October 04, 2007

The new music biz model rears its head again

I recall since the Napster days that the effective way to monetize music production (and maybe software production) in the future will be a capital market, where the dividends are "more software or music from this artist". This eliminates the need to monetize every single copy, something nearly impossible given how prevalent digital copying is (and should be).

Now, Radiohead is saying the price of their new album, digital or disc box, "is up to you"

Of course, this is only for the next few months, before traditional distribution kicks in. But it is telling.

What will be interesting here is how the whole free rider issue plays out. There's the traditional free riders, those who copy off of Torrents, Newsgroups, or a P2P network. The question is whether a new class of free riders will emerge to pay very little for a legitimate copy.

What's missing here, I think, are market indicators -- how much are other people paying? What's the bid spread? Prices will tend to converge, then.

Posted by stu at 09:05 AM

March 29, 2007

Breaking the software industry

From Vinnie Mirchandani's blog on the side of the enterprise software industry that many in the technology trenches don't see: "rules" that need to be broken, such as the revenue recongition noose, or the spending model of SG&A vs. R&D (which, while needing reform, is often exagerrated by the larger open source companies who seem to be following a similar model).

Anyhow, lots of insight to read there.

Posted by stu at 09:12 AM

February 28, 2007

Sales culture

The culture of sales organizations and salespeople is a fascinating thing. I started getting into sales around 10 years ago (the I Hate Selling book was useful to me), but only recently have I witnessed sales management culture, the relentless pressure, and the personalities.

Sales people have such a unique role and set of responsibilities that few can handle. Examples include:

  • accountability to make committed sales projections,
  • pressure from customers,
  • dealing with support for products that don't always work,
  • choosing pre-sales engineers that don't always fit the situation,
  • dealing with screaming, crying, scheming, and outbursts of emotions both inside and outside the company,
  • handling pipeline pressure from management (who typically manage pipelines statistically via spreadsheet, even though sales is a very empirical, situational process),
  • and , in the end -- deal closing, which involves fighting with finance and legal to insist that you're not trying to bring down your own company or the customer's company, you really just want to sell some software and/or services.

There's also three fabulous movies to see to understand the culture. Wall Street, Glengarry Glen Ross, and more recently, Boiler Room. They're dramaticised into moral fables about greed & corruption, but the pressures and personalities of different types of sales superstars and managers are spot on.

Some wonder if sales is even necessary -- if marketing can make products "sell themselves", or if the world will become dispassionate logical evaluators of purchases, or that legal & financial negotiations will become manageable by small companies. Somehow, I doubt it.

Posted by stu at 12:48 PM

February 12, 2007

Apple's accounting rules and the case of $1.99 for 802.11n

Apple is charging $1.99 to activate the 802.11n support in select products, a feature that was left dormant to date.

I've been seeing lots of confusion about how the generally accepted accounting principles led Apple to charge for this, so I thought I'd give a few words on this matter. I'm not an accountant or a lawyer, but based my experience working for a software vendor, it's absolutely true.

Here's my layman's explanation.

Firstly, when a company sets accounting rules in place, it's mostly about setting up money buckets that are broken out for reporting to management and investors. Examples of buckets at Apple include: Macintosh, iPod, Peripherals, Software, etc. One has to be consistent in counting these sales, or else a company can slush money from one bucket to another if a product line isn't doing very well.

Secondly, because of the blurred lines between what is a software product and a service, and plenty of accounting shenanigans over the years blurring the two, there are very strict rules about when a public software company can "recognize" product revenue.. In the past, if a company that sold hardware, services, and software, was having a bad quarter, they'd sometimes sell a combination of services and software and be very liberal in its accounting (for example, discounting services to $0 and allocating the sale to license revenue). Or, alternatively, they'd discount software to $0 and accrue the balance to hardware sales.

Now, vendors are required to document "Vendor Specific Objective Evidence" (VSOE) for products that have multiple deliverables, which basically is a puffy term for "standardized prices". This way, if a software company like Microsoft, BEA, or Oracle were to also sell professional services, they must sell those services at or above the VSOE hourly rate (subject to variations).

