Tag Archive for 'change'

Everest syndrome is the biggest crime in our society

US President Barack Obama made an observation last April:

One of the things every time I come to Silicon Valley that I’m inspired by but I’m also frustrated by is how many smart people are here, but also frustrated that I always hear stories about how we can’t find enough engineers, we can’t find enough computer programmers.  You know what, that means our education system is not working the way it should, and that’s got to start early.

A country facing recession and high unemployment, and yet Silicon Valley is in a talent crunch where companies like Google and Facebook have resorted to constantly acquiring companies now just for the talent. How so?

My friend Mike Casey (more on him below) and I  have come to call this “Everest Syndrome”. It’s where our smartest men and women are wasting their potential in middle management of a large corporation. Where they climb the corporate peaks for the elusive goal of getting to the top, many killing themselves along the way and only to find out how lonely it is at the top.

I believe it is the biggest crime of our time, as these people should be at the forefront of our economy, driving its progress and ultimately increasing our standard of living.

The Everest view

Sketching the picture with some stats from Australia
I’m good friends with the guys that run Grad connection, the largest graduate recruitment website in Australia and the fifth biggest jobs portal in the country. I asked one of the founders Mike Casey to pull out some numbers to illustrate how graduates enter the workforce. Although their total database is much higher, we were able to get 17,887 students who specified a specific course they had studied — which represents about 12% of the 150,000 students that graduate each year.

While I’m sure we could get more scientific on this sampling approach as there’s a bias on their employers and hence graduates, it still paints a fairly representative picture on the broad base ‘commercial’ disciplines. Gradconnection has just five categories which account for 88% of the total sample population, which are as follows:

  • Commerce: 31%
  • Accounting: 20%
  • Banking: 18%
  • Information Technology: 11%
  • Law: 8%

Accounting and banking means 38% of graduates end up in financial services, and the lawyers grow that professional services group up 8% to 46%. (For context, services make 71% of the Australian economy — with the topic of this post referring to the now distinguishable quaternary sector emerging.) That’s not a good thing and here’s why.

Student eeePC user

A story by the storyteller
I went to a school that made me think doing a business degree was the right thing; and when at university, thought working at a big bank or professional services firm was the ultimate goal and what would make me successful in life. Those things in themselves are not a bad thing, but the attitudes they created were: at high school, I thought the people studying art were wasting time; and at university, I convinced a former school mate to make our newspaper venture a non-profit university society rather than an actual business that his father was willing to bank roll. The reason? I didn’t want to threaten my studies by a project, that would prevent me from “something important” like getting a job at a big firm.

That attitude I had — fostered by my environment — is pathetic. (Although ironically, this “non-profit” which challenged us to find a useful product/market fit exposed me to the Internet and led me to develop my first business idea of electronic newspapers…which fortunately never went passed the business plan.) Everyone can similarly liken it to how every good family has children that become lawyers or doctors, because that’s considered a good direction in life. My father — a lawyer of nearly 50 years now –often complains about the over-supply of lawyers in the industry: there just isn’t enough work to go around to sustain all these graduates.

 

We need graduates that originate value
I’m a chartered accountant and I’m proud to have survived the grueling process to become one. But like all professions, my training  has me biased towards being a service provider. Service providers add a lot of value and we need them, but the thing is that they are optimisers of value, not originators of value.

If you had a nasty court case to handle due to a marriage breakdown, business conflict or car accident — then my father is a God-send because he can help you solve those issues with his expertise. But what happens where you don’t have any marriage, business or car issues that require his help? Well, you’re happy and he has no work. Service providers are inherently dependent on the rest of society, which is why there can only be a fixed supply of them.

This is very different to what I regard the originators of value. The art students I shunned at high school, can now do something in technology that has them one of the most sought after talent: design interfaces. Apple, a company that has brought interface design into the core of the company’s approach to building technology, will probably become the most valuable company in the world ever to have existed.

Similarly, scientists and engineers: they are builders. They can build value, for any industry and a solution to any problem limited only by their creativity. We will never have an excess supply of computer science students, because if they can’t get employed they can simply leverage their skills to entrepreneurship and employ themselves!

Accounting is the language of the business world and it’s why I decided on that path; but I’ve now come to appreciate computer science as the language of the information society. Those who smartly go in that direction, will be the leaders of our future.

future retro

We need more people in startups. But startups are not for everyone
If our smart people need to get out of the big corporations as a postulate, where should they go? They should be working in startups. And instead of being service providers at big banks, they should be product builders at disruptive companies.

But not everyone. I’ve observed multiple times personalities that are more detail-orientated and prefer structure tend to get more easily frustrated in the organised chaos that is a startup. They focus on execution, whereas a startup is more experimental and adaptive — and so clash with people who are the latter. While differences in personalities is a given thing in any work environment, the issue with these clashes is that you need people who can hold their head and not blow up. Conflict is fine, as long as it’s managed — and I’ve found more structure-orientated people tend to freak out more and then affect the work of their colleagues (which is the real issue, not the fact they need a more structured work environment).

But with that, is the only disclaimer I’m willing to give to Everest Syndrome. If there was one thing I could change in the world, it would be that. Because ahead of poverty, hunger, and war — it is smart people working on challenging problems that can help change the world. The Internet’s development and people understanding computer science creates the opportunity for not just new startups, but every day innovations that can automate processes (like research), connect people (like disaster relief) and maximise the opportunity for economic and political freedom for humanity.

