Dimen Designs

Carr's Big Switch Exemplified by ISPs Going Metered Usage

  more bandwidth && more sandwich 
  Originally uploaded by EisFrei.

Given NYT's article on some of the major ISPs moving to a metered usage fee model, this matches Nick Carr's premise in his newest book, The Big Switch (at bar/lounge right now reading it), that the IT & bandwidth model is going the way of electricity. What Carr points out is that electricity has a positive feedback loop, the more you made it available, the more of people used-- this wasn't the thinking of many analysts & ISPs back in the Dot Com Bubble who didn't think the fiber being laid everywhere would ever be used (e.g. Level 3 who almost went under with the Dot Com Crash but seems to be sitting pretty).

What's spurring the ISPs current push for metered usage?

It's to make more money but what's driving the decision, is it because:

1. Demand is truly outstripping supply or
2. Is it to combat the power users who unbalance the price equilibrium that used to exist between average users using slightly less bandwidth and the minority power users who used slightly more bandwidth?

If we move past that point, the more important question is will we as consumers except the metered usage idea?

Of course the bloggers and techies will protest but will the average user notice or care? They won't care unless they start seeing exceptional high bills-- and that will happen, per Carr's premise that if you give them bandwidth (and Web2.0 is guzzling up more and more) they will want more bandwidth, then average consumers will eventually complain unless the usage fees are scaled correctly as bandwidth use for average users increases.

And this last point is exactly why Net Neutrality is so important-- bandwidth shouldn't be a scarce resource (this doesn't  preclude software & web engineers from designing w/ scarcity or constraints in mind-- see 37 Signals) that ISPs and current internet heavyweights wield to curtail the next generation of web entrepreneurs, companies, and ideas.

Also, research shows that even the idea of costs, either in the form of carrots or sticks, has a pyschological impact on people and changes people's behaivors quite easily.

Why I Don't Like Telcos

It doesn't take more than these two headlines below, both on the front page of my news reader today, to show the perfect contradiction that is the telcos.

Verizon Redefines 'Fast' With Groundbreaking FiOS Internet Service Featuring 20 Mbps Download and Upload Speeds

vs

Verizon Fined For Pretending That Limited Service Was Unlimited

The hyperbole about "fast" is almost laughable if not for the reality of most people's "high-speed" connections in the United States being truly laughable. Remember how far behind the United States is to the rest of the world in overall broadband penetration (yes we have larger geographic areas to cover but it's more than that) and even the paltry broadband connections that do we have are pitiful compared to the bandwidth of Europe's or Asia's internet connections.

I'm not saying that all of the blame rests on the shoulders of the U.S. telco companies but as monopolistic players with no real incentives to innovate or compete on prices, they carry a large amount of the burden. Don't get me started on Net Neutrality or ask me about those 'Cable Brings Choice' TV and print ads that I see here in D.C.

Best of all, don't even think about criticizing them either because AT&T recently updated its terms of Service (TOS) to indicate it could cut off your internet connection if your opinion or commentary "tends to damage the name or reputation of AT&T, or its parents, affiliates and subsidiaries." This language has since been changed, due to the public outrage first generated on the blogosphere, but it's another reason I have no love lost for the telcos.

YouTube: Obvious Yet Misunderstood

In posting about YouTube's deal with Warner Music, I mentioned Cuban's and Calacanis' takes on YouTube being a content thief without any real business model, a business that any legitimate company would have to stupid to buy.

I think Calacanis was right when he said on a recent Gillmor Gang that YouTube's Flash player interface and design could be built in about three months; absolutely, there's nothing complex there. But that's not what makes YouTube valuable.

As I commented on Fred's post:

So YouTube has harnessed great tools and interfaces for sharing both copyrighted and user-generated video but its primary function isn't in sharing illegal content. The future is in edge competencies and YouTube definitely straddles the edge between formal content creators (MSM and copyrighted content) and the future of user-generated content (peer production).

Paraphrasing Steven Chen, one of the YouTube founders, from the conference call this morning announcing the deal (emphasis added):

The YouTube experience is a combination of watching videos and finding the next interesting video. Now with Google search, we can elevate those most relevant videos in more innovative way.

