Three social media giants, three giant media announcements: Ning, Twitter, Facebook. In only seven days, these three companies have announced major changes to their products and/or business models. Is it a sign of things to come? How will each of these companies answer the question of how to turn its growth into revenue?

A quick synopsis of each situation:

Twitter. According to comScore, Twitter.com had 22.3 million unique visitors in March, up from 524,000 a year ago (excluding those who use third party apps), but it has been criticized for its inability to monetize those users, until now. Twitter is finally launching an ad system called “Promoted Tweets” that will show up when Twitter users search for keywords that the advertisers have bought to link to their ads. Later, Twitter plans to show promoted posts in the stream of Twitter posts (a controversial move), based on how relevant they might be to a particular user. You can watch a video about it here.

Fred Wilson, a Twitter board member, dropped a bomb on Twitter’s third-party developers, telling them to stop “filling holes in the Twitter product,” and start creating “something entirely new on top of Twitter.” Twitter has since purchased Atebits, the company responsible for the Tweetie iPhone app, and is renaming it Twitter for iPhone. They will also releasing an official app for the Android Phone OS. It looks like Twitter is prepared to compete with, and potentially replace the companies who have built applications around its ecosystem. So much for playing nice.

Facebook. On the surface, Facebook’s move doesn’t seem like much, but the Facebookipedia concept of creating ‘community pages’ could be an incredibly stealthy move to target advertising to users without them even realizing it.  Community pages take the concept of a Facebook “fan page” and apply them to concepts, places, and ideas, rather than brands. When prompted by a dialog box that pops up on their profiles, to “like” community pages that tie into what’s already entered into their profiles, users can connect to the community pages for their hometowns and schools, and convert the “interests” entered in their profiles to link to pages. This increases the amount of metadata for each user and makes search much easier for everyone. It seems like a win/win proposition though. Users of Facebook can contribute to, and potentially benefit from the increased access to shared knowledge via wiki-like pages, and Facebook can gain from the amount of data on each of its users in order to have better targeted ads. Note the implementation of this change also coincides with Facebook’s decision to step up its privacy policy/settings.

Ning. Ning (“peace” in Chinese) is a platform that allows anyone to set up their own social network. After over five years as CEO, Gina Bianchini resigns, and is replaced by COO Jason Rosenthal. One month later, the company decides to phase out its free product, and lays off 40% of its workforce (from 167 to 98).  In an interview, Bianchini mentions that about 13% of Ning’s revenue stream is from paid, premium services, an amount that contributes to what some are estimating to be roughly $10 million in total annual revenue. This appears, however, to be an optimistic ball park figure, and is likely to be lower since not all users are necessarily be paying the maximum of $55/month for pro services.  As stated by Rosenthal in his staff memo, “we are going to change our strategy to devote 100% of our resources to building the winning product to capture this big opportunity” – the big opportunity being the premium service, not the model supported by advertising.

Ning’s approach sounds completely different from Bianchini’s interview, which occurred not too long before her departure, and the model diverges from both Facebook and Twitter.

Although I do love the Ning platform, the recent changes to Facebook that enables users to be more ‘community minded’ will cause the orphaned communities of the once ‘free’ Ning to jump ship to Facebook, where they will continue to ‘deal’ with the ads, and Facebook will benefit from Ning’s lost revenue. Other providers, such as Posterous and Tumblr, are welcoming new users with open arms. Posterous is committing to building a Ning blog importer, and BuddyPress has politely offered helpful resources to those looking to make the transition, including a user importer as well. Even with a 40% cut in staff, a revenue stream that accounts for 13% of Ning’s overall income doesn’t appear to be enough to support the company. It’s a risky move. Here’s hoping the next generation of their product will be astounding. As for Twitter and Facebook, the focus on metadata and data mining for advertising purposes could provide them with a large number of earnings. The only difference is that Twitter is being much more direct in its approach.

We’re at a crux for social networks. These platforms have enabled communication in new ways, increased transparency and knowledge sharing, facilitated new business and educational models, and have shifted the landscape of marketing and advertising. However, without the necessary revenues to support themselves, these platforms could disappear. Do we want another bubble? What do you think about the decisions made by these three companies? Do you agree with Rosenthal’s decision in changing Ning’s business model, and is this the reason for Bianchini’s departure from the company?

