Archive for July, 2009
news business models
Posted by Tim in business models, innovation on 30 July 2009
I’ve written a bit about newspapers here, and here, mainly discussing how they might change their business models effectively. As is often the case, it looks like it is new entrants that are coming up with the genuinely innovative business models. Two recent pieces have addressed this. The first is an article by Michael Wolff in the latest issue of Vanity Fair which profiles the Politico website. Wolff outlines how politico.com has succeeded by maintaining an almost fanatical focus on what they are doing – providing mostly unfiltered stories about what’s going on in Washington D.C.
This ends up being a specific instance of the general model that Umair Haque discusses – which he calls nichepapers:
Nichepapers are the future of news because their economics are superior. All the Nichepapers above are “real” enterprises, with staff, offices, and fixed and variable costs. Nichepapers offer more bang for the buck: greater benefits for far less cost. Readers get more, better, and faster content — while publishers realize lower capital intensity, lower distribution, marketing, and production costs, and less risk. What is different about them is that they are finding new paths to growth, and rediscovering the lost art of profitability by awesomeness.
One of the drivers of this awesomeness, according to Haque is that the nichepapers are intent on creating value, while the existing newspapers are more built around taking advantage of their monopoly on local news (and on access to local readers). I guess it’s another example of just how hard it is for well-established firms to generate new business models in the face of external change. If you’re in a well-established firm, it might pay to be thinking about this issue now, rather than waiting. And the key question is: as the environment around you changes, what are you doing to create genuine value? Answering this question incorrectly is often the cause of failures to adapt.
if you want some crocs, better buy them soon
Posted by Tim in book riffs, replication on 29 July 2009
Another book that I read on my trip is Voodoo Histories: The Role of the Conspiracy Theory in Shaping Modern History by David Aaronovitch.
Since an important part of innovating is getting your new ideas to spread, looking at how bad ideas spread can be useful. In this case, the bad ideas are spreading because they provide some level of comfort to people (even though they are usually expressed hysterically). In the case of the economy, bad ideas that spread are probably best characterised as fads. There’s no good reason for them to spread, and often they replicate for reasons that are unrelated to their features or benefits. A lot of firms try to find the next fad, but in the long run, it seems to me that it is better to try to build success by providing a solid product or service, rather than simply through letting people feel like they belong. Now that the fad part of their lifespan has passed, it looks like if you really like Crocs because of their features, you better buy more pairs soon, just to use a recent example of a bad idea that spread widely!
the role of chance
Posted by Tim in book riffs, evolving economic entities, innovation strategy on 28 July 2009
I had a chance to catch up with my friend Rick while I was in Seattle. Since we go back a long time, we had plenty of things to talk about. One of the things that we touched on was his time with Microsoft – he worked there on software development starting in the mid-80s. He said that he thought that one of the primary drivers of Microsoft’s success was the HR department during that period – Rick felt that the quality of people there had been extremely high. My observation at the time was that in hiring people, they were skilled at identifying quality rather than just looking for conformance to criteria as a proxy for quality. So even though I don’t often look at the HR department as a driver of innovation, I think that in this case it probably was.
Right after our talk, I was on the plane back to Brisbane where I finished reading The Drunkard’s Walk: How Randomness Rules our Lives by Leonard Mlodinow. Towards the end of that book (which is very good and well worth checking out), Mlodinow talks about the role of chance in the success of Microsoft in the middle of a discussion of whether or not CEOs really deserve all of the credit and blame that they get the outcomes their firms experience. One of the points that Mlodinow makes in the book is that the vast majority of variation in profits that firms experience fall well within the normally expected range of random change, and that consequently, our tendency to credit CEOs with the relative success or failure of their firms is not very well-grounded in evidence.
I mostly agree with this angle, and it’s one that I try to get across in my classes. It is one of the logical consequences of viewing the economy as an evolving complex system. Which ties in to another issue that Rick & I discussed – power law distributions. Power law distributions are commonplace in the economy – two key examples are the distributions of wealth and returns to innovation. When I’m teaching this idea, the ‘so what’ question is fairly important. One natural conclusion is that people should be a bit more humble in the face of success, and a bit more persistent after experiencing failure. I also gained an insight into this when I was talking to Rick. Mlodinow makes the point that a lot of business processes generate random returns, but that one strategy that you can use is to increase your likelihood of success by increasing your skill level, or the quality of your product or service. One way that you can do this is implementing the mid-80s Microsoft strategy – make sure that you’re hiring better people than everyone else. This doesn’t guarantee success, but it improves your chances. And in a complex economy, improving your chances is probably the number one management task. You’ll still face mostly random outcomes, but investing in quality definitely tilts the odds a bit more in your favour.
