Experience shows that the first wave of Internet-enabled change was tainted by irrational exuberance. A sober analysis of today's trends reveals that this new participation is both a blessing and a curse. Mass collaboration can empower a growing cohort of connected individuals and organizations to create extraordinary wealth and reach unprecedented heights in learning and scientific discovery... (but) the new participation will also cause great upheaval, dislocation, and danger for societies, corporations, and individuals that fail to keep up with the relentless change.
- Don Tapscott & Anthony Williams, Wikinomics, page 15.
Paul Artiuch is a Senior Research Analyst and Director of Member Services at New Paradigm. Paul’s most recent experience includes research into external innovation, idea markets, Web 2.0 tools as well as global and public sector talent markets. Paul has authored and co-authored several New Paradigm white papers and case studies dealing with the impact of technology and demographics on business models. Paul has written and published cases for the Richard Ivey School of Business in the area of marketing, strategy and entrepreneurship. He also has consulting experience in the retail, consumer packaged goods, manufacturing and non-profit sectors. Paul holds a degree from the Richard Ivey School of Business.
As many of our readers know, we have been following the music industry quite closely for some time. While most record companies are stuck to their old model, a few innovative artists are making headlines by connecting directly with their audience. Arguably the most forward thinking artist has been Trent Reznor of Nine Inch Nails. In the past, the band released its music under the Creative Commons License making it available for remixing. It has also released a collection of tracks with flexible pricing ranging from $0 to $300 depending on the fan’s preference.
In the latest coup in the industry, Reznor’s newest album, “The Slip”, is being distributed on the band’s website for free and without any method for payment. (Also under Creative Commons License) The simple message on the website says “thank you for your continued and loyal support over the years - this one’s on me.”
Although this might seem like an exercise in altruism, Reznor is also a shrewd businessman. While the band may take a hit on record sales, its upcoming 26 concert tour will give them an opportunity to make up the revenue. This may be the ultimate test of the “free” model for music, especially for big bands. If Reznor comes out on top, many others will surely follow as soon as their recording contracts expire.
Today’s youth, the Net Generation, is increasingly comfortable with exchanging real life experiences for virtual ones. The latest is the annual college tour that many high school students undertake before selecting a post secondary institution. While their parents would take the time and incur considerable expense to visit the few colleges that they were interested in, their children rather jump online to browse hundreds of schools at once.
One of the largest virtual college tours is put on by CollegeWeekLive. The first event which took place in November attracted 15 000 students from 28 countries who “visited” 130 U.S. colleges. The events are highly interactive – there are live video sessions with admissions experts and counselors, live chat with current students, virtual speakers and video contests. The events also allow schools to set up virtual booths with brochures, videos, webinars, podcasts and live IM.
While it is unlikely that the physical college tours will be eliminated entirely, the virtual experience allows N-Geners to be more informed when narrowing their choices to a few schools they will want to visit. It also provides international students with the ability to learn more about the schools that they will likely not have a chance to visit before they make their decisions. It will be interesting to see what other experiences will be taken online as the gap between the physical and virtual world narrows further.
Much has been written about Web 2.0 over the past year or two. We have observed the rapid rise of online giants such as MySpace, Facebook, YouTube and Flickr. The value, or at least perceived value, of these companies has grown along with their user bases – YouTube was bought for $1.65 billion, MySpace was snatched by News Corp for $580 million back in 2005 and Facebook is worth $15 billion. However, many critics question the business value of these communities. The advertising model has proven less lucrative than expected as companies struggle to monetize their user bases and traffic. Many point to Facebook’s failed Beacon platform as an example of the difficulties of extracting value from Web 2.0.
The business model savior of Web 2.0 may come in the form of Enterprise 2.0. According to Forrester, companies are set to spend $5 billion on social networking by 2013. The report also states that 56% of North American companies see Web 2.0 as high priority in 2008. The urgency is well founded as companies struggle to give their employees tools that they already use on the open internet and have come to expect in the workplace. However, in contrast to tools on the open internet, companies need to pay much more attention to things like information quality and security, compliance, current business processes and decision making structures. Hence the opportunity for Web 2.0 companies to customize and create offerings that take into account the unique needs of the Enterprise 2.0. Lucrative subscription and software sales revenues will follow. Can you say Facebook Inside?
