bygone eras (many of them now largely forgotten) to find out just what people in that time found so compelling. I find that many “great” books have a timeless quality, but the second tier down, in which grand human themes stand out less than the time-bound peculiarities of an age, provide a fascinating window onto the past.
That’s Tim O’Reilly, from the same Amazon interview linked above; according to Wikipedia he was a classics major, and it shows. I don’t think either of us believe that people will stop loving paper books, just as many people still enjoy plays that have been produced for centuries. I guess I’m a more modern bibliophile than O’Reilly in that I believe that an electronic format can retain some of that same magic, and I’m a less open idealogue in that I think open standards will need more than three years to surpass the best proprietary e-book reader today.
bailout 2.0
I complained about auto industry bailouts and was chastised. Thomas Friedman says VCs should get bailed out and VCs say No No No. Then I realized that No is not enough of an answer. You have to propose an alternative, preferably one without the government deciding who gets the money. That’s not how we do it in the S.V., yo. (I kept expecting Sarah Lacy to say that, but since she didn’t, I did.)
There are few who are ideologically strong enough to say that we shouldn’t have any bailout for anyone for any reason. I’m not one of them. This crisis is too enormous; adherence to ideology now can only be accomplished through disconnection from reality. I do think that government bailout funds should go to stimulating the economy. But as someone with a Silicon Valley belief in economic growth through innovation, I just don’t believe that the federal government will make the wisest choices about how to spend bailout money.
So who should make those choices? Wait for it . . . wait for it . . .
You should, of course.
That was too easy, but let’s think hard: Is this any worse an idea than anything that’s on the bailout agenda now? Web 2.0 may be dead, but the underlying values of participation and collective intelligence are enduring concepts that will continue to pay off in the future. Sure, the wisdom of crowds has many exceptions and qualifications, but I’ll gladly bet my tax dollars that the crowds are wiser than Washington.
Let’s say the government designates $100 billion for a crowdsourced bailout. They just have to set up services to collect and analyze the input from all the social nets out there. Twitter users could nominate worthy recipients with a #crowdbail hashtag. Mobile camera phone users could use barcode scanners to submit deserving products, and location based services to tag retail stores worth bailing out. There would be dozens of ways to submit suggested recipients on the web. In order to limit fraud, the payouts could be in the form of tax credits or “consumer purchase credits” (CPCs). I just made up CPCs – government credits that a seller can apply to reduce the consumer purchase price of goods. For example, a business that received $100 in CPCs can take 100 items that are usually sold at $2, and sell these for $1 instead, receiving $1 in cash from the government for each item sold.
Would this work? Is it too complicated, too stupid, too difficult? Look, this is just half hour’s worth of musing, but I believe that any objection you can raise can be fixed with further work to at least to this standard: it’s not worse than the government bailouts going into effect now, and it’s certainly not worse than some being asked for. Something along these lines is in the spirit of what Silicon Valley can do, and I’d be thrilled to see more serious efforts to design something that fits with the ethos of our region.
For example, I’d bet that the folks at Virgance could come up with something that would make sense, and they’d probably be glad to implement it for less than 1% of that bailout amount.
man bites App Store
A study that most iPhone apps fail is being picked up by credible news outlets. This is a classic abuse of the “Man Bites Dog” principle:
When a dog bites a man, that is not news, because it happens so often. But if a man bites a dog, that is news.
The fact that most new efforts fail is not news. In recent years, we’ve seen amazed reporters discover that corporate and brand Facebook apps fail as FB developers struggle. Shockingly, most businesses fail in virtual worlds. Although small business failure rates are often exaggerated, the real numbers show that most startups fail. Without going to the trouble of actually doing research, I will make the following guesses:
- most Google advertisers fail.
- most blogs fail.
- most eBay sellers fail.
- most television shows fail.
- most movie producers fail.
- most book authors fail.
- most cave drawings fail.
I look forward to the startling exposes crafted by hardworking reporters on these topics.
Sarcasm aside, it’s interesting to consider the underlying assumptions of those who would find news in high failure rates. If these stories really are about man biting dog rather than vice versa, then the assumption must be that there is a new means of business delivery that ensures success for the majority of its users.