OKCupid gathers personal information based on community-submitted questions that users answer. This allows the company to better match couples based on the unique values of each person. Their slogan is: “We do math to get you dates,” which includes going so far as to create decision charts that visualize the formulas leading to love (or at least a date) for various individuals. With their data, OKCupid reveals information about the effectiveness of various romantic approaches, male and female attitudes and biases, insights on what behaviors result in conversations, behavioral changes based on age, and a variety of other findings.

From a research perspective, OKCupid is a fascinating subject. I’ve references them before in a post about labor incentives. Today’s post is about the potential for data-enabled business models and new markets for user data. Even more insightful than some of the racier findings from OKCupid (such as the sexual appetite of the average 40-year-old Floridian woman), user activity on this site generates a tremendous amount of data that extends beyond the realm of dating and could be useful to other groups and industries.

For example, OKCupid is able to generate detailed demographic and geographic data about political views, social issues, and public opinion on issues ranging from contraception to First Amendment rights to acceptable means of protest.

What OKCupid is doing not unique—often the collection of data can yield new insights and provide additional contexts beyond its intended purpose. As more and more customer and user processes become digitized, what we’re going to see over the next few years will be the growth of data-driven strategies that gather, interpret, and present data for new uses and new audiences. The abundance of data and relative scarcity of reliable sense-making information will create a flourishing market for data and analytics. In a recent nGenera survey we found that already over 40% of respondents say that data from external sources leads to competitive advantage.

Two years ago I wrote about how the idea that online social networks will make money selling eyeballs (advertising) or products is missing the entire value proposition of a social network. The real opportunity is in harnessing the rich data that is created by those participating in conversations and interacting with each other. Companies that have social platforms are increasingly seeing a business model around providing free services and aggregating anonymized customer and user data for sale.

OKCupid has a very open approach to data, but it’s easy to imagine a variety of groups—lobbyists, politicians, economists, sociologists, and so on—that might be interested enough in this type of information to pay for it, especially if presented in interactive charts that let the user filter based on factors such as age, race, gender, employment, and so on. If you think about the possibilities available when data extends beyond the realm of online dating, you see that companies in a variety of industries could use customer-generated interaction and polling data to gain a deep understanding of what drives purchasing behavior, brand loyalty, and even the desire for new products.

For fifteen years, we’ve been arguing that the digital revolution will challenge many fundamental aspects of the university. We have not been alone. In 1997, none other than Peter Drucker predicted that big university campuses would be “relics” within thirty years.

Universities are losing their grip on higher learning as the Internet is, inexorably, becoming the dominant infrastructure for knowledge — both as a container and as a global platform for knowledge exchange between people — and as a new generation of students requires a very different model of higher education. The transformation of the university is not just a good idea; It is an imperative, and evidence is mounting that the consequences of further delay may be dire.

Read the full essay here.

Alice.com is a relatively new start-up that might represent a step in that direction. Originally profiled in June by TechCrunch, the company is hoping to do to “home essentials” shopping what the likes of Amazon (et al) have done to books, clothing, shoes and electronics. The basic value proposition is buying through the site instead of trudging to the store. And they try to add value by “tracking” what you are running low on and sending reminders, as well as finding coupons and deals. Here’s a quote from the CEO summarizing what they’re trying to do:

“We have been extremely pleased with the reception that the Alice.com platform has received in the marketplace from both consumers and manufacturers alike. Direct to consumer sales by manufacturers is a growing trend online, and the Alice.com platform is helping the CPG industry open up a direct channel to its mainstream consumer. It’s a win-win that brings great value to the end consumer, and critical consumer relationships and insights to the manufacturer.” - Brian Wiegand, CEO.

The company has now secured a second round of financing, which they hope to use to bring companies like P&G on board. The big question I have is whether, if they succeed, this development will help consumer brands or hurt them.

The reason is simple. While such intermediaries might help the manufacturers fight back against private label goods (and the retailers behind them) in the short-term, in the long-term such sites might actually increase commoditization pressures. If customers become hooked on coupons and deals, margins could easily be challenged – and with the site offering to crawl the web and automatically apply discounts, this could turn into a real issue. They also take a page out of Progressive Insurance’s book, and provide real-time price comparisons across a variety of sites – which should also drive down prices. And if they use ranking and ratings from other customers (akin to what Amazon does), it may  be even more difficult to differentiate yourself among (say) the 86 different types of bathroom paper on offer.