increasingly wired
Posted by Tim in book riffs on 27 July 2009
One of the books that I read on the way home last week was Create Your Own Economy by Tyler Cowen. He’s got a quick summary available on the Fast Company site, which includes this quote:
In a typical day, I might write two tweets, peruse 15 blogs (Jason Kottke and Penelope Trunk are two must-reads), and watch James Brown dance on YouTube. If it’s a really fun day, I’ll read more blogs, scour the Web for movie reviews, browse eBay, Google myself, and spend more time on Twitter. None of this costs me a penny, and yet I am producing plenty — namely, my own interest and amusement.
More and more, “production” — that word my fellow economists have worked over for generations — has become interior to the human mind rather than set on a factory floor.
I’m not twittering much, but my day ends up looking a bit like that as well. This also reminded me of a recent post by danah boyd – who talks about being wired at conferences:
For the last few years, I’ve been spoiled. I’ve been surrounded by people who, when asked a question, immediately bring out a digital device and look it up. The conferences that I’ve attended have backchannels as a given. Tweeting, blogging, Wikipedia-ing… these are all just what we do. It’s not all there – it’s still broken. My cohort is still always in search of a power plug and there’s a lag between the time a question is asked and the point at which the iPhone’s slow browser is loaded, the query is entered, and the answer is given. Still, we’re getting there.
She then goes on to discuss a conference where she was criticised by some older academics for doing precisely that, and finishes with “How I long for being connected to be an acceptable part of engagement.”
Before Cowen’s book, I read Halting State by Charles Stross, which is set in 2018, and looks at how the world might be once we are all fully wired, all the time. It’s certainly an interesting question. The three authors all have slightly different takes on the topic as well – which makes we wonder if it is a bit of a Rorschach test, where we end up projecting our own hopes and fears onto whatever scenario we’re considering. Cowen views things pretty optimistically – basically saying that having the ability to generate our own leisure is empowering and will ultimately lead to a more diverse and interesting world. Stross is a bit more pessimistic – in his view the increased levels of connectivity lead to decreased freedoms for normal people, while corporate and police power has substantially increased. You can see the generational differences though when you read boyd, because to her, being wired is just the way things work, and she feels cut-off from the world when she’s not hooked up to data.
I don’t really have any profound point to make here (or even a trivial one), I just thought that the contrast between the three views of the present and future was interesting. And all three people are thought-provoking, terrific writers, who are worth checking out.
music business models
Posted by Tim in business models, innovation strategy on 25 July 2009
As I discussed in an earlier post, Kristin Hersh has been very innovative in developing a new business model for music production and distribution. This is an industry that is very much in flux, and it’s hard to tell what business model will end up being dominant. When I’ve talked about Hersh’s approach in my classes, one of the points that people have raised is that this is an approach that might only work for well-established artists. However, an article in the New York Times discusses a similar initiative and the band they use as an example is Metric, who are much less widely known (hat tip to Matt Yglesias for the post that led me to the story).
One part of the story that interests me is the discussion of Polyphonic, an organisation formed by the manager of Radiohead, along with a couple of other people. Their main objective is to facilitate the formation of direct links between musicians and listeners. To me, it still sounds like a new version of record labels, so I’ll be interested to see how it works out. I’m hopeful that some of the more bottom-up type approaches might work a bit better. One example is the organisation that Kristin Hersh is using to build these links – cashmusic.org. They have a mix of people that have been around and already have a fanbase along with artists that are newer and less widely known. Ultimately, I’d like to see music distribution more under the control of the artists – they’re the ones creating nearly all of the value here. But like I said, the industry is in flux so it’s hard to say where it will end up.
In the meantime, I’m currently listening to Martine Lund Hoel, who connected with me in a distinctively analog manner – she was playing on the street in Copenhagen, and she was so good that I bought her cd on the spot. So the story of the music industry isn’t entirely digital yet either…
surviving in publishing
Posted by Tim in business models on 24 July 2009
In light of earlier discussions about the plight of newspapers, this article from The Atlantic on how The Economist is thriving is quite interesting. The article contrasts the recent fates of Time, Newsweek and US News & World Report, who are all struggling (or gone, in the case of USN&WR), with that of The Economist, which actually increased its advertising by 25% in 2008. Here’s a quote:
All of this suggests that although digital media is clearly supplanting everything analog, digital will not necessarily destroy analog. A better word might be displace. And The Economist’s success holds a number of lessons for dead-tree revanchists on how to manage this displacement.