That of course is a flawed assumption. There is not now and never has been any way of delivering new business efforts that guarantees success in a free market. Apple does not make businesses successful, Facebook does not make businesses successful, even mighty Google does not make businesses successful. Instead, each of those companies have enabled some businesses to become successful – which is just another way of saying that they’ve given most businesses a new way to fail.
So the ultimate test for these companies is not whether they magically improve failure rates for others. The test is whether the company itself operates a profitable business. Apple and Google have passed that test with flying colors, Facebook has yet to do so.
crushing on Marc
In which I shall argue that Marc Andreessen is the greatest startup blogger of all time, and possibly also the most distinguished tech entrepreneur alive today . . . and why he will probably be a mediocre venture capitalist.
The Case As Greatest Startup Blogger
Have you read Marc’s blog? (I am not on a first name basis with Mr. A, but I can’t use his last name throughout this post because I keep misspelling it, which drives me nuts.) I challenge you to find any other blog about tech startups with a higher percentage of incredibly incisive and valuable posts. He’ll lay out every important guideline for being a competent startup entrepreneur. He’ll tell you the truth about venture capitalists. He’ll give you invaluable career planning tips, warn you about entrepreneurial misjudgment, tell you how to hire, and even describe the role of luck and age. Did you go to business school to learn how to be an entrepreneur? Well, you should have just flushed $100K down the toilet and read his blog instead.
But wait, maybe he’s not a ”’real blogger”’ – can you be great if you’ve been on hiatus since last August?
I say yes, it’s about quality over quantity, even if you can have quality in high quantity. I like mystery fiction and consider genre work as legitimate art, so I’ll draw analogy from there. I prefer Dashiell Hammett over Donald Westlake, even though I think Westlake is just as talented a writer as Hammett if not more so. Hammett put every beautiful thing in his artistic soul into about a dozen novels and short story collections, while Westlake spread it out over more than 100 volumes, using as many pseudonyms as Hammett had books. Both were great, but Hammett was the greater artist for the purity of his delivery. Marc’s blog is pure art compared to the good-quality-high-volume blogging by some venture capitalists and lawyer-turned-blogpreneurists.
And of course, the real authority behind Marc’s blogging about startups is his phenomenal success as an entrepreneur. You have to listen seriously to someone who’s done it before. But can he really be considered the greatest living tech entrepreneur? Let’s turn to that -
The Case As Best Living Tech Entrepreneur
Well what does “most distinguished” or “greatest” or “best” mean anyway? Here I just mean the one who knows the most about making successful tech startups, the one you should listen to if you want to be in this business.
Yes, I know that Gates and Jobs, Larry and Sergei, Bezos and Omidyar, Ellison and Slim and many others have made much more money in tech. But sheer wealth does not settle this question. It’s about how you got there. I’ll eliminate guys like Carlos Slim because they made their fortunes as investors and financiers, not as the operational guys who built the businesses. All of the other guys I just mentioned, except one, made the bulk of their entrepreneurial fortune from just one company. I wouldn’t exactly say “once you’re lucky, twice you’re good” with these guys – they are all way beyond good with what they’ve done for their companies and for tech history – but I would value advice from MarcA over any of them, because he’s both made history and created his fortune across multiple entrepreneurial efforts. People who have had the vast majority of their success over a single company are just statistically disadvantaged in providing the kind of advice that entrepreneurs need.
Jobs is the one to consider carefully. Between his first and second acts at Apple, he founded an interesting business in Next and a magical one in Pixar. But his reputation gives me doubts about whether he is capable of giving advice to entrepreneurs – it’s possible that his own genius gets in the way. He might be like Magic Johnson: an incredibly gifted athlete who could not make the transition to coaching because he found it hard to explain the game to people who did not have otherworldly talent. Of course, all this is just impression from news reports and second-hand sources; it’s possible that Jobs is a great coach. But the evidence isn’t in the public record or the rumor mill.
And now, let’s look at Andreessen. He founded one of the key companies of the Internet age in Netscape, becoming the original tech hype poster boy. Netscape went public, sold to AOL for billions and was finally crushed by Microsoft. Marc suffered the hype backlash and doubts, but he got back on the horse and founded Loudcloud, which grew to a $100 million revenue business, went public and then cratered in the dot-com bust. Marc and his CEO rebuilt the company as Opsware, built up another $100 million revenue business, and then sold for $1.6 billion to HP.