That's what people have missed, glossed over, or simply ignored in their analysis of YouTube: Yes, the idea of hosting people's video and a basic Flash video-player interface is relatively straight-forward (and is easily replicated as Calacanis Netscape and MySpace have shown) but the ease of sharing/embedding videos, discovery of other relevant video, and creating a community around sharing both copyrighted and user-generated videos, are what made YouTube popular and worth $1.6 billion. Truly amazing.

Lastly, I agree with Eric Schmidt's closing comments from the conference call: this is the next step of the evolution of the internet.

What that means is that the MSM, rather than chomping at the bit to sue YouTube (as so many bloggers have advocated/predicted would happen), should be scared, very scared. Not because it means a formal acknowledgment that copyright "piracy" (I hate that term) is okay on YouTube but because the tides have officially turned against content owners and their control over distribution of their content. If the MSM ever had any negotiating clout left in the internet world, it has now lost whatever advantage it might have ever had.

Google is a giant and I don't think the MSM and their copyright concerns are going to win the "piracy" battle like they did with music-sharing. Copyright must be respected (and will be, mickey Mouse's lawyers will guarantee that) but I think those concerns are going to be negotiated under terms dictated more heavily by YouTube/Google and not by the MSM. Do both parties, the MSM and internet media companies, need each other to survive? Yes, but the YouTube/Google deal signifies a substantial shift in power from the old guard to the new guard.

End-to-End: Smart Nodes, Dumb Network

From the October issue of WIRED (whose covers are starting to resemble the fancy, glossy fashion or business magazines), George Gilder reminds us that the power of a network should reside at the ends or the nodes.

“As the redoubtable Bell Labs engineer turned giga-investor Andy Kessler tells me, “It’s sure to happen. It always has. Because all the creativity, customer whims, long tails, and money are at the network’s edge. That’s where chipmakers find the volumes that feed their Moore’s law margins. That’s where you can find elastically ascending revenues and relentlessly declining costs.” (link)

This quote is the essence of the end-to-end principle, which is a technological/structural idea or even an overarching philosophical idea for how networked computing should work. From Lessig:

“The Internet under its original design built a platform that induced lots of innovation in applications and content. And it did this by embracing an end-to-end principle, which meant that the network would remain as simple as possible and push all of the intelligence and, therefore, innovation to the end. This is the vision that is now enabled by a peer-to-peer architecture, and it's the environment that has inspired the greatest amount of innovation around the Internet in its history.” (link)

This concept is worth emphasizing because I mentioned Umair’s concept of edge competencies when commenting on Fred’s post on the purported YouTube-Google discussions. Edge competencies, (which is more of a business model idea bout new value chains in the future) and the end-to-end principle are different things but based on the same premise: value or innovation occurs at the edges of the network when users/people/nodes do the heavy lifting and then contribute and share via the network. The network should be “dumb,” used simply for moving bits around neutrally, and the end nodes should be “smart” (where the real action/innovation should occur for new technologies or businesses).

I’ve been thinking a lot lately (both professionally and personally) about business models and how to leverage network affects (Metcalfe’s and Reed’s laws) and peer production. Why?

I’ll let you know.

Integration Drives Web 2.0

Listened to the Gillmor Gang’s VRM Gang Part III and they paraphrased Guy Kawasaki on what he, as a VC, looks for in new business plans:

I don't want to see a business plan that talks about destroying a competitor. Consumes don't want the competitors killed off, they want to see the service/companies co-exist or even better, work together.

Regardless of exactly how you define the nebulous term of Web 2.0, the premise of integration is one of it’s fundamental underpinning. I raise this idea because of a few news items from last week that addressed the issue of whether a Web 2.0 bubble exists:

1. Tim Berners-Lee calls for Web 2.0 calm
2. TechCrunch’s interview with prominent VC Paul Graham. Read Fred’s analysis too.

What do I mean by integration?