Not everyone has the intelligence, passion and will to be a science researcher uncovering new medicines, one of the nobler career choices in my eyes. However, computer science is fast becoming the new literacy in business. Put more simply, if you don’t know how to put a website up on your own, then stop feeling pity for the third word’s first order impoverishment and reflect on the rich world’s higher-order impoverishment reflected in your inability. A symptom of a bigger impoverishment of the mind, that is a disillusion of what truly is valuable to drive our society forward.

Skies 1

How the super angels are saving Silicon Valley

Michael Arrington has written about the current bubble in Silicon Valley: the angel investor. He suggests a war is occurring with this new class of investor, and that entrepreneurs need to pick their faction. I don’t doubt the politics is real, and I’m sure it exists between the angels themselves – let’s hope they realise that united they stand, but divided they will all fall.

But I think this “conflict” is really about a change in times. Much like how the traditional gatekeepers of information – the newspaper industry – are battling the process-journalism innovators that we call ‘bloggers’. (Like, ahem, TechCrunch.) No one appointed the Venture Capital industry as the gatekeeper for technology innovation, which is similar to the arrogance of the newspapers that think they ‘own’ the news and deserve special protection because of it. Maybe these over-sized funds should take a lesson from the newspapers and realise the times have changed and their model needs to change as well.

But where I differ with Arrington’s perspective is his prognosis that this is bad for innovation. Conflating this with ‘bigger ideas not getting funded’ is wrong. The point is, is that more innovation can get funded, more veterans are being developed, and more value is being created in the long run. This should be analysed not by the growth of a single tree, but the overall development of the entire forest.

We need more seed-accelerators, more super-angels, and more incubators – because inevitably, it will lead to more startups. And whilst not all will hit a home run, the odds of ‘the next big idea’ happening will improve dramatically.

The information age is still filling up its rocket with fuel

Today, the Wall Street Journal published an article by a fund manager who suggested the Internet is now dead in terms of high growth. While I can respect the argument from the financial point of view (although he’s still wrong), it also shows how widespread and unsuspecting even the educated are for the transformation the Internet is preparing us. Yes, ladies and gentlemen – we ain’t seen nothing yet.

But I won’t get into the trends right now that are banging around my head, making me willing to change careers, country and life to position myself for the future opportunities. Let’s instead start with his core thesis:

The days of infinite margins, 1,000% productivity gains, and growth of market throughout the universe are long over. Internet companies now should be treated, at best, like utility companies that get bought at about 10 times earnings and sold at 13 times earnings. Even then, I’m not sure I would give the Internet sector the same respect as the monopoly-protected utility sector.

I am glad that was said, because this is more of a world-wide problem we have, that has lead us into the Global Financial Crisis (GFC). The ridiculous false economy generated over decades of speculative growth – where fundamental asset values were supported by unreal cash – is something we need to stop. The best thing the GFC has taught us, is that valuations need to be supported by independent cash flows with markets not manipulated to inflate their true value. And I can’t wait to see the technology sector (who along with their partners in crime in banking and property) use some basic accounting skills, and come to the rude awakening that, in the real world, that’s how things roll.

Where he is wrong however, is in the innovation that is creating new ways of generating revenue. More importantly, what we are seeing is a stabilisation in technologies invented half a century ago. The Internet and hypertext (the web is an implementation of a hyptertext system) have all been in development for 50 years – and it’s only *now* that we are coming to grips with the change. So to say this is a fad that’s now over, is really ignoring the longer term trends occurring.

As identified in the article, the biotech market will be massive, but I was told by the head of the PwC Technology park Bo Parker in March 2009 that it’s only just resembling Information Technology in the 1970s. However, when in comes to information, things are ramping up for a lot more as the industry has had a lot more time to evolve.

Where do I see things going? Oh man, let’s get a beer and talk about it. Data portability, Semantic Web, VRM, Project Natal, the sixth sense, augmented reality – try that to get your imagination started. I call it the age of ubiquity: ubiqitous connectivity, ubiqitous computing, ubiqitous information – where we have those separate things accessible anywhere and everywhere and when combined will change our lives. Information and communications, after all, are a fundamental aspect of being human that underlie everything we do – and so its impact will be more broadly applicable, obvious, and transformative.

Where’s the money in that? Are you kidding me?! The question is not how many dollars these changes can generate, but how many new industries will they spawn. We seriously don’t know what’s about to hit us in the next two decades for information technology, and clearly, neither do the Fund Managers.

Interview with an Iranian about the elections

Below is a podcast I recorded two days ago on Tuesday 23 June 2009 around 1200 UTC. For your benefit, I’ve attempted to transcribe the conversation as best as possible.

[display_podcast]

[Time=00:00] Hi my name is Elias Bizannes and I have done a podcast with an Iranian, who has grown up and still lives in Iran, as a way of trying to create some clarity into the situation that we’re seeing currently in Iran. A bit of background ‚Äì in 2005 I went traveling around the world, and one of the countries I visited was Iran. I spent about ten days in this beautiful country – exploring it ‚Äì and I really got a unique insight into the place. Since I heard about the issues hearing about the issues in Iran, I reached out to some friends of mine, worried that they might have been hurt themselves. And I finally got a response ‚Äì and as I was hearing about the things that are happening, I thought it might be interesting to share that information to the rest of the world ‚Äì because there is a lot of speculation and I think people are misunderstanding a lot of the events that are happening. So hopefully this will give you a bit of insight. If you have any other questions,¬† or if you would like me to get some further clarity, feel free to contact me. You can visit my personal website eliasbizannes.com

[1:08] So let’s now tune into my friend, who’s identity can’t be revealed, sitting in Iran right now.