Here's what may have happened: Mac OS X has many bundled features, and their accountants broke out the features by VSOE. And, it seems that device drivers have a deemed value of $1.99. Apple can't give it away the 802.11n enabler for free because they can't recognize the revenue on their hardware until all the pieces are delivered! They have to break out the 802.11n into a separate product that's not tied to the original product, and sell it at its VSOE-documented fair value to demonstrate this wasn't really just a hidden software discount intended to inflate hardware revenues.

The above may all be false, and again, I'm not an accountant, nor do I have inside Apple information. If you're interested, the standards are SAB 104 and SOP 97-2, which Apple claims it conforms to in its SEC filings.

Update 2/13/2007: A colleague at BEA, Tim Joransen, suggests that Apple likely picked $1.99 for just this case and it has nothing to do with VSOE, it's just a case of avoiding deferred revenue & a restatement.

"The equivalent for would be to try and recognize revenue for a product feature that isn't yet shipping. Say we are selling Product X. We are shipping 2.6, but the customer really wants a feature that we plan for 3.0. If we in any way promise the feature for 3.0 and tie it to the deal, then we cannot recognize the revenue until 3.0 ships.

If Apple had not monetized it some way, then someone may have made a case that the product wasn't done and the revenue should have been deferred...leading to a huge restatement."

Posted by stu at 09:28 AM

January 15, 2007

The iphone and excludability

This originally was a comment on TechDirt. I've edited it and provided more context.

The Apple iPhone is causing a lot of buzz and seems to also have garnered the world record for "quickest digerati backlash" in recent history, perhaps ever. On Tuesday, the tech gadget world was wrapped in a collective orgasm: Steve buzz-jammed CES, the iPhone was everything one hoped for and more, the iPhone appears on the front page of several national dailies.

Then, the harsh reality sets in by week-end: it's a controlled platform, it's on Cingular, there's no tactile keyboard, "where's my 3G?", and Apple is going to be fighting the first of many intellectual property battles -- currently with Cisco, on trademarks, eventually on its large portfolio of patents it has amassed to protect the iPhone from poachers.

One concern is the issue of the closed nature of the iPhone platform, particularly its patents. Should Apple rely on these, or should it avoid patents & protection and just "innovate its way" through the competition?

This goes beyond Apple, and really is a classic problem and it's one posed in various guises by the Free Software Foundation and open source advocates, etc.: Should you restrict a one's freedom of use with your product? I think it's becoming clearer that the answer is "partially and temporarily".

So I'm going to use the iPhone hype to talk about the economics of openness when dealing with knowledge-intensive products -- like new gadgets, software, music, etc.

Continuous innovation is absolutely necessary in a growing economy, but it isn't sufficient. One requires a functioning marketplace in order to cover the costs of innovation today & tomorrow (through entrepreneurial profit). Schumpeter was one of the first that came up with a model of economic growth driven by entrepreneurship and innovation, one that implied that markets really weren't ones of "equilibrium", they were constantly changing in a disequilibrium of what we would now call "monopolistic competition".

There's a whole body of theory emerging from economic New Growth Theory, starting with Paul Romer around 1990, with his paper Endogenous Technological Change" about how innovation that involves new applied knowledge leads to growth.

According to Romer, "growth is driven fundamentally by the accumulation of a partially excludable, nonrival input". Non-rival goods are goods where more than one person can posses it, e.g. an idea, a copy of a MP3, software, etc. Goods that are partially excludable imply the creator of the good can prevent people from using it or re-producing it to a certain degree. This isn't just about law, by the way, it's about the theoretical ability for something to be excluded (whether through physical, technological, legal, or other means).

Knowledge -- one of several inputs into successful innovation -- is non-rival and at best partially excludable (it will eventually leak out). Intellectual property law is one way to enact this exclusion, though it's got problems (it doesn't typically stop copyright violation, for example.) DRM is another means of exclusion (which also has debatable effectiveness).

A fully non-rival, non-excludable good is a "public good", and exchange of such goods really isn't governable by a marketplace. Excludability is the death knell of market dynamics: If I can't prevent someone from using or reproducing something, I can't really exchange it in a market as there's no demand incentive. That means I can't cover my costs of today, and I can't cover my costs of tomorrow through profit, leading to no supply incentive. This dilemma is also known as the "free rider" problem.