Does anyone have a record like this? Recap:
| What he did | What it means |
|---|---|
| founded a company of true significance in tech history, went public. | Knows about making history. |
| sold to and became senior exec at giant media conglomerate. | Knows about selling your soul. |
| crushed by monopolistic competitor, was treated with disdain and doubt in media. | Knows about falling from grace. |
| founded another tech startup, went public. | Knows about redemption. |
| crushed again in bubble burst, assets sold and restarted. | Knows about being a two-time loser. |
| restart grows to $1+ billion exit. | Knows about triumph after they all forgot about you. |
| best tech blog evah. | Shares the wealth of knowledge. |
Who is even close to this? I actually hate giving this much love to someone in public, but this string of experience is so compelling, I had to write it down before I could believe it.
The Case As Mediocre VC
With all the love I just dropped on MarcA, how can I predict anything less than glorious success in his new efforts as a venture capitalist? I won’t link the posts again, but you can see on his blog that the guy has done his homework and he really understands what he’s getting into here.
Part of my doubt is that I’m just playing the odds. VC is an industry where luck plays a vast role in success, especially early in the VC career. If you’re not lucky early, you don’t get to keep trying, because people will not keep giving you money to invest. This is different from entrepreneurialism, where if you are determined, you will get to keep trying over and over again until you give up – you can make your own luck through repetition. Again I’m not going to relink, but above I noted that Marc knows how to make the most of luck. Nevertheless, it’s called luck for a reason, namely that a favorable outcome is against the odds.
More importantly and less sensibly, off the top of my head I’m not aware of any great VC who has the record of entrepreneurialism that Marc has had. I guess that’s not surprising, since I just spent 500 words explaining that I don’t know of anyone with Marc’s record. But as many people (including of course MarcA) have noted, there have been great VCs who were lifers in the business as well as great ones who came from operational roles and even former journalists and analysts and lawyers.
But that record of Marc’s is just too entrepreneurial. It seems to me that guys with that kind of DNA have some difficulties in becoming, essentially, a specialized class of money manager. Some of them can be great individual investors (investing their own money, which Marc has already done well), but they seem to have some sort of mental discomfort in managing other people’s money. I don’t know why, but I’ve seen that quite a few times.
Mind you, if I ever got a chance to invest with him, I would take it . . . because it would be worth losing money with him as an investor to get time with him as an entrepreneur.
update 30 Aug 09: Marc seems to have taken down his archive, which is really too bad. Fortunately, you can still find his posts by searching the Internet Archive Wayback Machine.
TV’s Napster Moment
I really don’t believe we’re going to see this much stupidity again so soon after the exact same stupidity launched the death of an entire industry.
But I’m getting ahead of myself, let me recap very briefly and excessively linkfully and painfully parenthetically: Boxee has this cool product that enables you to watch Internet video streams on your TV. Another company, called Hulu (f.k.s.a ClownCo – the “s” stands for snarkily), has deals with a lot of TV networks to stream TV shows on its website. Both companies he said she said that Hulu content is now being blocked from Boxee. The obvious read is that the ”’content providers”’ (I just invented triple-quotes to indicate sarcastic air quotes!) that are partnered with Hulu demanded this blocking to protect high-priced distribution channels.
It’s Napster all over again, replaying from the music industry into the TV industry. For those with short memories: In probably the worst decision in a relentless trail of self-destruction, record labels had two choices when they saw the early popularity of the original Napster (not today’s incarnation) service for music file sharing: make a deal with Napster or shut it down with litigation. The labels chose to destroy the popular service, which turned out to be like trying to prevent a flood by blowing up the nearest dam. Napster alternatives quickly sprang up that were impossible for the labels to deal with, and the rest is history, just like the labels will be.
Santayana said “Those who cannot remember the past, are condemned to repeat it.” This used to be a mournful statement, because it’s actually pretty hard to learn from history – there’s just so much history, no one can really hold all of the lessons of it in one head. So you’re doomed to make mistakes that lots of people have made before. And then by the time you’re old enough to remember a lot of history, you’re starting to feel too old to do anything about it.