[1:17] Are there protests happening outside of Tehran? Is there widespread discontent with the population?
I‚Äôm not living in Tehran, I‚Äôm living in a centred city of Iran ‚ÄúKashan‚Äù. There are not big rallies here, and the protests here are not widespread. Y‚Äôknow people here are much rural people and living in villages. And y‚Äôknow¬† – people that are a low level of thinking, there not so much student, not so much talented and open-minded people here. Y‚Äôknow, they’re public people in here.¬† But inside of the university of Kashan – there are so – much rallies and protests against the government. And the first day after the election results, the boys and girls in here staged rallies and they canceled the exams ‚Äì even the exams that they are holding. And they took the papers from the students, and they canceled the whole exam. And it had a very tough reaction from the security of the university ‚Äì and I heard there were some security forces outside the university and they were determined to use tough action against the students if they stepped out of the university. And there were some protest continuing at the university for three days. People were wearing black clothes, in mourning of those youths killed in Tehran and Esfahan. And they find some candles‚Ķ

[3:35] Are people being killed in Esfahan as well? Because what we are hearing in the West, is that all the protests are happening in Tehran. Has there been a lot of…
Yeah yeah. I hear from a friend of mine in Esfahan that there were some rallies at Esfahan university and there were some bombings in there. And they – students I don’t know if students or some people else – they fired the amphitheatre of Esfahan university of technology. There were broken windows and this situation there was so much much worse than here.  And the university of Esfahan is completely off these days. But, in my university, the exams are holding, but in the University of Tehran and the University of Esfahan, the exams are completely off.

[4:40] Yeah right. The situation is that everyone thinks the election was rigged. What makes people think it is. Has there been evidence or people just think it? Why do people think it has been rigged?
Well, y’know the majority of people that I confirmed, they don‚Äôt actually think that actually Mr Mousavihas actually won the election. They think that Mr Ahmadinejad has won, but not with the huge margin that they say. Y‚Äôknow, they want to rig the election because Mr Khatami won 21 million votes and they wanted to break his record by Mr Hashemi. They wanted to show people that Mr Ahmadinejad is more popular than him.¬† Y‚Äôknow, students and people ‚Äì they were saying that the people around them ‚Äì they were not seeing the villages ‚Äì y‚Äôknow inside the cities. They were thinking it was just themselves that were voting.¬† I think that Mr Ahmadinejad has won, but not with this huge margin. Maybe the election might be, is going to be next level, and Mr Ahmadinejad I don‚Äôt think he won the 50% plus one votes. Alright?

[6:24] Yeah ok. So from what I understand also is that people don’t want to completely overthrow the government and have another revolution.  They just want a better government.  Is that true?
Yeah – yeah, not concurring that this situation is 1979. The notion that the people don’t want a huge change in the system. The majority of people they do believe in the mullahcracy in Iran and the governing mullahs, they do believe in them and they do believe in the Ayatollah and they do believe in the in the fundamentals of the Islamic Republic, which are the government of the clergy men – Islamic clergymen. They just want their votes back, and they expected Mr Mousavi to change the situation Mr Ahmadinejad made in foreign affairs and in internal affairs they feel a huge mess, and I can see so much disappointment in the face of the people here because of this situation Mr Ahmadinejad has made. And they just wanted a change in the situation, changing the way in treating the world and the way in treating the people inside the country. They were tired of not being honest, tired of the legitimacy of the government, and they were tired of a government which is not straight forward to people and lying to people.  So I think people want big change Рalright…

[8:22]…And what do people think of Musavi and his backer Rafsanjani.  What are the perceptions of the public to those people?
Mr Mousavi is not a hero.  Of course, then he was not a hero, but now he’s a hero.  No – he is a person which was so popular to Mr Khomeini and he was so close to him and one of the people who had a very huge role in the victory of the Islamic Republic. He’s someone inside the system, and he’s not come outside of the system to change it – he’s one of them. Actually, before these protests people said he was one of them – but when he showed so much courage and so much bravery in behaving and consulting in these situations in Tehran – he didn’t push back and he didn’t take down the protesters – and encouraged them to more and more protest.  They now think he is a very brave man; he’s not one of them – he’s come to change the situation.
About Mr Rafsanjani – I know, the people were not backing Mr Rafsanjani in his presidential period, which was for eight years.  And people hated him Рand in the previous election, they think that anyone but Mr Rafsanjani that was competing against Mr Ahmadinejad, he would have won the election. But because of Rafsanjani, Mr Ahmadinejad won, and whomever was in front of Ahmadinejad was losing – er, was winning the election but Mr Rafsanjani. But after that, people saw lots and lots of criticism from Mr Rafsanjani of Mr Ahmadinejad, they think he changed his behaviour, and when he supported Mr Mousavi – I’m not saying that people are now a fan or supporter of Mr Rafsanjani – but people think that he’s changed. But, they hate him anyway right now, but not as much as before. His family – people believe, there’s so much evidence about his families financial corruption in the country – people are always talking about his daughter, his boys Рand their corruption.