The environment, for example, could be considered a public good. Any restrictions on the use of the environment can't really be settled well through a market, they have to be through legal means. One can invest in the environment but there's no market-oriented way to monetize the benefits, as others will 'free ride' on your investment.

So, the point is this -- if we feel that human capital & knowledge capital is valuable & scarce, or perhaps that we feel that time is scarce and time is a big factor in how much knowledge is generated in a new technology, we have two choices:

  1. have a public or private body invest in the knowledge-intensive good(s) and fund it via taxes, retained profits from other goods, or donations. The latter (donations) could even be viewed as a capital market where the outcome is a public good.. These are all solutions to the "free rider" issue when one chooses not to exclude their good from others.
  2. subject knowledge-intensive goods to a market of monopolistic competition where the good is partially excludable in some way, to avoid the 'free rider' problem. It's "monopolistic" because there is no standard equilibrium price-taking competition when exchanging non-rival goods.

Solution #1 has the benefit of working when the investment is directed at something that can create new customers, new markets and avenues for growth. Examples include the TCP/IP protocol suite and many open source projects. The big problem is that results are hard to measure. This approach has the potential of squandering tremendous resources because it's not directly subject to market demand. At an extreme, one can look to a government industrial monopoly. As a smaller example, witness the explosion of duplicate open source projects out there that all "scratch that itch" just a bit differently...

Solution #2 works too, is often more efficient at allocating resources at opportunities in demand, but by nature will lead to onerous temporary restrictions on freedom of use.

My view: I caution people from having delusions of one system being clearly superior to the other. In a market system, the trick is to find the balance between utility and restriction. Which shouldn't be surprising -- it's the same advice Hal Varian & Carl Shapiro give in their wonderful book Information Rules

There's a lot of innovation happening on the copyright front with software. Redhat, for example, absolutely takes advantage of partial excludability in its products: it offers limited avenues for accessing the software, it requires a paid subscription service for the most accessible channel, it has incentives to pay for complementary services (support, certification, etc.), all of which add up to a balancing act between choice #1 and #2. Not too many have pulled this off successfully at scale, and it's great that they're profitable doing so, to serve as a model to others.

Back to Apple and the iPhone. It strikes me the reason so many get angry with Apple is that we feel helpless -- the market has failed in generating enough suppliers that truly care about synthesizing a balance of features for broad appeal, while focusing on usability and aesthetics. So we almost feel dependent on Apple's monopoly on "cool, fun and usable".

Apple's major advantage and contribution to economic growth is in its ability to keep finding the right combination of new knowledge and integrating it into a mainstream digital consumer product. In that light, patents make sense to me. There's way too much opportunity for a free rider problem. The industry is littered with "me too" products, or products that are so specialized in their appeal that they don't garner much widespread interest. If too many take Apple's R&D and create a "me too" product, that undermines what makes Apple so valuable to the economy.

Similarly, if the iPhone is "too open" from day one to 3rd party developers, it may also suffer the death from a thousand cuts where quality and consistency suffers due to early release bugs. This too undermines Apple's speciality of delivering an integrated synthesis & balance of features. As a comparison, the Java platform was undermined at first, with a proliferation of varying quality implementations (e.g. Sun vs IBM vs Microsoft vs Netscape's) that doomed its potential on the desktop. It was through Sun's careful control over licensing that Java flourished on the server. Some may debate this and claim that open sourcing Java would have enabled a better outcome -- and they may be right, as it would have been one codebase at least. But the point is that some partial, temporary excludability is often very useful.

Does the patent system need reform to get rid of trivial or obvious patents? Yes. Does it make sense to reduce the number of years a patent is valid? Yes -- innovation cycles are quicker, markets respond faster, etc.

Should Apple avoid patents and let the innovation in the iPhone become more of a 'public good'? Probably not in the short run. It's not in the interests of their employees, shareholders, or customers, who want Apple to continue to invest in technological change as a way of increasing its capacity for creating wealth.

Sometimes it's better for all to 'spread the wealth' rather than keep it localized, but to me, it's not clear that this is such a case.