But one wonderful aspect of our accelerated modern lives is that history happens in ever-shorter cycles. I doubt there’s anyone in a decision-making capacity at the TV networks who doesn’t remember the Napster lesson very well. And I can’t believe they’d make the same mistake with that knowledge. People can’t be that dense, can they? A deal is going to get done here, if not with Boxee then maybe with BitTorrent. I’m going to lose faith in humanity if that doesn’t happen.
[Edited to correct slight misquote of Santayana. <sigh> Those who rely on random websites for quotes are doomed to misquote.]
“All this has happened before, and all this will happen again.”
With all the recent coverage of Twitter’s financing, and earlier news about the Twitter-Facebook acquisition dance, you might think that the two are destined to compete to the death.
Some say they’re already competitors, that Facebook will kill Twitter, or that they are at least competitors for developer mindshare. They are certainly competitors for media mindshare – the lower half of this chart shows that news coverage of the two has become nearly equal.
Ah, but what about that upper half? Search traffic for Twitter doesn’t even register compared to Facebook. Will it really take Twitter 36 years to catch up to Facebook’s active user base? Is Twitter really even in the same game as Facebook? There’s a hint in the #1 reason that Todd Chaffee invested in Twitter: because it’s “open.”
I like to think of Facebook and Twitter not as direct competitors, but as classic heroes of competing ideologies. They represent yet another chapter in that old Internet story, The Walled Garden and the Open Future. In the primary exemplum, America Online introduced the Internet to the masses, delivering a “safe” experience that attempted to control all content delivery to the end users. AOL was eventually swamped by services that aggregated more open content (Yahoo), excelled in specialized commerce experiences (eBay, Amazon), and found massive monetization through key horizontal services like search (duh, Google).
The moral of the story is supposed to be that the open future always wins in the end. But the moralizers conveniently forget that the story keeps repeating itself. The walled garden is replanted again and again, and the open future is always in the future. And people make money at both ends, and people fail at both ends. Let’s not forget that early AOL shareholders saw the company sell at $182 billion, and let’s not ignore former heroes Yahoo and eBay struggling to remain relevant today. Amazon and Google look like winners today, but they’ll have their rough patches too – when the game lasts forever, the only prize is that you get to compete for your life over and over again until you die.
With that cheery thought, let’s look at Facebook vs Twitter again. Facebook fills the role of a classic walled garden experience, notwithstanding their apps platform, which seems more of a concession towards prevailing tech ideology than a coherent strategy. Twitter is part – only part – of the competing ecosystem of open web apps. Take Twitter together with Flickr, WordPress, WidgetBox, glue it all together with some OpenSocial and OpenID – and there you have a Facebook replacement in the classic Open Future: it doesn’t all quite hang together yet, but someday it will – one or more of these services will become a huge new business, and Facebook will shrivel to a shadow of its former self (though early shareholders will get a chance to enjoy a huge liquidity event before then). The open futurists will declare victory, but it’s just another battle in a neverending war.
irresistible prejudice
p. 52:
It faced – or seemed to face – the whole external world for an instant, and then concentrated on you with an irresistible prejudice in your favor.
Most of this paragraph is taken with a description of Gatsby’s smile. That smile is a wonderful piece of work, and Gatsby must have truly worked at it – you can picture him spending hours in front of the mirror perfecting the radiant character of that smile. He started with natural material, the handsome face, a wide mouth around even white teeth. His ambition to become a man of the world required an openness to experience beyond his small beginnings, and that open heart can fill a smile with good will. He continually nurtured his ability to appreciate and reflect joy, if not always to generate it. All of that could be genuine.
What could not be genuine, what does require that practice in the mirror, is the way that smile turns to just you, no longer the natural sun hanging in the sky buy a spotlight made and tailored just for you. You have to remember, that’s how he smiles to everyone, it’s not just for you. There’s a particular technique in this, a conscious effort required to give you that irresistible prejudice. He has to lean into you a degree or two more, focus both of his eyes into your dominant eye, hold the gaze a fraction of a second longer than normal. That smile is a work of art, not a work of nature.
culture wars
From the Department of Unsolicited Advice: Jack Flack gives Carol Bartz six pieces of advice as she tackles the Yahoo CEO job. Blodget likes all but the first, about reducing the friggin’ moxie, since a little pseudo-profanity makes his own job more entertaining.