But on the other side, there is the potential to capture a lot more margin here – if Alice.com’s business model works. Right now, Alice.com takes no retail margin whatsoever – which is how they can claim to be a “direct channel”. Instead, they plan to support their entire business through advertising – ads on the site, and a variety of ways to provide samples and coupons. If it works I could see how that would be a boon for retailers- but trying to support an entire logistics infrastructure (warehousing, all the e-commerce, and free shipping) based on ad revenue alone might not add up.

But if it works, it could truly be a “game changer” – representing a new type of intermediary in retail, stripping out an enormous and costly infrastructure while supporting itself through advertising and some sort of data ownership (while allowing a lot more data to flow directly to the manufacturer). This will be particularly true if we ever get to the magical place where the “refrigerator (etc.) talks to your PC” – allowing for real monitoring of when certain products get low.

So it will be an interesting one to watch – particularly from the perspective of the CPGs themselves. One wonders if one of the ways to fight back against pricing and commoditization pressures here is having one company – say P&G – provide certain customers with all their household needs, providing some form of additional value that goes beyond simply saving money.

In turn, today I wanted to go back and re-visit what is probably my very favorite example of Wikinomics in action- Motley Fool (investment advice), which launched the Motley Fool Beta Caps community in the Spring of 2006. It’s a site that represents how a company with a “traditional” business model can embrace the principles of wikinomics, community and collaboration in a very thoughtful way – while actually making money in the process. The key is that they have used the insights from their community to enhance their core value proposition, rather than replacing it. (Note: you can read Don’s original post about it from December 2006 here).

So some people believe in the efficient market hypothesis (EMH), which says everything that is collectively known about a stock is already priced into it – thus you cannot beat the market, which is the ultimate example of the “wisdom of crowds” in action. But many investors think otherwise (such as the most famous of all, Warren Buffett), and it’s important to remember that on the stock market opinions are weighted by capital – the “vote” of somebody managing a $100 Billion pension fund counts for a lot more than mine.

The Motley Fool is clearly not a believer the EMH, and built a business selling investment newsletters – basically their expert stock picks, which tend to focus on companies out of favor with the large funds and popular analysts. Given they were/are selling this unique expertise, one might think they would be highly resistant to any notion that a community – or the “wisdom of crowds” – might be able to identify the best stocks, as it could theoretically crush their business model (i.e. why by a newsletter when you can get the best ideas for free?). There are many, many companies that have reacted just that way to wikinomics-type developments. But instead, Motley Fool decided to embrace the notion, launching the aforementioned Caps Community in the Spring of 2006.

This community now represents the aggregated intelligence of some 130,000 investors (according to the press releases – it looks more like 60,000 on the site, with a subset of that being very active). The heart of this intelligence is a transparent stock picking process – when you picked it, at what price, and what you expected to happen, over a given time frame, with some description of why if you so choose. All if this information can be aggregated by user, by groups of users, and by the community at large. And the beauty of this community is that the knowledge created, and how it is shared, can be valuable to every investor – no matter what their mindset. This is something people often miss.

True believer in the “wisdom of crowds”? Obviously what the crowds is saying is of interest to you so you can do the same. Believer in the “madness of crowds”? Well then, it’s in your best interest to know what they’re thinking, so you can do the opposite. Believe that only a couple of people are likely to be great stock pickers? Then you can check out the top performers on the site over time – a luxury hardly available with (say) most mutual funds. If you want to get a feel for some of the different ways to slice the data, check out the Top Tens Lists page.

But that’s just within the community itself. Where Motley Fool gets really interesting, to me, is the tie-in back to their investment newsletter service. Every abundance creates a new scarcity, and the abundance of information available on Caps highlights the scarcity of time – it takes a lot of time to sift through all of that information on a regular basis. Moreover, my sense is that most investors are likely still a little hesitant to bet their retirements on the information from the community – whether it’s the crowd, EveryDayInvestor (the top-rated Fool), or some sub-group in between. Even with track records established, reading through the generally VERY short explanations for why particular stocks are chosen can give you pause – and we’re talking life-changing decisions here.