Case in Point:
I’ve used a few Upcoming.org RSS feeds to monitor shows coming to D.C. and just yesterday registered so that I could comment about the upcoming Broken Social Scene show at 9:30. When it gave me the option to add an avatar/photo to my profile, I immediately started debating which place it would be easiest to grab my standard silhouette profile photo, from my blog, Flickr, or Last.fm.

Imagine my surprise and delight then, when Upcoming gave me the option to automatically import my Flickr profile photo, exactly the one I wanted. It asked for the email address associated with my Flickr account and since it was the same as the once I registered with Upcoming, I clicked the button and there was the photo. How easy and simple.

Want more integration for your music listening needs?

1. Tourb.us integrates Upcoming’s events feeds features like Upcoming’s events feeds with your Last.fm preferences (thanks to Gary for that correction)
2. Partystrands aims to be Last.fm + Digg

Conclusion:
Integration of services, especially open web services via APIs, is one of the large value drivers of Web 2.0. Or as Fred points out about social software in particular (italics added),

The best social software doesn't require any effort or work as he calls it...Social software at its best doesn't require any incremental effort (setup and integration are fast and simple) . We are just at the beginnings of all of this anyway, when the geeks and the hackers are doing it and nobody else is. But mark my word, social software is the future. I am sure of it.

Disintegration and Aggregation in the Music Industry

There's a lot going on in the music industry right now and I don't raise this fact simply because WIRED made it the subject the cover of their September issue (which is worth reading even if those who follow the trends in music have been aware of the featured stories for some time now).

But there was one nugget from the issue that struck me as worth noting and it's because it's an idea that Lessig has and others have talked about before: voluntary collective licensing. Much like we have now have for radio, a fee of $5 would be tacked on to your monthly ISP fee to account for the music that you downloaded to cover the revenue lost by the record companies when you downloaded rather than bought music. We have this principle with radio stations and also on the purchase on blank tapes.

"Now the 18-year-old high school student heads the Association des Audionautes, an organization of 6,000 Web junkies that has made peer-to-peer file-sharing an issue in France's upcoming presidential election. Under a plan that would compensate artists through a surcharge on Internet service provider fees, the group aims to make France the first country to legalize file-sharing." (link)

  WindMill Two by 12bars photography.

This is timely because there of the industry-changing news last week that MySpace will start offering non-label bands and others the ability to sell non-DRM mp3 songs. I can't wait to read Lefsetz's response to this story.

Not only was there the MySpace news last week, but a few smaller music industry items that all contribute to the bigger picture-- the mainstream music industry is dying and the listeners/users/prosumers are becoming the driving force of recommending and picking new music for us. A little too much Web 2.0 you say, a little too much social-networking euphoria? Read this mini-case study (blatant Umair rip-off).

The New Tastemakers- NYT article on Pandora. Two choice quotes (emphasis added):

“You now have music fans that are completely enabled as editorial voices,” said Michael Nash, senior vice president for digital strategy and business development at Warner Music Group.

“The tools for programming are in the hands of consumers,” said Courtney Holt, executive vice president for digital music at MTV Networks’ Music and Logo Group... “Right now it almost feels like a fanzine culture, but it’s going to turn into mainstream culture. The consumer is looking for it.”

But if fans become their own gatekeepers, the emerging question is what sort they will be. Will they use services like Pandora to refine their choices so narrowly that they close themselves off to new surprises? Or will they use the services to seek out mass shared experiences in an increasingly atomized music world?

There are two takeaways, discrete insights here. The first is more obvious, the users are in control of programming their own music choices and recommending those choices. The second is more nuanced and leverages part of Anderson's Long Tail principals. There is disintegration in music tastes as the variety and available options become easier to search and then re-aggregate in personal music preferences.

Music is becoming more fragmented because every consumer can make their own choices now but that act of creating your own personal music preferences will become mainstream culture. Pushing down the Long Tail depends on great search and discovery tools that don't just offer us unlimited choices, but offer us ways to make sense of all those choices in ways that still give us a sense of control.

The answer is not that people will become too narrowly focused (the MSM said this about customized news/RSS feed pages too) and lose the ability of musical surprises. I discover new music precisely through these aggregating servcices, Last.fm, The Hype Machine, and of course through personal recommendations (like I did for this movie and for this music), not in spite of these services.