To add my own unsolicited advice, which Bartz surely doesn’t need: only the second point, about the folly of stalking leakers, has a lot of merit – but Blodget already said it much better. It’s the fifth point that inspired me to post, because it’s truly terrible advice:
5. Ignore the current company culture. Courting the employee masses will have limited upside. Many Yahoos still actually bleed purple, but the percentage of destructive malcontents in Sunnyvale, Calif., rivals that of even the cheesiest reality show. Consequently, the best way to get early traction will be to create a small inner circle of people who want to win, and build from there. As you make decisive moves that are applauded, your support base will grow quickly.
I’m not sure exactly what he means by “ignore the current company culture,” but any way you read it, it’s bad advice. If he means that the current culture is that of destructive malcontents, then why would you ignore that? Fixing that poisonous culture should be a top priority. If he means that cultural change is accomplished by anointing an inner circle of true believers, that’s wrong too – instead it’s a sure formula for creating (or reinforcing, if it already exists) a toxic culture of self-interested politics.
The worst interpretation would be that Bartz should ignore whatever remains of the passion that first made the company succeed, the purple blood that so famously runs in the veins of the devout Yahoos. That’s exactly the opposite of what the CEO should do. A great CEO would find and nurture that spark, because it is the only hope of returning the company to any semblance of greatness. It is eminently possible to revitalize that culture while still weeding out the malcontents and malingerers; in fact, doing the latter would go a long way to accomplishing the former.
Establishing and reinforcing a great company culture is one of the key jobs of any CEO. The only exception would be if the CEO really was only hired to sell the company ASAP – while that may end up as the outcome, I don’t think Bartz would have come out of retirement if that were her only possible objective.
apples to apples
Facebook turned 5 years old last week, and a couple of commentators took the opportunity to compare the company’s progress unfavorably to Google’s.
I understand the compulsion to compare every hot startup to the current media darling that literally put its name next to the definition of “Zeitgeist” – but still, I don’t believe there is any practical value in that exercise. A meaningful comparison compares things of like kind, and comparing every company to the once-in-a-decade champion is not apples to apples. Take a look at this list of companies, which I’d say are all the same kind of apple (of course one of them is literally an Apple):
| Company | Year Founded | Year IPO | Feb 09 Market Cap |
|---|---|---|---|
| HP | 1939 | 1957 | $87 B |
| Intel | 1968 | 1971 | $83 B |
| MSFT | 1975 | 1986 | $173 B |
| Apple | 1976 | 1984 | $91 B |
| Oracle | 1977 | 1986 | $91 B |
| Cisco | 1984 | 1990 | $99 B |
| 1998 | 2004 | $119 B |
These are the true giants of Silicon Valley (plus our favorite giant from up north), all companies that have spent a goodly amount of time with a market cap over $100 billion. Comparing any private company to these monsters is a fool’s game; it’s like comparing a college basketball player to Michael Jordan. Actually it’s worse than that – projecting athletic talent is considerably easier than projecting $100+ billion success for a company, because there are orders of magnitude more points in a company where externalities and luck play a tremendous factor. (I always like to recall that Intel and Microsoft were initially made giants not by their own strategy, but by the strategic decision made by IBM when it chose to outsource production of its PC microprocessor and operating system.) These true giants are Black Swans, by definition nearly impossible to predict, and useless as comparative points except when holding both points in retrospect.
If you must make comparisons, it’s more realistic to compare to the next tier, for example:
| Company | Year Founded | Year IPO | Feb 09 Market Cap |
|---|---|---|---|
| Sun | 1982 | 1986 | $4 B |
| Amazon | 1994 | 1997 | $44 B |
| Yahoo | 1995 | 1996 | $19 B |
| eBay | 1995 | 1998 | $18 B |
I could put a dozen more on that list, but I’ll let you pick your own peer group. Any one of those companies (yes, even that one that you think is irrelevant/dying/dead) could still take the multi-decade journey to giant-hood. But even if they never do, they’ve accomplished something extraordinary in growing up from a tiny Silicon Valley startup (with one favorite from up north) to an independent company, a true a difference-maker in technology and the daily lives of millions upon millions of people. Because they haven’t had such outstanding externalities and luck in their favor, they are a better basis for comparison.
still misunderstanding micropayments
Please, Shirky, don’t hurt me.