This is where the company itself jumps in, melding the community intelligence into their own offerings. Their staff regularly write blog posts and news stories that highlight potentially interesting stocks based on a combination of their own research, and the wisdom of the CAPs community. This one is a typical example – 5 Stocks Making Cash. They looked for companies generating free cash flow growth of 25% annually over 5 years, and cross referenced it with a intelligence of the CAPS community to generate a list of 5 potentially interesting stocks. They then provide a brief overview of one or two, while disclosing any of their own holdings. Similarly, you can check out their “4-Star stocks poised to pop” published on MSNBC a week ago, and many others can easily be found.

Wait a second you say – that’s still free information! Well yes, but it is fairly limited (they’ve done a little of the heavy lifting of sorting through the community intelligence for you), and very little context is provided. If you read through 100s of such stories and posts (as I have), you’ll note that most highly encourage you to use them as a base for your own research – or alternatively play somewhere between $79 and $199 for a newsletter that will do it for you. A typical example would be their Motley Fool Inside Value, which offers up two new ideas a month, and continuing, detailed coverage of all past picks. The more time you spend on the site, from my experience, the more interesting this offer is.

So if you tie it all together, it’s a compelling mixture. The community itself is valuable to the members, but also generates a lot of intelligence for the firm to leverage (and keeps potential customers coming back again and again). Those that never buy a thing  (preferring to do it all themselves) likely didn’t before either, and would be engaged with a different company if Motley Fool hadn’t done this, so there’s not much of a loss there – and there’s at least some advertising revenue here, plus the value of their contributions for everyone else. All the while, anyone that is a little hesitant to just taking that community intelligence on it’s own, or are too time starved to effectively do it, has the opportunity to pay a relatively small amount to have the rest of the heavy lifting done for them. <$200 a year is a mere pittance compared to, say, a 2.5% MER for most investors the Motley Fool would target. Pretty cool set-up.

Of course, the REALLY big underlying message here is that the Motley Fool better be damn good at what it does – this is all very transparent, so the whole model breaks down if the picks aren’t good. Simple as that. According to their comparison chart, Motley Fool does (and I feel more comfortable with it then other comparisons I’ve seen done in the past). And as far as I can tell, it’s one of the best examples of how a company can take all of this community and collaboration stuff to really enhance an already strong value proposition in a compelling way.

(Full Disclosure: I remain a “lurker” on the Motley Fool Site, after briefly testing out being a community member and deciding it wasn’t for me for various reasons. I am currently conducting an experiment where I purchase – with real money – stocks that emerge from some of these posts that meet 4 criteria: price has crashed recently, the story sounds logical and makes sense to me, it has CAPS community support, and one of the newsletters discloses ownership. I’m comparing the results to advice I steal/ borrow from the likes of Warren Buffett, The Ontario Teacher’s Pension Plan, John Dorfman, and a variety of others. If it performs well, I will very likely become a subscriber to at least one newsletter, strictly because of the time issue).

Exploration
The real-world is … brimming full of people and places that you will never have a chance to meet or see, but this shouldn’t bother you because a lot of these people you would never want to visit or meet anyways due to opposite interests. Similarly, the Internet is a free for all of good site meets bad site, good person meets bad person, and personally relevant meets irrelevant – it’s the world wide web – you’re not expected to see everything, meet everyone, and do everything … it’s simply too big and you’d never have the time, money or attention for everything that’s out there. On the Internet you discover something new every day. Whatever it is that you discover tends to come your way via. targeted search, advertisements or serendipitous exploration. This is true of the real-world also, and so too is the reality that the most powerful drivers of online referrals are personal in nature, from people who you know and trust. In the end, what you end up finding is normally not even what you set out to search for in the first place.

More discussion below.

Forming Relationships
The Internet is … an informal network of both strong and loose interpersonal links. Why you care about who you know online depends on what they bring to the virtual table and the meaningful exchanges that take place between you and another person. In the real-world, the people who you know-of, but tend never to get-to-know, are your loose network. The fact that you see them every day and say “hi” when you walk by, but never anything more, doesn’t mean you’re friends … it just means that you’re capable of being friends… maybe. Casual communications (in-person) and boosting your ‘friend count’ (online) will only get you so far, but action (or lack of) will bring you together, and keep you apart.