[12:10] So, what’s happening right now? What are you seeing around you? Are there people all over the streets, police that are restricting movements? Have they cut down the Internet? What are you seeing right now?
Around me, which are students of the university,  I can see so much disappointment in their faces about their future. Lots of my friends and lots of students here are determined to learn English, and send applications to foreign universities overseas, and apply to different universities to get out of this country. They say they cannot endure this situation anymore. Me neither can endure this situation here, and I am determined to leave this country. And some people that are stuck to the system, they remain here – people that are not satisfied with the situation will leave the country. The intellectual people are among those who are not satisfied with the situation, and if these people leave the country, there will not be any more intellectual engineers, there are not more talented people in here, and I think it’s going to be a huge mess.

[13:55] What would people want to see though, to prevent this sort of drain of people leaving the country. What is it that people want to see to fix up Iran?
Well first of all, they want their votes back. They do believe that the election was rigged. And they do want Mr Mousavi to take back their lives, their votes…first of all, they don’t want Mr Ahmadinejad anymore. As you can see in Facebook and other Internet communities that there are some causes,  people are saying that he should go Рjust go – it is not important who should be our president, but it should not be him, should not be him…

[15:03] So if Ahmadinejad is taken out of government, would people be a lot happier?
You mean to crackdown this government?

Yeah – do they just want different people elected? Is that the only change they want?
Um – I think the majority of people want Mr Mousavi to become president. They do hope for a bright future and for positive changes in the country with Mr Mousavi – I think they just want Mr Ahmadinejad to resign and to be taken out of Iran politics.

[16:06] Something I want to get clarified and that would be interesting  Рthings like Facebook, Twitter and all that – have they been blocked by the government?
Yeah yeah, these whole websites are filtered. We can’t Facebook – YouTube – even I cannot access my Yahoo Messenger and mailbox Yahoo.com – and the situation is very tough. Even some websites inside the country which had permission from the Islamic Republic like cloob.com which is a website inside the country – they just don’t want the information to spread around the world. And with the pictures, they don’t want the world to see the violence. And some extremist websites and TV like we the voice of America, which are so extremist about pulling down this government. They are scared of truth! What the BBC says, y’know the BBC with no personal focus, just saying the truth – they re sending so much noises on satellite. Given the BBC has gone down, its broadcast on Hotbird start broadcasting on Telstar and Eutelsat?

[18:05] How are people organizing the protests? Is it through SMS and telephone calls then, if all these important websites are blocked, to organise?
The SMS was also cut down for about a week and a half. The mobile phones are ok, but not in Tehran. In Tehran, the whole telecommunications system was cut down and people were just using card phones, home phones – and they were spreading the news just on the internet via Yahoo messenger, especially some blogs – and people are using anti-censors and proxies to access the website and get the information about the place and the dates of the protests…but the SMS service was not on for a week and a half.

[19:26] What’s going to happen now?  What’s going to happen in the next few weeks? Do you think it’s going to be predictable, or do you think everything is unpredictable at the moment?
I think the protests have calmed down, and its not going to happen anything. And the tyranny of of Ayatollah Khamenei and Mr Ahmadinejad, is growing up more and more – and nothing is going to happen. But I think in the next few years, there is going to be more and more protests. And this government and this system, has not firm fundamentals and firm foundation anymore. People do not believe in the Ayatollah anymore…
(phonecall dropped out exactly at this point and podcast discussion ended)
(music)

Online advertising – a bubble

I just recorded a podcast with Duncan Riley and Bronwen Clune – two New Media innovators I greatly admire, to discuss what the future of media was. Unfortunately, the podcast recording came out battered and my normal analytical mind wasn’t in gear to add fruitfully to the discussion.

So Dunc and Bron, here I go: why I think advertising on the Internet has a future that will repeat the property bubble that fueled the world’s economic expansion these last few decades. (Y’know -the one that just burst.)

Advertising has been broken by the Internet
Let’s think about this from a big picture first: why do people advertise? It’s to get an outcome. Ignoring elections and government campaigns, the regular market economy has advertising so companies can make money. Pure and simple. Whether it be "brand" advertising which is a way of shaping perceptions for future sales, or straight-off-the-bat advertising pushing a product – the incentive for companies is to get a response. That response, ultimately, is to take that cash out of your wallet.

Now’s lets jump into the time machine and think about companies in the 1970s and 1980s – before this "Internet" thing became mainstream. How could companies get exposure for their products? Through the media of course. The mass media had captured audiences, and they were able to monetise this powerful position they had in society by forcing people to consume advertising as they were dealt with servings of information they actually wanted.

It worked in the past, because that’s how the world worked. That is of course, until the Internet and the Web completely transformed our world.

Companies jumped on the web thinking this was simply an extension of the mass media but so much better. And they were right to some extent – it was much better. A bit too good actually, because it now exposed the weaknesses of the concept of advertising.

Take for example one of the undergraduate students that works at my firm. Apparently, this 19 year old never watches television – but he is on top of all the main shows. He does this through peer to peer technology, where he is able to download his favourite shows. I asked him why does he do that and he responded quickly: "because I can avoid the ads". What’s happening with the Internet is that consumers can control the experience they have when consuming information now, unlike the past where they marched in line according to the programming schedule. The audience is no longer captive.

The Internet did another thing: it made advertising more accountable. In the past, savvy agencies would ‘segment’ the population and associate various mass media outlets as better being able to connect with the ‘target market’. To measure, print used circulation and readership – working out how many people bought the publication, and some number out of some Actuary’s head of how many people read that same copy (through statistical techniques of assessing patients in doctors’ surgeries, no doubt). Broadcasters on the other hand, would randomly call households and using statistical methods, would estimate the number of people that tuned in.