It can be argued that fashion is one of the most innovative industries in the world. New styles come out four times a year and stores such as Zara and Forever 21 can design, produce and distribute a new garment in as little as 15 days. However, unlike many other creative industries, fashion designers have had very little intellectual property protection. Although this may be disputed by our friends in the music industry, it seems that the lack of IP protection may have actually increased the pace of innovation as opposed to ruining the industry altogether.
However, this may all change. A growing number of designers are placing trademarks and patents on their designs in an attempt to keep competitors from copying their work. An anti-piracy bill, called the Design Piracy Prohibition Act, has also been proposed to curtail fashion retailers from selling rebranded versions of high end products.
This seems like a step in the wrong direction. A low priced, rebranded copy of a garment or a purse is a compliment to the designer’s ingenuity. Making styles and fashions more accessible to the average person drives the designer’s popularity. After all, not everyone can afford a Hermès bag, but seeing many similar ones on the street may entice those who have the means to buy the original. Even knockoffs, which are illegal, may help rise the popularity of a certain style. After all, who heard of Luis Vuitton before replicas of the company’s purses became mainstream. In the end, designers should stick to what has worked best for them throughout the years – new ideas and rapid innovation. The surest way of staying ahead.
For the past couple of years we have been watching the emergence and growth of online market places for solutions and talent. We call these Ideagoras. These markets connect companies with problems and skills shortages with solution providers - freelancers, retirees and people with some extra time on their hands. Examples abound: InnoCentive helps companies connect with scientists and engineers, Elance has a huge network of programmers, designers and translators and GLGroup provides access to consultants and industry experts. Leading companies such as P&G, Boeing, Dow and Kraft are using these markets to reach outside of their corporate boundaries.
The benefits are many - Ideagoras allow companies to quickly and dynamically connect with people who heave a unique solution for their particular problem or need. The model is a lot more flexible and cheaper than outsourcing or traditional supplier relationships. Companies also benefit by choosing their solution providers based on reputation ratings and feedback from other clients as opposed to marketing pitches or blind selection processes.
Despite obvious benefits, few similar services exist in the consumer space – with one notable exception. Rated People, a U.K based service, connects home owners with tradespeople such as plumbers, electricians and roofers. The site allows users to describe their project and get bids from several providers in their geographical area. The tradespeople are evaluated by other users on their quality, value and reliability, with their ratings displayed along side of customer comments.
While it is difficult to judge whether Rated People has the critical mass to become self-sustaining, the service illustrates how Ideagoras can be useful outside of a corporate setting. Ratings keep the tradespeople honest - maintain good reputation scores is a good way to keep work pipelines filled. Ideagoras for car mechanics, computer technicians or even medical professionals would go a long way in making the markets for those services more transparent and user friendly. Feel free to comment if you come across an Ideagora in the consumer space.
RBC, Canada’s largest bank, has recently launched a program to engage N-Geners though peer bloggers and a Facebook site. The bank has recruited six university students who post their daily thoughts on managing finances and other student issues. This seems like a progressive move for a conservative financial institution – if it’s done right.
So far, the blog topics have varied - finding summer jobs, reward cards, starting a business, cell phones and mortgages. The posts are free of marketing pitches and offer some useful advice. It seems like a good start.
The key will be for the bloggers to engage other young people in the conversation. However, with most N-Geners wary of large corporations and their marketing pitches, the blog’s authenticity will be vital. The two key tests for the program will be the handling of any negative feedback about RBC and whether the bank actually acts on any recommendations that may result from the conversation. It would also be nice to know what motivates the six bloggers to maintain their involvement in the program.
We will be watching the conversation over the coming months to see how the bloggers fair. If done in an honest and transparent way, the program has the potential of helping RBC attract a new generation of customers. However, with too much oversight or interference, the blogs could all too easily go the way of many other failed N-Gen engagement strategies.
As we have written before, emerging markets are often a hotbed of innovation. Difficult local market conditions force companies to invent new and creative ways of meeting their customer’s demands. For instance, the Indian bank ICICI is able to offer banking services to people with very low balances and high transaction volumes by employing low cost channels coupled with the latest IT. Many of these innovators are looking at entering western markets with their low cost business models.