Information Arbitrage in Real Estate

One industry that’s a last bastion of the pre-internet world is real estate, where information arbitrage has long been real estate brokers’ competitive advantage over home buyers. For background on arbitrage, read Roger Ehrenberg’s recent post or Wikipedia.

But the real estate industry has been resisting the free information trends of the internet for a long time because it threatens the commission structure that’s a bedrock of the chummy industry. I don’t need to elaborate about how the internet is starting to fundamentally change the real estate market like it did so quickly and completely with the travel industry, but this NYTimes article today had a new insight on this discussion:

“But the typical 6 percent commission, paid out of the seller’s proceeds and split between the seller’s and buyer’s agents, is under attack because, as economists note, it does not serve consumers well.

Economists who have studied the current system say that it also does little for most agents — except for a few stars, whose impressive earnings give hope to the large majority of less-successful agents and thus encourage them to protect the status quo.”

Of the reasons that I’ve heard for the real estate industry to open itself to competition (the brokering of buyer and seller can be done more efficiently and cheaper through electronic rather than personal connections- like the battle over electronic trading on the NY Stock Exchange), this is another reminder (Freakonomics concluded the same thing) that economics may be the strongest argument for eliminating the practice.

“Some economists wonder why agents fight so hard to maintain this pricing system when it is making so few of them rich. In every housing boom, the number of new agents entering the market tracks the climb in home prices. As a result, the average agent sells far fewer homes and makes less money.”

I am no economics scholar but I fundamentally believe in the efficiencies of the marketplace and the real estate industry is one ripe for overhauling. Let’s hope that the internet continues to dismantle the information efficiencies that have long fostered the power of the agents over the buyers.

Second Life as Disruptive as the Internet

A few weeks back, I had the great pleasure of talking with Brad and Fred from Union Square Ventures, which was definitely the highlight of my year. These guys really get it when it comes to the web and invest in entrepreneurs that understand how to leverage web technologies to create truly new, disruptive businesses. I loved talking with them about all of the internet issues that I try to keep up with, the future of the web, new media, copyright and patents, social networking, internet governance, blogging, etc. I could have talked about this stuff for a long time because I really love it.

[ But no one can talk shop forever so we even got into the skiing vs. snowboarding debate, which, as a die-hard snowboarder (who used to be a skier waaay back in the day), I can't resist engaging people in. I always end a skier vs. snowboarder debate with the simple conclusion that nothing beats the feeling of powder on a snowboard. Fat skies can only do so much, as my friend Grant Kaye can attest to (the best damn skier that I've ever ridden with): a snowboard in powder is heaven. ]

One of the subjects that I briefly brought up was Second Life and it's potential to be a major disruptive force. I haven't used it myself but for awhile Adam Curry was praising the gospel of Second Life on every DSC podcast. Now he can get a little excited about things but I think he was being reasonable in his assessment of Second Life being the new great user interface for digital computing or social interaction in the future. Business Week covered Second Life a few months ago and although I haven't seen/read any recent stories, it seems that there's still something important going on with Second Life.

Why the sudden optimism? Mitch Kapor recently stated that

Second Life is a disruptive technology on the level of the personal computer or the Internet. “Everything we can imagine and things that we can’t imagine from the real world will have their in-world counterparts, and it’s a wonderful thing because there are many fewer constraints in Second Life than in real life, and it is, potentially at least, extraordinarily empowering.”

Kapor is famous in the internet world, having been on my radar for being a founder of EFF, so we should take note when he talks about truly disruptive forces.

I suppose the great question is whether we can combine the relatively hands-off governance model of Craigslist with an amazing virtual world like Second Life?

At first blush, the answer may seem obvious because of the stories about Second Life's issues with inflation and monetary policy involving Lindy dollars, but let's take some time analyzing this one. Can we combine the best of both worlds to create a new social networking platform that is self-regulating without needing the heavy hand of a bureaucratic, democratic form of governance?

Brad or Fred, any thoughts on this, I'd love to hear your insights.