Perhaps the fact I took statistics for my undergraduate degree, is why I am so skeptical. Even my stats lecturer admitted it was bullshit – albeit in an ‘educated’ way. In relation to the mass media, the bigger issue was the fact this educated bullshit was not disaggregated. What I mean, was that when a newspaper has a readership of 100,000 people – there is a massive assumption that if you advertise in that publication, you will actually reach them. You might have bought a newspaper to read this one article your friend mentioned – and yet, your act of purchase enables the newspaper to justify all the other pages to advertisers with a simplistic metric.

The Internet completely changed this because we no longer are relying on statistics, but actual data collected. In the past, advertisers would get a plane and fly over an Amazonian forest they picked and pay to drop one million pamphlets hoping that at least 50,000 of their target market would catch the pamphlets and respond. Of course, indirect sales activity could indicate the effectiveness of a campaign, but in reality it was all a guess. Now with the Internet, a lot of the guesswork is not required any more – and quite frankly, advertising on the Net looks bad but the reality is that the truth has now been set free.

This is looking at it from an accountability point of view, but looking at it from a practical view as well, there are issues. The holy grail of advertising, is targeting. The reason being, if you can target an ad better, you are more likely to get a conversion. However there is a natural friction with targeted advertising and it’s called privacy. As I’ve said before, privacy is the speed hump for the attention economy.

Advertising on the net technologically offers a great ability to target, with marketers licking their lips at the opportunity. However this is coming with a complete misunderstanding, that technology may be an enabler but culture and society will be a breaker. People do not want better targeting. The thought that some company profiles you scares the crap out of people. Yes, I’ve even convinced myself that when advertising is relevant, it’s useful – but this is looking at it after the fact. The problem with targeted advertising, is that whilst it may run a world record 100 metre dash, it might not get the chance to actually get off the starting blocks. Just ask Facebook if you don’t believe me.

The structural impact the Internet has had to ruin advertising
The Internet is great for measuring – but there are a few too many measures. The lack of a consistent measurement system creates several problems. More significant is the fact that different types of Internet services compete based on what model works best for them. For example, pay per action is something advertisers love because they are getting a better return on their investment by seeing a follow through. This works with contextual advertising like the kind Google uses – it’s actually in Google’s interest for you to click off their pages.

Contrast that with video sites where a person is engaged with the content for ten minutes. An advertiser can’t compare ten minutes of engagement on a video site easily with click-actions on contextual advertising sites. What this creates is a vacuum, where the ad dollars will bias those that offer a better likelihood of making a sale. After all, why would you care about capturing someone’s attention for ten minutes, when you can simply pay for someone clicking on a link which is directly linked with an e-commerce sale on your site.

This creates a real problem, because it’s not an equal playing field to compete for the advertising. Certain types of services do better under different models. Banner advertising will die, not just because people are realising the usability issues surrounding banner blindness , or the fact that banner advertising is simply a copy and paste model of the mass media days , but because competing advertising models that better link them better to final sales will become more popular. When we hear about the great growth rates in online advertising, don’t forget to dig a little deeper because the real growth comes from search advertising which makes up about half of that.

There’s another structural problem with the Internet: there’s too much competition. In the mass media days, the media had an established relationship as "the" information distribution outlets of society. With the Internet, anyone can create a blog and become their own publisher. Additionally, the Internet is seeing growth not just in New Media ventures, but utility and commerce ventures as well. Same advertising pie theoretically (ignoring the long tail effect for a second, where small advertisers can now participate), but a lot more "distributors". This creates a fragmentation, where advertising dollars are being worn thin. It’s for this reason the larger internet services tend to manage to get by . Just looking at the face of it though, you know there’s a problem in the longer term even for the bigger players when you operate in such an environment.

It’s not just other Internet services to worry about however: it’s the advertisers themselves. In a world of information, democratised by search engines judging quality content – you as a publisher are on the same foot as the company paying for the ads. Why would Nike want to advertise on your website, when it can just improve its own search engine ranking? Companies can now create a more direct relationship with their customers and future customers – and they no longer need an intermediary (like the media) to facilitate that relationship. That’s a Big Deal. It’s not just search though – the VRM Project is doing exactly that, creating a system that will facilitate those relationships.

Concluding thoughts
I could just as much put an argument in favour of online advertising, don’t get me wrong – there will be a lot of growth occuring still. But what I want to highlight, is that taking a step back at the facts, there is something seriously wrong with this model. If advertisers no longer need that intermediary to facilitate a relationship; if advertisers are chasing the industry down the tail of measureable ads that better link to a final sale; if the entire industry is not consistent and competing with each other both in inventory and in methods, in an infinite battle; and if consumers are no longer captive to the content distribution experience – it makes you question doesn’t it?

According to Nielsen over a year ago, about a third of all U.S. online advertising dollars spent in July came from the financial sector–with mortgage and credit reporting firms representing five of the top ten advertisers. Together, those companies spent nearly $200 million on search, display and other Web advertising, meaning that a slowdown would degrade fairly significant annual revenue streams. The writing was on the wall that long ago, what analysts are only now saying are troubled times for online advertising.

Just like we knew a year ago about the credit crunch, before a drastic turn of events turned it into the most dramatic economic shift in our world in our collective memories, so too will the advertising bubble burst. It will be years – perhaps decades – before this happens. However one thing is for sure – the Internet has not only ruined the newspaper, music and traditional software industries, but it’s also ruining the world of advertising. Like how newspapers, music and software are currently evolving into new models which we still are not sure where they will end up, so too will advertising be transformed.