The handset industry is no different. Spice, a small Indian mobile company, has recently unveiled a sub-$20 handset. Needless to say it is basic, with no screen and a clunky exterior. However, market potential is huge. The company is looking at marketing the phone to 2.5 billion people. Read More »
With the ongoing turmoil in the advertising industry caused by the internet, a new breed of customer custodians is emerging in the form of internet giants such as Google, Yahoo, MySpace, Microsoft and AOL. As advertisers strive to make their messages more relevant, customer data becomes the key to better targeting and ad placement.
As I have written before, social lending holds a lot of potential in its ability to tap into the natural ties between people. Recent estimates by Gartner support this view; the research group expects that by 2010, 10% of the worldwide market for retail lending and financial planning could be controlled by social network banking platforms. Banking executives beware; the two most popular products include lending and payments, both very profitable areas for traditional players. (Mortgage mess aside)
The leaders of social banking, which include Zopa, Prosper and Lending Club, have certainly been busy. Prosper has raised $40 million from investors, Zopa attracted $34 million while Lending Club secured another $10 million to grow beyond Facebook. Membership has also been growing: Prosper has almost 500 000 while Zopa is up to 150 000. One study predicts that Americans will turn to social lending to pay off mounting credit card debts with the amount borrowed for this growing to $159 billion by 2012.
Although social lending is not new, after all people got along without banks for thousands of years, the phenomenal growth of these new financial institutions is primarily driven by young people and high net worth individuals. The Net Generation, which is comfortable interacting in social networks, is mistrustful of large banks and attracted to the altruistic aspect of peer-to-peer lending. While social lending is still a nascent phenomenon, about $647 million worth of loans were made in 2007, it is one of the faster areas of growth in financial services. Traditional banks, just like telecommunications and record companies, will have to find a way to adapt and compete in this new Wikinomics environment.
One of our collaborators, Sean Moffitt, pointed me to this very thoughtful (and funny) video on the changing relationship between advertisers and customers. It clearly shows the growing disconnect between traditional media advertisers and a new generation of consumers impervious to the old sales methods. The ironic thing is that the clip was made by Microsoft, a company that spends $11.5 billion on sales and marketing, with over $1 billion in U.S. ad spending alone. Although, admittedly the company is moving the bulk of its ad dollars to the digital sphere and hopes to significantly transform its marketing mix by 2010. With clips such as ‘Bring Back the Love’ the company clearly shows that they understand where to invest.
As Don and Anthony write in Wikinomics, a new age for science is around the corner. The ability to quickly and seamlessly share information and collaborate online allows scientists to eliminate many of the inefficiencies associated with research. However, scientific knowledge is not disseminated freely due to the barriers posed by high subscription costs of many scientific journals. The serial crisis, as it is called, leads to libraries spending hundreds of thousands of dollars to get access to the latest research. As an example, a library subscription to the journal Brain Research costs over $20 000 as does a subscription to the Journal of Applied Polymer Science.
The problem is exasperated by the growth in academic fields and the ‘publish or perish’ mantra of the academic world. It doesn’t help that the publishing industry is dominated by a few large companies each owning multiple journal titles. This allows them to freely set prices, which have been rising fast in recent times. Publishers contend that they ensure a rigorous, and costly, peer review process is in place to control quality. However, as the Wikipedia model shows, peer review can work in an open and free environment.
Efforts, such as the Public Library of Science, strive to overcome this problem by creating a library of free-access journals. Harvard has joined the movement by electing to post research from the arts and science faculty on the Internet for free. While this decision is important due to Harvard’s size and prestige, the publishing industry is unlikely to give up their lucrative model anytime soon. However, it does seem that the power to change things is in the hands of university faculties who ultimately will benefit from a more open academic environment.
An innovative website called “Love Earth” is bridging the gap between the scientific world and people’s interest and concern over endangered species. The website tracks five species of animals along with the activities of scientists studying them. The result is an online blog and Google mash-up of the animal’s locations. An interesting way to bring home what mammalogists and cetologists actually do.