Game Playing
The real world is … full of people, and as humans, we are naturally social. One of the ways in which people socialize is through sports or game-playing, which often incorporates elements of physical reflexes and hand-eye co-ordination, constant and long-term training, competition, and of course, teamwork and cooperation. Top sports players are 1 in 100. Once people are online, we’re thirsty consumers of entertainment, and one of the most active and online spaces for this is in the world of multiplayer and massively multiplayer (virtual worlds) games. Online gaming is a flourishing industry and it shares many similar traits to real-world sports, clubs/teams, and the surrounding fan-based community. Popular online games range from first-person shooters, to poker, to text-based games, and an elite core of competitive players emerges in most communities, some playing more than 100 hours a week (“MOM, i’m not playing…i’m training!”). Most games are driven by their competitive spirit, wanting you or your team to win, and the tangible or intangible benefits within the community, from cash prizes, to awards and informal reputation.

Shopping
The real world is … an always-on hub of activity related to commerce and personal purchases. When you see something you want, you carefully compare every item on sale, shopping at multiple stores, and often come back to the one with the best price, user and customer experience. Similar principles apply to an online retail environment. When you see something you want, you search around for the website with the best deals, but you pay just as much attention to the surrounding variables. An unattractive or poorly designed website indicates a potentially shady dealer, just like a cracked and sun-faded sign does for any physical property – it cries “stay away.” Similarly, online dealers that tend to get the best rating feedback, and the most personal referrals, are those that treat their customers fairly, with respect, and deliver goods in a timely fashion. Even more-so than in the real-world, online shoppers are happy to share stories of a good customer experience, and even happier to mass-distribute a story of a customer-experience story gone bad.

One final note – I don’t consider these described actions as any major shock – in truth, many of these examples follow conventions established socially in the real-world. In the end our perceptions are based on the behaviors we see when interacting with others in both the physical and virtual world. On this final note, I’d like to emphasize that since we can’t visually see other people in the virtual world, it’s important to recognize that the people behind the keyboard are changing too. As we discuss in our research, issues of technology, globalization and communication, among others, are strongly tied to the people who play in the global sandbox and the makup of these people across the world are constantly changing (also known as demographics). It’s interesting to think about how the Internet too will change over time as a byproduct of the changing composition of people using it across the world. In what ways? Who knows!

YouTube has also run into trouble over expiring licensing agreements, with music companies seeking better terms for their contracts (essentially, more money from YouTube).  As one example, Warner Music removed its Youtube videos back in December amidst an impasse in negotiations.  Music videos and other mainstream tv/film clips, Youtube’s premium content, represent the one area where YouTube could generate more revenue (operating more like Hulu), but maintaining favourable licensing agreements is difficult.

Recently, Google’s top brass have been trying to point out optimistic trends.  In an interview with MacLean’s on Tuesday, Google CFO Patrick Pichette maintained that advertising models will support YouTube in the future.  He might have a case – YouTube announced earlier this month that they had reached an agreement with Universal Music to create Vevo, a seperate video site.  YouTube is also working on the launch of a specialized portal to accomodate tv and film content, hoping to compete with Hulu and generate more ad revenue.  Google CEO Eric Schmidt recently stated that YouTube has been making “good progress” in negotiating with small- and medium-sized studios for this purpose.

But even if YouTube can profit off of their premium content, will they be able to earn enough revenue to offset the massive cost of hosting the world’s home video library (for free)? 

I’m skeptical on this business model.  Let’s assume for a moment that Google can’t find a way to stop bleeding cash through Youtube (which, I think, is a safe assumption for the near future).  What are they to do?  Here’s 4 possible directions:

1)  End the free ride and start charging users.  I’d wager that Google will do anything to avoid this- with over 100 million YouTube viewers in the US alone, and the role it now plays in society, the backlash against Google for ending the free Youtube era could be fierce.  This would be a major controversy, and would probably be a last resort.  A middle ground, however, might be to have some videos “expire” at a certain point.

2) Invent their way out of this mess.  If Google could figure out a way to substantially lower the cost of bandwidth, the problem would be solved.

3)  Maintain YouTube as a cost center.  For now, they might be stuck with this option. 

4)  Create new revenue streams.  To their credit, they are working on a few options  that show some potential, but still, I’m not sure that these fixes will offset their growing costs.

YouTube (and Google) are staring at a problem that’s likely to get worse.  As more and more people worldwide become Web savvy, the number of YouTube users uploading content will grow, with growth in bandwidth costs continuing to outpace growth in ad revenues.  Eventually, Google’s going to be faced with some tough decisions, as option #3 becomes less attractive and #4 falls short (*fingers crossed for #2*). 