Mr Online Advertising and Ms Media Company relying on it as a revenue model – you are growing on the basis of some very shaky foundations.

Information overload: we need a supply side solution

About a month ago, I went to a conference filled with journalists and I couldn’t help but ask them what they thought about blogs and its impact on their profession. Predictably, they weren’t too happy about it. Unpredictably however, were the reasons for it. It wasn’t just a rant, but a genuine care about journalism as a concept – and how the blogging “news industry” is digging a hole for everyone.

Bloggers and social media are replacing the newspaper industry as a source of breaking news. What they still lack, is quality – as there have been multiple examples of blogs breaking news that in the rush to publish it, turns out it was in fact fallacious . Personally, I think as blogging evolves (as a form of journalism) the checks and balances will be developed – such as big names blogs with their brands, effectively acting like a traditional masthead. And when a brand is developed, more care is put into quality.

Regardless, the infancy of blogging highlights the broader concern of “quality”. With the freedom for anyone to create, the Information Age has seen us overload with information despite our finite ability to take it all in. The relationship between the producer of news and consumer of news, not only is blurring – but it’s also radically transforming the dynamics that is impacting even the offline world.

Traditionally, the concept of “information overload” has been relegated as a simple analysis of lower costs to entry as a producer of content (anyone can create a blog on wordpress.com and away you go). However what I am starting to realise, is the issue isn’t so much the technological ability for anyone to create their own media empire, but instead, the incentive system we’ve inherited from the offline world.

Whilst there have been numerous companies trying to solve the problem from the demand side with “personalisation” of content (on the desktop , as an aggregator , and about another 1000 different spins), what we really need are attempts on the supply side, from the actual content creators themselves.

info overload

Too much signal, can make it all look like noise

Information overload: we need a supply side solution
Marshall Kirkpatrick , along with his boss Richard McManus , are some of the best thinkers in the industry. The fact they can write, makes them not journalists in the traditional sense, but analysts with the ability to clearly communicate their thoughts. Add to the mix Techcrunch don Michael Arrington , and his amazing team – they are analysts that give us amazing insight into the industry. I value what they write; but when they feel the stress of their industry to write more, they are not only doing a disservice to themselves, but also to the humble reader they write to. Quality is not something you can automate – there’s a fixed amount a writer can do not because of their typing skills but because quality is a factor of self-reflection and research.

The problem is that whilst they want, can and do write analysis – their incentive system is biased towards a numbers system driven by popularity. The more people that read and the more content created (which creates more potential to get readers) means more pageviews and therefore money in the bank as advertisers pay on number of impressions. The conflict of the leading blogs churning out content , is that their incentive system is based on a flawed system in the pre-digital world, which is known as circulation offline, and is now known as pageviews online.

A newspaper primarily makes money through their circulation: the amount of physical newspapers they sell, but also the audited figures of how many people read their newspaper (readership can have a factor of up to three times the physical circulation ). With the latter, a newspaper can sell space based on their proven circulation: the higher the readership, the higher the premium. The reason for this is that in the mass media world, the concept of advertising was about hitting as many people as possible. I liken it to the image of flying a plane over a piece of land, and dropping leaflets with the blind faith that of those 100,000 pamphlets, at least 1000 people catch them.

It sounds stupid why an advertiser would blindly drop pamphlets, but they had to: it was the only way they could effectively advertise. For them to make sales, they need the ability to target buyers and create exposure of the product. The only mechanism available for this was the mass media as it was a captured audience, and at best, an advertiser could places ads on specialist publications hoping to getter better return on their investment (dropping pamphlets about water bottles over a desert, makes more sense than over a group of people in a tropical rainforest). Nevertheless, this advertising was done on mass – the technology limited the ability to target.

catch the advert

Advertising in the mass media: dropping messages, hoping the right person catches them

On the Internet, it is a completely new way to publish. The technology enables a relationship with a consumer of content, a vendor, a producer of content unlike anything else previously in the world. The end goal of a vendor advertising is about sales and they no longer need to drop pamphlets – they can now build a one on one relationship with that consumer. They can now knock on your door (after you’ve flagged you want them to), sit down with you, and have a meaningful conversion on buying the product.

“Pageviews” are pamphlets being dropped – a flawed system that we used purely due to technological limitations. We now have the opportunity for a new way of doing advertising, but we fail to recognise it – and so our new media content creators are being driven by an old media revenue model.

It’s not technology that holds us back, but perception
Vendor Relationship Management or (VRM) is a fascinating new way of looking at advertising, where the above scenario is possible. A person can contain this bank of personal information about themselves, as well as flagging their intention of what products they want to buy – and vendors don’t need to resort to advertising to sell their product, but by building a relationship with these potential buyers one on one. If an advertiser knows you are a potential customer (by virtue of knowing your personal information – which might I add under VRM, is something the consumer controls), they can focus their efforts on you rather than blindly advertising on the other 80% of people that would never buy their product). In a world like this, advertising as we know it is dead because we know longer need it.