With the ever growing endangered species list, animal science and conservation could definitely use some popular support. The inaccessible nature of scientific work, however, makes it difficult for people to identify with the cause. While in some cases this may be mere apathy, there seems to be pent up demand for more accessible and interactive ways to learn about the environment. A perfect example of this demand is BBC’s Planet Earth series, a nature documentary, which was the most popular DVD sold on Amazon in 2007.
The work of thousands of scientists and conservationists is critical to the survival of many species. Finding a way to bring this battle into people’s living rooms could galvanize them to lend their support. Interactive, online experiences such as “Love Earth” might go a long way in doing this.
A recent estimate by Bernstein Research analyst, Toni Sacconaghi, indicates that 27% of iPhones sold in the U.S. since its launch last summer were unlocked. This means that the handsets were made to work with network providers other than the iPhone’s “exclusive” partner - AT&T. In addition, another report suggests that as much as 40% of European iPhones are unlocked as well. In Canada, where Apple does not yet have a partner, iPhones can easily be spotted on the streets.
Admittedly the iPhone is an amazing product, however, the business model could hardly be worse. Sacconaghi estimates that Apple could lose $500 million in revenues if the company sells 10 million iPhones till the end of the year. If almost three out of ten customers are explicitly telling Apple that they want to choose their own carriers, it can be expected that a whole lot more are thinking it. For once, it might actually be beneficial for Steve Jobs to listen.
The launch of Tata Motor’s $2500 Nano has made a big splash across the world. Although, not an immediate threat to established car makers, expertise in the design of cheap cars could allow Tata to eventually compete for the dollars of the increasingly prosperous middle class in developing countries. Obviously a huge growth opportunity for any car maker who can tap it.
However, a $2500 dollar car makes a smaller impact on your life if you are one of the vast majority of Indians who makes $700 or less per year. Even Tata’s best engineers could not make a car to serve this market. However, this doesn’t mean that India’s vast poorer classes do not have access to motorized transportation. Under these difficult conditions, a “car” called the Jugaad was created with the efforts of self-organizing rural mechanics.
The car is basic to say the least. It has four wheels, an engine and a chassis that is often made out of wood. A model with a 10 horsepower engine and all new components costs around $1000. However, since each part of the Jugaad can be replaced individually, or substituted with used parts, the price tag can go down to as little as $600.
The Jugaads operate mostly in rural areas as they are technically illegal - they do not meet any government standards, pay taxes or have license plates. However, with India’s famously overloaded transportation infrastructure, the need for these cars is likely to continue.
Although Tata’s Nano will go a long way in making the lives of millions of people more convenient, the real opportunity lies in the rural areas where a huge share of the world’s poor live. It seems that with the proven ingenuity of people in those areas a modest investment by either governments or corporations would yield a very high return in terms of development. Coincidentally, this topic was addressed by Bill Gates at the Davos conference.
The lack of transparency and information has for decades been a friend to rampant polluters. On the flip side, without objective comparisons, it is very difficult to recognize the positive efforts of some industrial plants to clean up their acts. Now a project called MapEcos is bringing the kind of transparency that tackles both sides of the problem.
MapEcos, which is an effort by a team of Harvard, Duke and Dartmouth academics and students, is a mashup that maps environmental performance of U.S. industrial sites. The emission information comes from the U.S. Environmental Protection Agency. The mashup also includes information reported by plant managers on their efforts to improve their environmental performance.
Without information sources, such as MapEcos, most people view the environmental problem as an abstract issue that does not affect them directly. Finding out that a massive polluter may be located next door will bring the issue home. This type of information has the potential to galvanize communities into putting more pressure on companies to improve their performance.
MapEcos also has the potential of highlighting the positive efforts made by industrial managers. As good environmental performance will not be overlooked, managers have an incentive to come up with ways of cutting pollution. This in turn, puts additional pressure on polluters to fall in line.
The value of the site can be increased by adding new information sources and analytical tools. MapEcos already gives the ability to sort by industry, corporate owner, chemicals emitted and emission levels. An easy way to calculate industry averages or displaying the environmental profile of a chosen area would be useful. A difficult, yet worthwhile undertaking, would be to develop an objective green rating for every U.S. industrial plant that would quickly allow stakeholders to assess environmental performance based on the plant’s activities.
