Roger Ehrenberg, Markets, Politics and Change:

Throwing $25 billion at the U.S. auto sector is akin to the $25 billion thrown at Citigroup; money flushed down the toilet. With over $100 billion of legacy pension and health care costs, a lack of globally competitive, fuel efficient cars and bloated cost structures, the U.S. auto industry as we know it has to die. Putting politics aside, it is simply foolish to pander to the UAW and their lobbyists by trying to save an industry that can’t be saved. Let’s take this opportunity through the bankruptcy process to purge unnecessary costs, sell valued assets to the private sector and re-purpose a skilled labor force towards infrastructure projects that can benefit the economy. Obama needs to make a stand that he is up for doing right, not simply thanking those who donated huge dollars and expect repayment - fast.

I can’t bear to watch or read the news about the automotive industry’s attempt to strip-mine taxpayers and the government. The automotive industry needs to fail first to succeed. Please don’t let the automotive companies, lobbyists and entrentched interests convince the government to delay the inevitable. We don’t need to flush billions of dollars into the pockets of the sycophants of a failing industry. Please.

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Random
Why do we constantly compare our current economic situation to the Great Depression?

We’ve all seen and read tons of articles and academic papers discussing our current economic situation, many with titles similar to “Worse than the Great Depression”. But we live in a massively different economic and geopolitical world than the 1930s-40s and the answers to our current problems are very different than those faced during the Great Depression.

Comparing our current economic situation to the Great Depression creates the wrong frame.

I’m not a practicing economist, so if I’m wrong, please tell me. I’d love to know why I’m wrong: I’m here to learn.

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What do I read for economic analysis? Mostly:

• Information Arbitrage: Roger Ehrenberg
• Marginal Revolution: Tyler Cowen and Alex Tabarrok
• Paul Kedrosky
• The Big Picture: Barry Ritholtz

And, of course, a lot of other sources that might not make immediate sense to everyone…

Forrester Research (subscription required): How Nico Nico Douga Energizes its Community to Create Appealing Video Experiences:

Japan’s second largest online video portal - Nico Nico Douga - has succeeded in engaging its target audience of young Japanese consumers.

Nico Nico Douga - a homegrown video-sharing community - grew to 7 million registered members between its January 2007 launch and July of 2008.

If you’ve never seen the interface, it’s wild. It’s a complete, anonymous free-for-all: viewers of videos create colorful, witty, comments that appear at selected times, overlayed on top of the video, creating an immersive, cluttered, meta-rich viewing experience for online videos. And since the users’ additions and comments only stay up for days or weeks, the experience is constantly changing. This is not YouTube.

[Nico Nico Douga was originally] an interface for viewing YouTube content rather than a site in its own right. However, after YouTube blocked Nico Nico Douga from showing YouTube content, the owners … relaunched their service two weeks later as a full video sharing community.

Even though user growth was strong, Nico Nico Douga struggled to monetize its service. Instead of succumbing to indirect monetization efforts such as advertising…

Rather than alienating the community by interrupting people’s experience with ads, Nico Nico Douga launched a low-price “premium” membership (500 yes per month), with minimal benefits (e.g. a few high-definition videos and some extra fonts and colors to use on screen).

Even though virtually all content and function is available without upgrading, 200,000 of Nico Nico Douga’s members were motivated to sign up by their desire to ensure the community’s survival. The fees provided 60% of the company’s revenue.

The freemium model can work. I doubt the paying members pay just because they want to keep the community alive: anyone doubt there is a “badging effect”? Give people the opportunity to display their status and they will take it: and they’ll even pay for it if it helps differentiate themselves to their community.

Creators and viewers of videos can place links to Amazon Japan and other retailers under the videos - letting people buy items that are related to the videos Fans of a particular video are often the best judges of whether other fans would appreciate a link to buy figurines that look like the characters in the video or purchase the background music. Users can see how many sales were generated, but Nico Nico Douga keeps the affiliate revenues. The site’s executives say it would destroy the atmosphere of the community if people started to participate with the aim of earning affiliate revenue rather than for the sake of generating and sharing cool content. (emphasis added by me)

Again, incentives guide behavior.

Nico Nico Douga executives “trust their instinct rather than employ methodical research and design processes.” How?

• Hiring people who are its target audience.
• Having a culture that puts the fan base first.
• Relishing popularizing content created by the fan base.

For example, Nico Nico Douga’s target audience are “young slackers”, and they intentionally target employees with “High School of Junior High School” educations, eschewing university graduates. Not exactly normal in Japan. Unsurprisingly, they enjoy and are good at cultivating and supporting an audience that enjoys tweaking mainstream culture.

There are plenty of communities in other web cultures around the world with fantastic user bases: what can we learn from others’ experiences?

When will learn that monetizing eyeballs is not just about advertising?

When will we learn that advertising on social networks doesn’t work?