VRM requires a cultural change in our world of understanding a future like this. Key to this is the ability for companies to recognise the value of a user controlling their personal data is in fact allowing us new opportunities for advertising. Companies currently believe by accumulating data about a user, they are builder a richer profile of someone and therefore can better ‘target’ advertising. But companies succeeding technologically on this front, are being booed down in a big way from privacy advocates and the mainstream public. The cost of holding this rich data is too much. Privacy by obscurity is no longer possible, and people demand the right of privacy due to an electronic age where disparate pieces of their life can be linked online

One of the biggest things the DataPortability Project is doing, is transforming the notion that a company somehow has a competitive advantage by controlling a users data. The political pressure, education, and advocacy of this group is going to allow things like VRM. When I spoke to a room of Australia’s leading technologists at BarCamp Sydney about DataPortability, what I realised is that they failed to recognise what we are doing is not a technological transformation (we are advocating existing open standards that already exist, not new ones) but a cultural transformation of a users relationship with their data. We are changing perceptions, not building new technology.

money on the plate

To fix a problem, you need to look at the source that feeds the beast

How the content business will change with VRM
One day, when users control their data and have data portability, and we can have VRM – the content-generating business will find a light to the hole currently being dug. Advertising on a “hits” model will no longer be relevant. The page view will be dead.

Instead, what we may see is an evolution to a subscription model. Rather than content producers measuring success based on how many people viewed their content, they can now focus less on hits and more on quality as their incentive system will not be driven by the pageview. Instead, consumers can build up ‘credits’ under a VRM system for participating (my independent view, not a VRM idea), and can then use those credits to purchase access to content they come across online. Such a model allows content creators to be rewarded for quality, not numbers. They will need to focus on their brand managing their audiences expectations of what they create, and in return, a user can subscribe with regular payments of credits they earned in the VRM system.

Content producers can then follow whatever content strategy they want (news, analysis, entertainment ) and will no longer be held captive by the legacy world system that drives reward for number of people not types of people.

Will this happen any time soon? With DataPortability, yes – but once we all realise we need to work together towards a new future. But until we get that broad recognition, I’m just going to have to keep hitting “read all” in my feed reader because I can’t keep up with the amount of content being generated; whilst the poor content creators strain their lives, in the hope of working in a flawed system that doesn’t reward their brilliance.

Climate change: forget the science, it’s real for the market

I recently sat through a two hour presentation on climate change at work. My employer this year (a big four firm) has been mobilising to respond to the market with a climate change solution for our clients – and the things happening are amazing. They want to be first-movers in what is a huge business opportunity. Even through I have had dealings with people on the climate change team, it wasn’t until I sat through this presentation that a few things clicked for me: climate change is real. And I am not talking about the science – it’s real for the market economy.

I wouldn’t be doing any justice if I attempted to explain what I learned, however I will explain something that was a big realisation for me. This guy that spoke is a world expert, and he reckons more has happened in the last eight months of his career regarding climate change than it has in 25 years of his career. To understand why, is to understand the realisation of the markets.

Increasing shareholder value

If it’s one phrase that sums up corporations working within the framework of capitalism, it’s about “increasing shareholder value”. It’s a term that is mocked because we are sick of hearing it, but it essentially explains the market: investors make money by putting their money where they can generate more value for their buck. Value creation is the centre of everything – a start-up company generates value through innovative new products that people buy; a tax agent generates value by reducing your tax expense; a real estate agent generates value because they can sell your property at a higher valuation. In the context of corporations, people make money in companies through returns: a higher share price means a higher value of that share or piece of property. Companies are judged on their profits because more profits reflect a higher return an investor gets from that entity; just like a home being sold, it reflects the additional value they can generate from that piece of property they own.

Profits reflect shareholder returns, which come in two forms.

1) dividends, which are cash payouts from profit distributions to shareholders. An investor wants higher profits, because it means more cash for them on their existing shareholding – it reflects a better return on their investment.

2) retained earnings, which is when a company doesn’t pay the dividend but holds it so they can fund future growth. More profits, means extra cash to invest to generate more growth in the entity, which ultimately means more value. If you buy a share for $1, and the company grows and your share is now $2 – you are a happy chappy because you’ve effectively doubled your money.

How climate change now has a price

Lets say we generate x amount of carbon tons a year. The objective of climate change, is that we can reduce the amount of x with time, and then get to the stage where we can grow sustainably, which means for every x we generate, we can offset that bit of carbon so as to to generate a net of zero on the environment. That’s called sustainable economic growth.

Lets say y is the amount it costs to remove a ton of carbon dioxide. Meaning y represents the expense of generating carbon. So if you times x with y – that equals the amount it will costs to remove the carbon dioxide we generate so that we have a net impact of zero on the environment (or at least, the cost to reduce emissions). If the government forces you to reduce your emissions, like they force you to pay taxes, that expense has now become very real.

How much a ton of Carbon Dioxide will cost is a big issue yet to be settled, but as you can tell y is an important number because it determines how much it costs for you to reduce your carbon footprint. A very conservative estimate is that it costs 25 US dollars to remove 1,000 tonnes of carbon. The reason I say conservative is because more recent evidence suggests it is actually a lot more than that (I think he quoted 40 euros). Using the $25 figure, he said that it will cost us $15 trillion to remove carbon dioxide. There is so much pressure on governments from voters, lobby groups and the like, that governments (like here in Australia) are going to mandate that you offset your carbon emissions each year. The Kyoto agreement is saying a 60% reduction from 1990 levels by 2050 for example.

Now as an investor, I am thinking my investments have a share of the pie of a $15 trillion expense that they have to pay each year. That’s expensive. Expensive stuff reduces my profit. Reducing my profit means lower returns for my investments (ie, lower dividends, lower retained earnings to fund growth). Holy crap – this climate change thing is eroding shareholder value. Crap crap crap – I want to start knowing what my investments are doing to tackle this future expense. I want more accountability, alongside the financial reports that companies are mandated to provide (and which tells us about profit).