The easy lesson might be that quality wins out.
I think that the last sentence is the key one. One of the most important things to do when faced with disruptive innovations is to continue to make sure that you are unique. This is harder than it sounds. Many successful firms assume that because they are successful, that they provide a unique value to people. This is not always the case. I’ll follow this idea up in more detail tomorrow, when I’m less jet-lagged. However, for now, just give some thought to the question: what makes my firm special? How can we use this to combat whatever disruptions currently face us?
innovation in finance?
Posted by Tim in evolving economic entities, innovation on 3 July 2009
Doyne Farmer is pretty much a genius. And a very engaging speaker. This is a talk he gave a couple of months ago, reviewing ten years of physicists’ work on finance. I saw Farmer speak at one of the first conferences that I went to, on econophysics in Canberra – and he was absolutely captivating. He started out as a physicist, making substantial contributions to the study of chaos and complex systems, and he was one of key people in founding the Sante Fe Institute. More recently, he formed a hedge fund which uses physics-based approaches to investing. The firm has always been pretty cagey about releasing results, but by all accounts he’s done very well in this endeavour as well. In short, he’s well worth listening to.
The talk is from a conference organised by the Perimeter Institute called The Economic Manhatten Project, in which a group of scientists discuss whether or not science might be able to make a significant contribution to the study of finance. The website includes links to talks by Nassim Nicholas Taleb and Nouriel Roubini, two of the few people studying finance to accurately predict the onset of the economic crisis, along with a great panel of scientists including Farmer.
I find the econophysics approach to finance interesting for a few reasons. One is that it is a useful example of how interdisciplinary research can by useful. While many of the economists involved with econophysics think that it still needs to beef up the ‘econo’ part of the research, there have still been some useful results derived from this approach. In particular, the work on power-law scaling in economic systems is based on reasonably robust results, as is that on the fat-tailed nature of financial returns (e.g. the work of Benoit Mandelbrot and Taleb). The approach is fairly innovative. And not just a bit ironic, in that much of the orthodox view of the economy is modelled on early 20th century physics – given that, you’d expect something called ‘econophysics’ to maybe fit a bit better with the orthodox models. In any case, while I’m still skeptical about the ability of science to transform economics, I think this is a very intriguing area of research, and worth looking into.
I saw a great example of how economic power laws are perpetuated this week at The Louvre. The Louvre pulls in over 20,000 people per day. Why? In large part because it has so many famous works, like the Mona Lisa (above) and Venus de Milo. Even though a lot of those 20,000 people are getting in for free or for something less than the standard 9 euro fee, the Louvre is generating a crazy amount of money each day. Which means that they are much more capable than other museums to go out and acquire works that fit there, which makes the collection even more attractive, which pulls even more people in, and so on. That, in a nutshell, is how we get power-law distributions – when there is some kind of rich-get-richer feedback loop in place. Overall, though, I enjoyed seeing the Louvre as a museum too, not just as a nice example of econophysics in action!
more on academic blogging
Posted by Tim in replication, selection, variety on 1 July 2009
I’ve written about Lilia Efimova’s excellent PhD research before, and now she’s written another really good post. It’s structured around this table:
This is a really nice taxonomy, and there’s not a whole lot that needs to be added to it. I suppose I take a bit more of an evolutionary view of academic blogging. You can use the blog to generate variety – which corresponds with Lilia’s low-level blog entry creation. You just use the blog to generate ideas, and it can also function as a catalog of the ideas that you’ve generated in this way. You can also use a blog to help with idea selection, by looking at which ideas people respond to (this can be in terms of number of readers, comments, trackbacks, amount of controversy generated, etc.). Or you can blog to help get your ideas replicated – to get them to spread. This maps on to a couple of different categories of Lilia’s.
In my previous post, Marco commented about how he has found more value from wikis than blogs. He uses wikis really well, so I can see why he says that. On the other hand, I was talking with my friend Alex over the weekend about electronic communication, and how each new medium requires the acquisition of a new set of skill sets. For me, I pretty much know how to make a blog work, so that is mostly what I stick with. I’m not sure that there is one method that is best for everyone… In part, the media that you choose will depend on which of three evolutionary functions you are most interested in achieving, as well as which suits your personal communication style.
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Metrics
Tim was named #5 in the Top 40 Innovation Bloggers in 2011 at Innovation Excellence.
Tim and John were both named in the Top 40 Innovation Bloggers in 2010 at Innovation Excellence.
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