Posted by stu at 01:48 AM

October 02, 2004

Microsoft, services, and patents

Microsoft is amassing a patent portfolio, and while they haven't used it yet, they most definitely will at some point.

I've seen concern in two areas here:

a) they will trounce on web services competitors
b) they will trounce on Linux

While it's certainly possible, I think are a lot of problems with these scenarios. This entry was adapted from a Slashdot post ... read on for more...

Firstly, we have Indigo - the next generation distributed computing platform from Microsoft. According to the blogs and what I saw at the PDC, it will be one of the richest and most thought-through approaches to distributed computing by a mainstream vendor, ever. But please note I said "distributed computing". Contrary to the hype, services orientation is not the new programming paradigm, and it is not a sucessor to OO. It certainly is the disruptive successor to OO-like distributed computing technologies such as CORBA, RMI, EJB, etc. And there is a chance that the paradigm shift will occur where everything will be distributed and nothing will be local. But distributed computing is hard, and I don't know if Indigo will truly crack that nut. In any case, it doesn't kill OO "inside" the services (F# notwithstanding).

There are two schools of thought here:
a) Microsoft wants big in the enterprise. They finally understand they need to interoperate and play well with others to do so. So they've embraced SOA , XML, etc. They will compete on being the bringing tools, performance, productivity, etc. to developers and businesses.

b) Microsoft's conducting a massive ruse and will crush BEA and IBM with patents -- especially if strategy (a) doesn't work.

We know from the Wall Street Journal article this summer that Microsoft is quietly starting to go after its own customers in dissuading them to use Linux because of their finger on the patent-trigger.

If Microsoft does start to use its patents to threaten both clients and other web services vendors, we're going to be in a very interesting time. Microsoft will have to pull off one of the biggest PR coups of all time in order to not ACCELERATE adoption of Linux and other non-Microsoft technologies. Given their recent PR debacles and marketing failures (the .NET brand-name-every-single-fucking-product-in-existence being one failure, being slow to truly react to security problems the other), I'm not confident they can pull this off.

IT departments like Microsoft because they brought costs down in the past and standardized skills. Today, they're becoming more of a liability -- they cost more, they're arrogant, and there are other standardized skills out there, like Linux. And remember -- most IT departments aren't ballsy enough to run their mission critical databases and applications on Windows. z/OS, UNIX and Linux are still key here, and I don't forsee a mass adoption of Mono over J2EE or proprietary suites in those areas.

Secondly, IBM will not take this lying down. If Microsoft has a big patent portfolio, the USPTO probably have entire warehouses dedicated to IBM patents. IBM can bring 10 lawsuits against any 1 Microsoft lawsuit. So anything MS does will have to be in line with IBM.

So the only realistic scenario I could see happening is that they outsell and outmarket BEA and IBM, or at least BEA. IBM's already doing a good job at PR-slamming BEA. BEA is the marketshare leader on UNIX and Windows, but IBM's combination of sales, createive branding tactics ("everything is WebSphere!") and mainframe share have made it seem to many that they're clobbering BEA in revenue and wins, when they're reallly not.

Since BEA is the upstart here, it's quite possible we'll wind up with two major SOA stacks -- .NET and IBM J2EE -- though BEA would probably just be acquired if it starts to falter. Sun isn't out of the game yet either, but they're certainly sidelined. Oracle still has a loyal following, and are doing really cool things with XML & the database. And how HP rises to this arena is anybody's guess. BEA has the ability to win big here, but they don't seem to have the marketing will to become as household a name as Oracle. They need new senior leadership.

But let's also recognize that technical merit doesn't win market battles. Even if Indigo is the all singing, all dancing thing that Microsoft hopes it will be, it doesn't mean people will adopt it en masse and quickly. Firstly, it's a Windows-only technology. That's a big limit to start with. Second, it's very new and rich. There's a learning curve. Third, other vendors are not sitting still. They can and will compete.

Posted by stu at 12:52 PM | Comments (0)

July 26, 2004

IT matters .. not?

Once again, Nicholas Carr is trying to make a living out of doomsaying. The IT industry's glory days are over, software is stabilizing, costs are going down, there's little left to innovate.