And that is exactly what the investors that control $41 trillion dollars – one third of the worlds money -are currently saying.

So much more to say, but I just want to share that point: climate is real economically and the environmental cost is being built into the market mechanism. There are a lot of issues that are yet to be resolved, but you’d be stupid to start ignoring the massive developments occuring, because its getting nearer to an agreement where it will affect every transaction we make in our economies.

Some things will never change: how to create credibility

This weekend in my office with a half dozen colleagues, we toiled away on an (academic) assignment due tonight. When you spend 11 hours in one day around one table, on something that drives you mad – conversation is a aplenty on things not related to what we were doing. And when there as no conversation, procrastination was aplenty with Facebook being the prime culprit amongst all of us.

An interesting scenario happened, which made me revisit something I have long wondered. One of the girls asked how does Facebook make money, and I went on a rant about their $200 million Microsoft deal, how they are heading towards an IPO, and other random facts I just happen to know. They all looked at me stunned, in the sense how could I possibly know such things, and I replied I read a lot – I read a lot of blogs.

“…but how do you know that stuff you are reading is accurate?” with reference to that $200 million that I don’t even know where I read that. The funny thing about the question, is that it’s smart and stupid at the same time. The answer seems too obvious – but it isn’t: how DO I know those facts I stated where true?

Why I bring this up, is because this is an issue I have long tried to come to grips with – what makes information credible? How do you know when you read something on the internet, that it is reliable? The answer is we don’t. Sort of.

This “new media” world isn’t the reason why we have this apparent problem: information credibility has long been an issue, first realised by the citizens of western democracy after the Great War when they recognised newspapers could no longer be taken as fact (due to the propaganda efforts). So its been a problem long before computers and hypertext had even been invented – it’s only that with us being in an Information Age, the quality of information has been under higher scrutiny with its abundance.

How do we know what makes something reliable? Is it some gee-whiz Google algorithm? Perhaps it’s the wisdom of the crowds? Maybe – but there is something else even more powerful that I have to thank Scott Karp for making me realise this, back in the days when he was starting out as a blogger: it’s all about branding.

Why makes an article about the New York Times, more credible than one written by a random student newspaper rag? What makes a high profile author, more credible in what they say, than a random nobody who puts their hand up in a town hall meeting? And going back to the question my colleague asked earlier – how do I know the blogs I am reading have any credibility – over say, something I read in an established newspaper such The Economist?

Simple: branding establishes information credibility. And a brand – for any type of entity be it an individual journalist or a news organisation – is dependent on recognition by others. There could be absolutely no credibility in your information (like Wikipedia) and yet you could have a brand that by default establishes credibility – just like how people regularly cite Wikipedia as a source now, despite knowing it’s inherently uncredible.

The power of branding is that no matter how uncredible you are – your brand will be enough to make anything you say, incredible.

Have you tried to implement enterprise blogging?

Martianus: Hey guys, I think the earth goes around the sun.

Establishment: Don’t be ridiculous – everything revolves around the earth. Your idea sucks. Get back to work and let us take care of astrology, because we know best.

Nicholas: Dudes – seriously. It doesn’t make sense. Why don’t we take a different approach?

Establishment (between themselves): We’ve got a problem. These kids think that the earth moves and goes around the sun – as if someone was sitting in a car still, and the earth and trees walked and moved! Ridiculous!

Galileo: Hey I’ve been speaking to a lot of people, and everyone reckons the earth orbits the sun. It’s so painfully obvious. Can we please update our textbooks?

Establishment: Excuse me? Have you not looked at Psalm 93:1, Psalm 96:10, and Chronicles 16:30 that state “the world is firmly established, it cannot be moved.” It’s how we’ve always said it. We can’t let you challenge the Holy Book. The Holy Book is law, and only we can interpret it.

Galileo: What’s the big deal? I mean, I’m just saying something that makes sense. Look – everyone else is saying it. It’s not like I’m suggesting we need to implement blogging within our enterprise, to unlock our potential. Now that would be ridiculous!

Establishment: Listen – there is no point changing our world view. If we started telling people that, could you imagine? A famine would start, and nineteen percent of people would get a heart-attack because of the dangers of thinking like that – we can’t take that risk. The father almighty in his wrath would shake our flat earth, and ruin our existence. Even if it were true, why change? It’s not like it would make any difference. Now scram.

Galileo: You guys don’t get it – it could really help people, and it’s not a big deal. I can’t believe the fuss.

Establishment (between themselves): I don’t get what this kid is on. Let go and tell his superiors to have a word with him. We can’t have this type of thing happening again.

Two hundred years later
Establishment: Yes thank you – we are the pioneers. Our team took some risky moves to experiment with a new way of doing things early on – we often forget that it was us, the establishment, that started all this. If it wasn’t for us realising things needed to change, so much innovation would never have occurred. Just think – Einstein never would have worked out the theory of relativity. Thank God for the establishment and the foresight we continue to have this day.

A bit of inspiration

and the text, if you don’t want to see the video:

Here’s to the crazy ones.

The misfits.

The rebels.

The troublemakers.

The round pegs in the square holes.

The ones who see things differently.

They’re not fond of rules.

And they have no respect for the status quo.

You can quote them, disagree with them,

glorify or vilify them.

About the only thing you can’t do is ignore them.

Because they change things.

They push the human race forward.

And while some may see them as the crazy ones,

we see genius.

Because the people who are crazy enough to think
they can change the world, are the ones who do.

?¢‚Ǩ‚ÄùApple Computer (via workhappy.net)