Forget the monetization of Twitter for the moment – it’s YouTube that needs a business model.

An interesting experiment is taking place right now that will put some of our perspectives and predictions on this topic to the test.  Since printing its last edition on February 27th, 2009, a number of staffers from Denver’s award-winning Rocky Mountain News (RMN) have collaborated with three local entrepreneurs to form InDenverTimes (IDT) – “a vision based on a 150-year tradition.”

IDT has collected 30 former RMN reporters, editors, designers and other journalists,  and plans to go live  with its online edition that will “invite readers [subscribers] inside the newsroom as never before” on May 4th  if at least 50,000 pledges of $4.99 a month or more can be secured by April 23rd.  The collective has created a YouTube video that details their appeal.

As Patrick Harnett reported in his earlier post, media mogul Rupert Murdoch is quoted as saying in his 2008 Boyer Lecture Series, “My summary of the way some of the established media has responded to the internet is this: it’s not newspapers that might become obsolete. It’s some of the editors, reporters, and proprietors who are forgetting a newspaper’s most precious asset: the bond with its readers.”

Interestingly, the above-mentioned YouTube video is clearly focused on the journalists/staff themselves and the perspective that they brought to their stories, heavily leveraging the writer/reader bond. The video finishes with sports journalist Sam Adams delivering the line:

You’ve seen our faces, you’ve heard our voices, we’re anxious to provide you with insightful commentary, in-depth reporting and invaluable experience.  We’re InDenver, are you?

There seems to be quite a bit of buzz around the IDT, and based on comments in numerous locations, support seems forthcoming.  The question remains, though, will intention carry through to action at a cost of $4.99 a month? Has the connection to familiar names and voices formed a strong enough bond to make the InDenverTimes a reality?  Could this be a model for the ‘paper’ of the future?

For anyone not familiar with the idea, it is, simply put, “pay-what-you-want” dining. (Radiohead recently applied the concept [not for food, of course], allowing fans to decide what to pay for their new album). At the end of the meal the customer decides how much it was worth, and pays accordingly.

Menus at Zesty’s Deli in Guelph, Ontario list a question mark beside items instead of a dollar figure. Tony Salamone, owner of Zesty’s says, “I have great faith in the people of Guelph.” The participatory pricing approach could clearly go a long way in keeping businesses honest, but the benefits aren’t one-way. For sure, customers win when they are empowered by the policy. At the same time, honest, and good quality businesses will win too - having customers reflect appreciation in the prices they choose to pay.

The owners of Barrie, Ontario restaurant Oscar’s echo Salamone’s message, “We are so confident in our kitchen and the food that we put out. And we are confident in our front of the house staff, our service is some of the best in the city.” Their message emphasizes the fact that business owners who apply participatory pricing aren’t operating charities – they believe that they will be more successful when they turn the price-setting power over to the consumer.

The first pay-what-you-want restaurant was the international, UK-based chain, Little Bay. According to reports, Little Bay is actually enjoying increased revenue since giving customers the power to decide what meals are worth.

More power to the consumer and an imperative to operate honestly for businesses, with increased revenue for those offering the best food and experience - participatory pricing is win-win.

I’d be interested to learn of experiences others have had with participatory pricing and in which industries you think it’ll have the greatest impact.

Their approach has been a critical part of Southwest’s success (and WestJet’s as well). One organization who has certainly attempted to duplicate the Southwest/WestJet approach is public transit organization GO Transit. GO Transit operates train transportation through a number of commuter routes in a 100 kilometer radius of downtown Toronto.

I have recently taken note of their new approach to engaging with their customers. On the GO Train, communication with passengers occurs over a PA system. It used to consist solely of monotonous reminders of upcoming station stops (eg “Hamilton this station stop…Hamilton”) and safety reminders (eg “Please stand clear of the yellow line…”). Then, suddenly and strangely, GO Transit ‘Customer Service Ambassadors’ (that’s the new title of the GO Transit employees who speak over the PA) came to life. It was clear that they had been given permission to stray from the old, scripted recitals and to try cracking jokes about travel delays or the weather. The trouble is that in Canada, living in -20 degree Celsius whether is something we’re proud to say we do, but not something that we find funny.