Microsoft's move to dividends + their accumulating cash hoard staying rather stagnant could be seen as a sign of the decline of IT. I actually look at it another way: it indicates that capital is no longer the primary factor of production. Knowledge is.

Software today is expensive and solves "old" problems -- problems we've had for 20 to 30 years. We're getting pretty good at nailing them down, though we still have a way to go. What's interesting is that we haven't really tackled the "new" problems. What are the "new" problems? For a glimpse, take a look back in recent history at big fringe ideas that were ahead of their time...

I firmly believe the next empires of IT will take advantage of knowledge as the central resource of an economy. And will catch the rest of the world by surprise.

Posted by stu at 07:38 AM | Comments (0)

April 04, 2004

Followup on IT Jobs

The Economist has a decent article to supplement my last blog entry.

Most of the drop in prices for PCs, mainframes and so on was caused by the relentless advance of technology; but she still thinks that trade and globalised production—all those Dell Computer factories in China, for instance—was responsible for 10-30% of the fall in hardware prices. These lower prices led to higher American productivity growth and added $230 billion of extra GDP between 1995 and 2002, equivalent to an extra 0.3 percentage points of growth a year.

The "she" in the above quote is a reference to Catherine Mann's recent paper that shows drastically reduced PC hardware prices during the 1990's are in part due to offshoring. Note that Mann's article is referring to productivity growth due to increased use of IT: this is still growth beneath the knowledge worker productivity "plateau" I was describing in my prior entry. This plateau also should be seen as a "slow growth" plateau, not an immovable object. It also is purely a qualitative theory, intended for provoking discussion.

This productivity "plateau" also is why I think you're seeing the Does IT Matter? controversy bubbling up: IT can only bring so many advantages, we need new human techniques to increase productivity. It just so happens, however, that I think such techniques may just come out of the IT world, whose fringe has a lot of experience with high performance teams.

Unfortunately, the Economist does include a sour raspberry:

As for the Indian threat, “offshoring” is certainly having an effect on some white-collar jobs that have hitherto been safe from foreign competition. But how big is it, really? The best-known report, by Forrester Research, a consultancy, guesses that 3.3m American service-industry jobs will have gone overseas by 2015—barely noticeable when you think about the 7m-8m lost every quarter through job-churning. And the bulk of these exports will not be the high-flying jobs of IT consultants, but the mind-numbing functions of code-writing.

To think that code-writing is mind numbing shows a complete lack of respect and understanding of what goes into such knowledge work. The analogy between a coder and a factory worker is a common one, but is a perfect example about why the mainstream collectively has zero clue about how to raise knowledge worker productivity: they're still stuck in scientific management's old methods.

One cannot set up a development shop in terms of tiers of archtects, designers, and coders, with coders being nothing more than "skilled labour", and expect to get the productivity advantages of the best teams. Nor can you expect coders to be in a completely different time zone. The communication overhead is tremendous in such a team, and agility (for changing requirements) necessitates decentralized decision making. This is a major constraint on offshoring IT software development jobs: for projects that have stable, well-known requirements, it can work. Otherwise, you'll want something as co-located as possible. Requirements change, priorities are re-ordered, understanding evolves. Software developers are organized around ambiguity, whereas traditional production is organized around physical constraints.

Alas, we may be quite a ways off from getting the mainstream to understand this.

Posted by stu at 05:23 PM

April 03, 2004

Productivity, Wages, and Outsourcing

This is in response to Bob Cringley's January 22 and January 29 articles on IT outsourcing, but can be read as a general set of musings on the trend of outsourcing to India.

I do not think outsourcing actually "hurts" the economy in the long run, but it does lead to a lot of uncertainty.

Paul Krugman has a very good book called Pop Internationalism that collects articles & essays about this; the book is easy to read and quite eye-opening. Countries are not corporations. International trade is not a zero-sum game. Competitive advantage applies to corporations, not countries. Sure, governmental policy has a major effect on the climate of business, with a major impact on the competitiveness of individual businesses. Most presidential economic advisers don't even understand this. Trade between countries is about comparative advantage, the idea that two countries can produce things and trade with each other and have more resources overall -- and it has nothing to do with any "innate" quality about the country that gives it a leg-up on a particular kind of work -- that's "absolute advantage".