When will we realize that nobody really likes ads?

When will we learn to monetize intention, not attention?

Everyday we encounter a deluge of information: it’s still there even if you’re not listening.

Digging signals out of the noise is hard work.

We’re drowning in information (or at least I am).

We’re inundated with interaction.

Biases, viewpoints and advice abound: who (and what) should we trust?

We’re lost in a cacophony of disaggregated one-sided conversations.

Every day we create a maze of experiences, cross-referenced and tagged with the meta-information of our lives. But tags do not replace theories:

Malcolm Gladwell, Geek Pop Star (New York Magazine):

People are experience rich and theory poor. My role has been to give people ways of organizing experience.

We lack easy access to the underlying theories to understand and filter what we experience and see. We lack context.

The idea that context is important isn’t new (Justin Kistner: It’s the context):

In a 1994 article he wrote for Wired magazine, futurist Paul Saffo addresses the future of digital networks. He writes: “[An] avalanche of content will make context the scarce resource. Consumers will pay serious money for anything that helps them sift and sort and gather the pearls that satisfy their fickle media hungers. The future belongs to neither the conduit or content players, but those who control the filtering, searching and sense-making tools we will rely on to navigate through the banal expanses of cyberspace.”

Yes, context is king.

We understand why we need context: but we’re just starting to see how context can be so powerful. Umair Haque, (via Ethan Bauley):

…when interaction is cheap, the very economic rationale for orthodox brands actually begins to implode: information about expected costs and benefits doesn’t have to be compressed into logos, slogans, ad-spots or column-inches.

… instead, consumers can debate and discuss expected costs and benefits in incredibly rich detail.

But what are we going to do with all the discussions, debates and conversations?

Why is context scarce?

• Information is cheap to create and distribute. Granted, creating valuable information is still expensive. But at the same time we’ve created quick, easy and free tools and processes to automatically create, distribute and promote information.

  How many different sources are available for us to distribute our thoughts or ideas with the click of a button? How much information can we distribute automatically, passively, without marginal effort or time?

  Is making information available in as many channels as possible a positive or a negative?

• Interaction is cheap to create and distribute but costly to consume. We’re easier to reach than ever, caught in a culture that values constant availability and instant responses. We use a variety of methods and devices to interact, each with their particular benefits and costs.

  But almost all of our interaction creates some deadweight loss, either in time, effort or money. Multi-tasking degrades our productivity non-linearly: we take extra time to bounce back from interruptions (anyone wonder why we hate advertising, i.e. interruptive corporate spam?).

  Passive interaction imposes less of a cost than active interaction; but we still spend inordinate amount of time and energy processing information and responding to unclear, unimportant requests. (Anyone like meetings?) We aren’t mind readers: we miss clues, fail to explain things, forget to mention key points.

  We’ve victims of our quests for access and availability.

• Context is expensive: hard to create, hard to learn, hard to distribute. At the intersection of information and interaction, context is a unruly mixture of variables, each with own level of situational impact. Content is expensive to filter: false positives add to the noise as we simultaneously mistakenly discard valuable signals. Strict rules-based systems for managing interaction can be expensive to manage. We have to listen to both sides to balance out the debate, to understand the biases, to pick out what people are actually saying. Education takes time.

  Transparency does not create context on its own: it increases the amount of available meta-information, but processing transparency and the intentions behind our biases and actions remains an art, not a science.

  Context takes people: it takes our time, energy and attention. The semantic web remains an unfulfilled promise. Finding the right information takes time: search engines aren’t perfect, recommendation sites are a mess and accessing our incomplete networks of outsourced knowledge takes time. Finding the right people through intelligent routing is a start, but it is still expensive to test, understand and evaluate people’s knowledge.

Expensive problems create enticing opportunities.

Who is going to create context that we can trust?

Who is going to tell the truth?

Who is going to “use my intelligence as part of the network to replace” their advertising?

When are going to stop trying to monetize conversations and start creating valuable context?

Who is going to spend the time and money to make participation cheap?

Who is going to realize that “in a low-attention economy, the scarce resource is time, effort, passion and attention”?

Will “industrial media” ever be able to create great context?

What companies will make managing context central to their product and brand?

When will companies learn how to use email for awareness, engagement and marketing?

How will companies be able to justify spending on media besides television?

How are we going to empower people to shine through companies?

Who is going to figure out how to manage our different mental models for our variety of communication tools?

When will be able to stop telling people how we use our communication tools in order to truly leverage them?

When are we going to understand and leverage the social layer behind blog comments?

Will social media ever be much more than just social preening?

Who is going to create the tools or processes to truly leverage the opportunity?

It’s not surprising that we have too much of what’s free but truly lack what’s expensive. We’re culturally obese and overleveraged, built to over-consume and store up things we don’t need in our mind, body and soul.