As a frequent GO Transit traveller, I really wish that this was an approach that fit. But it doesn’t. There are two key reasons why GO Transit’s use of “engaging” Customer Service Ambassadors (analgous to flight attendants) is ineffective and, honestly, unpleasant for the customer:

1. When Southwest and WestJet attendants engage with customers, customers have the opportunity to engage with them. In the case of GO Transit, Customer Service Ambassadors are visible to only the passengers seated near them (I’d imagine less than 5% on the average route). Because of this, their attempt at engaging with customers varies little from the one-way PA broadcasting of old. Unlike on planes, GO Transit customers cannot see or talk to Customer Service Ambassadors.

2. Most people do not want to be on the GO Train. Most experience the same route twice per weekday. Southwest and WestJet  benefit from the feelings of novelty held by their customers. For many of their customers, a flight is exciting and to be remembered. Because the same cannot be said of GO Transit passengers, Customer Service Ambassadors have little to speak jovially about. The result: vain attempts at making light of circumstances that passengers really don’t find amusing.

GO Transit would do well to reevaluate its customer service approach. It isn’t Southwest, nor is it WestJet. Yes, engaging customers should always be a key consideration for most any firm. However, as GO Transit has shown me, attempting to engage the customer cannot be done for the mere sake of it. Before tinkering with the customer experience, firms need to ask whether their service truly lends itself to an opportunity for enhanced engagement.

More people are reading the news, but fewer people are paying for it. There’s definitely a prosumer angle here, but it’s still one of those things that make you go “hmm” when you consider the amount of professional content being given away for free.

“There is, however, a striking and somewhat odd fact about this crisis. Newspapers have more readers than ever. Their content, as well as that of newsmagazines and other producers of traditional journalism, is more popular than ever — even (in fact, especially) among young people. The problem is that fewer of these consumers are paying. Instead, news organizations are merrily giving away their news. According to a Pew Research Center study, a tipping point occurred last year: more people in the U.S. got their news online for free than paid for it by buying newspapers and magazines.”

That’s not to say that people wouldn’t pay for the news. Isaacson derides Internet and phone service providers for failing to make available the technology to allow third parties to use their micro-payment system that works so effectively for text messages and ring tones. In reality, the Ma Bell’s of the world will probably miss the boat on this one.

“We have a world in which phone companies have accustomed kids to paying up to 20 cents when they send a text message but it seems technologically and psychologically impossible to get people to pay 10 cents for a magazine, newspaper or newscast.”

However, I do see a role for some innovative paid news service offered by someone like Apple. Maybe the established leader in mobile micro-payments can partner with one of the established news agencies to offer this type of functionality on the iPhone. Isaacson points out that companies like Apple and Amazon have shown us that micro-payments for content are not only possible, but can be transformational for a business. In fact, it almost seems stupid that newspapers should be suffering so.

“Steve Jobs got music consumers (of all people) comfortable with the concept of paying 99 cents for a tune instead of Napsterizing an entire industry, and Jeff Bezos with his Kindle showed that consumers would buy electronic versions of books, magazines and newspapers if purchases could be done simply.”

Finally, more than just a way to save the newspaper industry, Isaacson paints micro-payments for content as an obligation to save creative industries of all kinds.

“I say this not because I am “evil,” which is the description my daughter slings at those who want to charge for their Web content, music or apps. Instead, I say this because my daughter is very creative, and when she gets older, I want her to get paid for producing really neat stuff rather than come to me for money or decide that it makes more sense to be an investment banker.”

For more Wikinomics analysis of the newspaper industry, read previous posts here, here, and here.

For those of you who haven’t heard of Red vs. Blue, it’s a machinima series (imagine a movie or tv show, but filmed within a video game) based on the popular Xbox 360 game – Halo. I first came across Red vs. Blue when doing some research for work; I watched a few episodes and immediately fell in love with the show. I was also lucky enough to get an interview with Burnie Burns, Co-Founder of the Roosterteeth (RT) community – and producer of the Red vs. Blue episodes.
Burnie Burns and partners, Gustavo Sorola and Geoff Fink chose machinima because it’s an efficient way to produce animation – 3 people can produce around five minutes/ week. They then immediately post the video on the Web – for free.

Some people may not immediately see the value in this business model – but in this case (and many others) it has proven to be very successful. Burnie and his team are able to do something they love full time, and still give it away for free free. The revenues they make just come from other, non-traditional or unconventional sources (so to speak).