Outsourcing has become synonymous with western jobs heading to India and China. This definitely has been the case for low-skilled work and increasingly holds true for knowledge industries such as IT. However, ongoing talent shortages, particularly in the high-tech sector, are leading to some surprising results. For instance, rising salaries in India have led one company to relocate its development team to the U.S to save costs. .
In the media hype over outsourcing it is sometimes forgotten that the developed world’s labor force is significantly better educated than that of the more populous rising economies. The global nature of the war for talent means that labor savings are quickly arbitraged away, leaving education as the key to attracting jobs. This is where the developed world still holds an edge. Here is an illustrative diagram created by McKinsey:
It’s been a tough year to be in the music industry. Sales of the labels bread and butter products – CDs, cassettes LPs etc. – have fallen 15% in the U.S in 2007. Consumers are spending more on other forms of entertainment such as DVDs and video games. Even artists are shunning the major labels. Madonna signed a huge deal with a concert promoter, Prince gave out copies of his CD with a newspaper, Paul McCartney decided to work with Starbucks and Radiohead released “In Rainbows” for free on the internet. Other obvious pressures include file-sharing, the rise of Apple as a giant in one of the only growth segments of the industry and emerging online competitors such as Sellaband and thesixtyone.
It’s no surprise that the industry is slowly changing. One of the most promising developments is the move towards selling DRM-free music. The last major label, Sony BMG, made the announcement today. Although Sony’s motives are far from enlightened, mostly fear of Apple and the need to match the other three major labels, this means good news for JT fans who will be able to get his songs on Amazon. This more open approach is definitely not the cure for all the industry’s woes, however, it’s a first step in admitting that the customer is and should be in control.
The music labels have a chance to turn things around in a positive way as Apple continues to control the vital iTunes – iPod link. It is conceivable that some company, say Microsoft, comes out with a cooler player than the iPod, and consumers will demand an alternative to iTunes. Assuming that Apple holds on to its DRM (there were hints that it may not) an alternative will have to emerge. Many labels, with the notable exception of EMI, have thrown their weight behind Amazon. With online sales expected to continue growing - they increased by 45% in 2007 - it will be interesting to see if the music industry is able to create a truly open distribution model for digital music in 2008. As for CDs, it seems that their era is quickly drawing to a close.
A recent mistake made by a number of US and UK news organization is an interesting, and unfortunate, example of the difficulty in authenticating online information contained in social networks. The incident refers to citations made by several news sources from a fake Facebook profile of Bilawal Bhutto, the son of the assassinated Pakistani politician - Benazir Bhutto. Although, the fake profile along with another one, were taken down, Facebook admits that there isn’t much they can do to prevent people from creating these profiles or including untruthful information.
The interesting part is that the news organizations involved, with their proficiency in investigating and authenticating all types of information, were unable to tell the difference. This begs the question of how many fake profiles and false information exist on these social networks. The question has profound consequences for social networking business models, as marketers attempt to target their messages to specific online groups.
Google Talk, the company’s messaging service, has just released a real time translation service in 23 languages. The translation is done by bots who are invited to the participant’s chat session. The service is said to be reasonably accurate, given the limits of machine translation. They even get swearing right.
An increasingly globalized world brings the need for people to understand each other in order to travel, do business and learn. However, as I have written before, the internet is not yet particularly friendly to speakers of languages outside of English, Chinese and maybe Spanish. Although millions of people are learning English, it seems that the bots are going to learn a lot faster. The technology has come a long way since its inception in the 50s. A freely translatable internet would go a long way in bridging the digital divide.
thesixtyone is another innovative site that lets users rate music uploaded by musicians. The most popular bands are displayed on the homepage after receiving “bumps” from listeners. Bumps cost points, although, users can gain by promoting music that is popular with others. The system is designed to let people build their credibility as music listeners. This innovative site is similar to Sellaband, a service that allows users to bankroll new musicians for a share of the revenues. Sites such as thesixtyone and Sellaband are quickly creating an alternative model for the discovery, financing and promotion of new music.
The Dumbest Generation? Have your say. I must first acknowledge my personal bias on this topic...
As a member of the Net Generation research team at nGenera (and a member of said generation myself), I am a firm believer in the tremendous accomplishments and potential of the Net Generation (those born between 1977 and 1997). So, I must say that when I [...]
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