See, in the past Clay Shirky has expressed some healthy, justifiable skepticism about Second Life, or rather, the hype around SL in 2006-07. And on a scale of one to infinity, he knows about a googol (old skool usage) more about the future of Internet and new media than I do. So I’m loathe to disagree with him on any topic. But I’ve got to chime in about micropayments.
The quick recap: Shirky says that publishers are grasping at straws if they think that micropayments will save their dying business models. Matthew Gertner hopes that publishers might still find that magic blend of quality and scarcity that allows them to charge micropayments for content. I think both misunderstand the demonstrably successful business models for micropayments.
Shirky’s right when he says that “users don’t like being nickel-and-dimed” for content. But that’s not what happens in the successful models, not from the users’ point of view. Users are making small payments, but they’re not paying nickels and dimes, they’re paying significant amounts of dollars over relatively short periods of time. They are paying for the convenience of not making micropayments while making micropayments. Huh?
If “micropayments” means anything anymore, on a pragmatic definition it means “payment of an amount that is typically too small to justify its own transaction costs.” Depending on volume, merchant fees and chargeback rates, the $0.99 price of a song is probably not large enough to justify transaction costs on a transaction-by-transaction basis – but that’s not how iTunes does it. iTunes aggregates charges and only incurs transaction costs when the aggregate charge supports the costs. This is a seamless experience for the user, and together with the presentation of a broad catalog, a pleasant user interface, and smart search and recommendations, this service is well worth paying for.
Shirky believes that iTunes demonstrates that “the only real lesson of small payment systems generally . . . is that if you want something that doesn’t survive contact with the market, you can’t let it have contact with the market.” Ironically, the internal contradiction of this statement is that it assumes that the value is in the content. But the value is not in the content, as many people, including Shirky, have pointed out.
The point is even clearer in Shirky’s other example, Cyworld, a Korean social networking site where users can buy each other “virtual gifts.” Facebook introduced the same feature in 2007, quickly giving birth to a virtual economy that some estimate at $100 million a year. Shirky says these kinds of services are a “monopoly within the environment” that “prevent[s] competition for pricing of digital goods.”
What?! Think about it, how can there be competition for pricing on goods that are worthless? Those little virtual gifts that sell for a buck a piece – the flowers, hearts, puppies, etc. – there ain’t no monopoly on them, it’s not a closed environment as far as those goods are concerned. I can take them wherever I want (notwithstanding copyright claims, which aren’t the point here). You see, there they are, 21 virtual items right next to this paragraph. Did I just steal $21 from Facebook (or worse, from Susan G. Komen)?
Nope, I didn’t. Because nobody gives a damn about those items here on my blog. (Well, maybe someone will make a copyright claim that I’m not making fair use of them, as I think I am, but again that’s not the point.) People don’t pay for those little bits of clip art, and I certainly wouldn’t be interested in paying to display them here. People who buy virtual goods are paying to have those bits of content show up on the service of Facebook, of Cyworld, etc. They are paying to have it show up on the profile of a friend, they are paying for the social graph, they are paying for all of the reliability, usability, network effects and ego-fulfillment of those services. And they’re making micropayments, and the services are again aggregating the micropayments in a way that is part of a convenient and seamless user experience. The content in Facebook is not “trapped” in some kind of monopoly – the service of Facebook is in full and open competition with every other social service out there.
So that’s all I have to say about that, but I have to end with a little disclaimorama: Second Life may have had a “virtual economy” of over $360 million last year, but that’s not necessarily where my thinking comes from on this. I’ve been looking at things like Cyworld since I was a VC at a Korean shop, long before I joined Linden. Disclaimer necessary because there’s whole reams of thought about whether the content on SL has value off of SL, which I am not getting into and not taking any position on here.