The real issue for the American economy is NOT trade and outsourcing. It's productivity. Wages and productivity are linked at the hip, and America (and Canada's) productivity growth since the 1970s has been poor. This is why we haven't seen (besides a spurt in the 1990's) the productivity and resulting standard-of-living growth that we saw in the post-war years, and why inequality is becoming rampant: something happened circa 1970 that depressed our productivity growth.... I'd say it was point where manufacturing started its long downwards slide in importance, lessening the role of Scientific Management in generating productivity. At this point, the service and knowledge industries began their upward climb to dominance. The trade & outsourcing trend is happening primarily because of this low productivity growth, but the impact actually quite small compared to the domestic impacts of low productivity.

We are at a transitionary state with India. They have industries with productivity levels that compete directly with ours -- but very low national productivity, and hence low wages. We can exploit this and get highly productive, cheap labour.

How could this happen? Today's work is knowledge work. Knowledge is the central resource of our economies, more so than capital, natural resources, or labour. And it's unlike other resources -- it's easily transferrable through training, it's rapidly changing and gets stale, and companies can't control their knowledge -- it can just walk out the door. The above coincides with everything you've been saying: get rid of 100 programmers in a software company, and you've gutted the company's knowledge. But this also means that knowledge can be transferred elsewhere in relatively short order, to a place like India, and be just as productive, assuming the right economic climate (i.e. education + incentives) is put in place by their government and supporting corporations.

We actually know very little about knowledge worker productivity. We've been talking about the factors surrounding knowledge worker productivity for over 30 years (since Gerry Weinberg's Psychology of Computer Programming was released) and STILL don't have mass acceptance of this pressing issue, nor a truly shared understanding. We can't compete with India because we don't know how to sustainably raise our own knowledge worker productivity.

India has a series of language and cultural barriers (especially dealing with women) that will hamper its growth, but as their national productivity rises, wages will rise, and India's productivity advantage will wear off. But this will take many years. The solution is not to prevent outsourcing - that's a stop-gap. The long-term solution is to improve American knowledge worker productivity.

When it comes to knowledge workers, we pretty much hire smart people and leave them alone. No quality measurements, no Six Sigma, no reengineering. We haven't formally examined the flow of work, we have no benchmarks, and there is no accountability for the cost and time these activities consume. As a result, we have little sense of whether they could do better (Davenport, 2003).

This isn't something the government can control, though it can provide the right conditions (such as better education), and recognition that we need a Frederick Taylor for the 21st century.

Some say "[Globalization] is inevitable so stop complaining." 

The last economic system that was thought to be "inevitable" was Marxism. It's as if these neo-conservatives believing in "inevitable globalization" are framing everything in terms of their former enemy and have just reversed who should win the battle of the inevitable march of history.

If the economy must grow, companies will seek out ways to cut their costs. That means they'll go to low-cost/high-productivity suppliers, every time. American wage earners are the ones that get screwed, lest they increase their productivity.

Posted by stu at 02:00 PM

April 02, 2004


Just got back from the Queen's School of Business Leadership Program, a week long attempt at trying to figure out how I tick, plus approaches to dealing with others.

Very good program content, and they are masters of taking care of every last detail of your stay, including excellent and virtually unlimited food. These guys are amazing.

I may have a longer post soon to talk about some about what I've learned there.

Posted by stu at 07:30 PM | Comments (0)

November 25, 2003


Yeah, I'm still here. Lots to get adjusted to back at the office, it seems we're finally making some headway in collaborating with other business units.

A biz-oriented note before I head to work.

I finally got around to reading Clayton Christiansen's Innovator's Dilemma on the weekend. He posits that even well-run companies can still fail in the long run because they fail to exploit disruptive technology to their advantage. The problem is that listening to your customers can actually be a bad thing at times. Sometimes you have to listen to yourself.

Fascinating stuff. Most of my work lately is on customer centricity; I have to deal with a company that has a very product/service-focused mindset. There tends to be a "people will eat what we feed them" undertone to many of the attitudes I see, though certainly not with everyone. But then there's the long term problem: none of this really matters in the end if you don't exploit a disruptive technology.