Don’t get me wrong: I like the mess. I like the free-for-all of the blogging world. I try to do my share to “import and export ideas” efficiently, but I still share the blame for creating a lot of noise.

We still do a lot of talking: we’re starting to listen, but it isn’t enough. We can figure out better ways to organize and understand what we create.

What information will we pay for? What interactions will we pay for? What context will we pay for?

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I figured a post about context required a lot of links. Now have fun digging into the references…

Sunday’s unordered thoughts on context, incentives, intellectual honesty and the changing venture capital industry:

• Malcolm Gladwell, Geek Pop Star (New York Magazine):

  People are experience rich and theory poor. My role has been to give people ways of organizing experience.

  Gladwell has become more popular than the scientists that create the fundamental ideas that Gladwell understands and translates to a broader audience. Need more proof that context matters?

• Michael Lewis on Portfolio.com: The End of Wall Street’s Boom:
  

  I had no great agenda, apart from telling what I took to be a remarkable tale, but if you got a few drinks in me and then asked what effect I thought my book would have on the world, I might have said something like, “I hope that college students trying to figure out what to do with their lives will read it and decide that it’s silly to phony it up and abandon their passions to become financiers.” I hope that some bright kid at, say, Ohio State University who really wanted to be an oceanographer would read my book, spurn the offer from Morgan Stanley, and set out to sea.

  Somehow that message failed to come across. … I was knee-deep in letters from students at Ohio State who wanted to know if I had any other secrets to share about Wall Street. They’d read my book as a how-to manual.

  When John Gutfreund and the partners of Salomon Brothers converted Salomon Brothers from a private partnership into Wall Street’s first public corporation,

  … they transferred the ultimate financial risk from themselves to their shareholders.

  The moment Salomon Brothers demonstrated the potential gains to be had by the investment bank as a public corporation, the psychological foundations of Wall Street shifted from trust to blind faith.

  Need more proof that incentives matter?

• Mike Speiser at Laserlike:
  

  I believe that the biggest advantage a startup has over a big competitor is intellectual honesty. Most of the entrepreneurs I know start their own companies or join startups in order to do what they wanted to do at their larger [previous] employers — to do something worthwhile. Then they finally reach the conclusion that the only way to avoid cargo cult management is to start from the ground up. This is particularly true of technical professionals who view intellectual honesty as core to their job. How often to you hear business people poke holes in their own arguments the way engineers do?

• Fred Wilson: A Slightly Different Perspective:

  The venture capital business is changing if you look closely. Many of the biggest and best firms are slowly but surely turning their attention from information technology to energy technology (ET). Not all of them will be good ET investors and the firms that don’t navigate that transition well will struggle. Firms that continue to focus on IT have largely turned their attention to the web where capital requirements are lower and technology and IP barriers are non-existent. Many firms are struggling with these realities and they may decide to throw in the towel on IT.

  … the reality that money is harder to come by and may stay that way for years will likely force the venture industry to get smaller not bigger.

  But be careful what you wish for. We will get a better, more efficient venture capital industry that produces better returns for investors from all these changes. But we may also get less capital for entrepreneurs. Just like there aren’t thousands of great VCs, there aren’t thousands of great venture capital investment opportunities. When the industry is flush with cash, entrepreneurs are the beneficiary. When it is not flush with cash, entrepreneurs will feel it too.

  My comment:

  The interesting thing is that there are a lot of different reasons being proposed and promoted about “why VC is broken”. As usual, some are misguided, incorrect or just wrong: but some offer a chance for some reflection as to ways VC could change or grow.

  VC evolved to solve a need: why should that need always exist in the same way forever?

  I think most of the people claiming “VC is broken” are entrepreneurs looking for capital…

  To be clear, I don’t think “VC is broken”. But I think there is an opportunity to adapt to better address a new economic reality.

Forrester Research: Who still loves ads? (Subscription required)

Amid the increasing consumer disdain for advertising, there is one glimmer of light: 6% of US adults — a group Forrester calls Ad Affirmers — like advertising and are valuable marketer targets. Not only do these consumers trust ads, but they also give and receive product recommendations, pay for convenience, and buy products based on ad content. Smart marketers will: 1) leverage Ad Affirmers to help spread the word about their products, and 2) at last embrace a conversational approach to marketing that involves listening, supporting, and embracing consumers.

My burning question: Is it really worth the effort, time and money to identify, segment, target and capture that specific sliver of the US population that “wants ads”?

Does it matter if they’re “extremely receptive to advertising” if you can’t find them? While the outlook towards ads between Ad Affirmers and Ad Detractors are very different, the demographic, technology usage or behavioral characteristics are not substantially different, other than the simple fact that they pay attention to a lot more ads across all marketing channels.

How are you going to target them? How efficient is it to spend to reach 40-80% of the US population in order to find that 6%?

Isn’t direct marketing dead?