I work for a converged telecom company (cable/wireless/media). What are the disruptive technologies on the horizon for this industry? Certainly the ones for media are obvious: the internet is driving the cost of duplication to negligible levels, and manifestations like P2P, IRC trade rooms, etc. are just the beginning of this wave.

But what about for broadcasters? The main thing keeping them alive has been that bandwidth still is limited, and reliable IP multicast is still a fond dream waiting to become reality. Technologies like TiVO and BitTorrent, however, point the way to disruption on the broadcast side. Traversing through TVTorrents or Suprnova, and it's staggering the amount of content available - and this is still really a niche technology. But it's something that Cable & Sat companies need to look at.

Similarly with TiVO, I'm not sure there's awareness of the disruptive nature of this tech. One of Canada's Cable providers, Rogers, announced that they are releasing a PVR like TiVO, based on the Scientific Atlanta Explorer 8000. Bell already has ExpressVu PVR that's based on the one from the DISH network, but this one is supposedly better. I played around with it at a Rogers Video store. All of the problems with the digital set top box are still there: poor search facilities (no incremental search, no search by actor/director, only 1 week history), plus it's very limited. There's poor season pass functionality (limited to 1 channel at a time, instead of "record the Simpsons on any channel"), no ratings system, and the same old limited descriptions of content as digital cable (vs. TiVO's rich descriptions).

Cable and Sat companies are offering Video-On-Demand as the alternative. This probably will fail. People like to control the bits they pay money for. With VOD I have to pay $5 to $10 for a bits I have for 24 hours. I can't skip to any part of the video, I have to use clunky FF/REW. It's clearly a first-generation client-server model, with most of the processing occuring at a central station (hence the slowness).

This is problematic for the same reasons DivX was. For $20 I can get a DVD with more features, better sound and picture quality, and I get to KEEP THE BITS! And even resell them to a "used" store!

There's going to be a severe reckoning here. Providers and broadcasters are going to continue their content-protection arms race with encryption, laws, and broadcast flags. People in the trenches will continue to circumvent these things, not because they won't pay money, but because they can't get what they want: access to digital content that they can control with minimal restrictions on use.

Shapiro and Varian's book Information Rules told us of this over 5 years ago: if you restrict your content, you may get a higher unit-price, but you won't get as many eyeballs. If you let loose your content, you'll get more eyeballs (albiet with a lower aggregate unit-price due to copy proliferation).

The history of intellectual propery industries indicate that the latter is the more profitable model - intellectual works are experience goods, the more accessible your product is, the better it will fare in the market. A form of commoditization in the software industry led to lower prices and fewer restrictions on software, and supposedly led Microsoft to its initial riches. Now even lower prices and fewer restrictions (through open source efforts) are even threatening Microsoft to some degree.

The long run game here for broadcasters and content providers is that there needs to be a rethinking of how we pay for intellectual works. Creating intellectual works is effectively a service, but we amortize this cost (and the future costs, aka. "profit") through a fiction called productization. If we eliminate this fiction and allow copies to proliferate, there actually will still be profit in store for content creators (and even broadcasters). The key is to create a capital market around the service. It will be more efficient of a market than it is today, but there still will be plenty of room for profit and growth - as in any market. It's the only foreseeable (to me, anyway) long-run alternative to an unenforcable draconian intellectual property policy.

And to those that think draconian restrictions are enforcable, I highly suggest you ponder how you're going to get China to change its ways. We go to war today over oil, will we be going to war tomorrow over DVD region violations?

All this because we can't accept that disruptive technologies WILL destroy some large and successful companies, only to breed new ones. Political life-support and corporate welfare will destroy the society of organizations if it runs rampant, and intellectual industries are witnessing the first skirmishes in this much larger struggle.

Posted by stu at 09:27 AM

September 27, 2003

oracle power struggles

Interview with Larry Ellison about the new book Softwar. I'm looking forward to this one, Oracle's culture is fascinating to me (as is Larry).

Posted by stu at 02:18 AM

May 29, 2003

fatter, bigger pipes

What's driving bandwidth growth these days? Porn, of course. And music too.

I've been downloading mp3s since 1996... 7 years later, someone actually comes up with a decent online distribution model.

Posted by stu at 07:54 AM