This wired magazine article talks about ‘How T-Shirts keep online content free’. According to the article Burnie started selling shirts and caps online (based on the show). “Within months, he was filling hundreds of orders a week, generating enough revenue to pay everyone a salary.” – Pretty impressive. Now if you go on the RT community they’ve expanded their offering to include the aforementioned DVD box sets, calendars, books, music and accessories like mugs and messenger bags. You may think: ‘why would someone buy something they can get online for free?’ Well, I’m a perfect example.

After learning about Red vs. Blue I told my younger sister about the show. She loved it so much that, (no exaggeration) she has literally watched the entire series (all 6 seasons) at least five times over. The addiction to the show, quality of the video, the experience of watching it in your living room on your tv, the fact that you don’t have to click on another link to watch the next episode are all good reasons (to me) to justify the purchase of the DVD box set. To prove that I’m not the only person willing to shell out some $$ to purchase ‘value added’ merchandise this blog post proves that the ‘free’ model is a viable business model and that many others are looking to buy the RvB DVD sets for the holidays.

One final note: T-shirts and DVDs aren’t the only way the RT guys make money. They’ve gotten so good at creating machinima that other video game companies have approached them to create machinima TV commercials or promotional spots for them. So although they don’t make money directly off of the product they spend all their time creating, revenue has come to them in myriad ways.
Here’s the first episode of RvB – The Blood Gulch Chronicles to get you started. But please don’t blame me if you get addicted!

for more please go here or here. I heart RvB!

However, this doesn’t necessarily mean that prosumers aren’t an important part of the site. I got to thinking about this again when I read the recent NY Times piece YouTube Videos Pull in Real Money. It’s a story about how some of YouTube’s partners are now starting to make serious money from ads served on the original videos they create – with the feature story being about Michael Buckley, who has created his own celebrity chatter show.

Michael’s story looks like a classic case of prosumerism – he was an administrative assistant at a music production company who started producing a thrice-weekly (self described) “silly” show, after investing $2,000 in a camera, $6 on a piece of fabric for a backdrop, and bit more in a couple of lights. His silly show became quite popular after a full year of concerted effort, and he now receives an average of 200,000 views per video, while the most popular get millions. Now a funny thing has happened – he’s becoming so successful, and making so much money, he’s quit his other job and is now devoted to it full time.

So this leads to a simple question – is Michael a prosumer or not? I would personally argue that he was, but he isn’t anymore. After all, it’s now his full-time job – there is no fuzzy line. In turn, this brings an interesting dynamic to prosumerism on YouTube – as the business model sorts itself out on the site, it might not so much empower prosumers (because most aren’t popular enough to make an real money), but to allow the most popular prosumers to turn into full-time producers – a subtle but important difference.

As I note in my research, this is leading to an interesting dynamic. It’s a common belief that YouTube represents a shift away from the “few to the many” broadcast model to a “many to the many”, or even “many to the few” (each with their own piece of a long tail). However, combine the views for these popular prosumer-turned-producers with the traditional media content on YouTube, and the model continues to look a heck of a lot like “few to the many” to me.

And that’s not a bad thing – in fact I think it’s great, as YouTube effectively creates a meritocracy where anyone with a good idea and presentation style, a couple of thousand bucks to invest, and the willingness to dedicate themselves to building an audience, can earn their just rewards. Though it is not neccesarily so great for established media companies of course…

The first came while traveling in Orlando, after a recent Talent 2.0 conference.  Andrea and I decided to spend a few hours visiting Mickey and Co. at the Magic Kingdom before returning to Toronto, and on the way out, I visited the giftshop looking for some souvenirs to take home, along with an entertaining DVD to watch on the flight back to Toronto.  I had my sights set on Wall-E, after having really enjoyed it in the theatre, and having also seen a sign for Disney’s new feature, DisneyFile, which allows you to make a digital copy of a movie to watch on a portable device.

Perfect! I thought…I will get the DVD and upload the movie to my iPhone, so that I won’t have to deal with my laptop on the plane.  I was internally commending Disney for being among the early ones to let owners view the media they had purchased in the format of their choice.  That was, until I found the DVD and realized that the DisneyFile was actually part of a premium 3-disc addition, that would cost another $10 for the DisneyFile transfer disc (which could be transferred to 1 portable device, using a one-time activation code).

I understand that the additional coding and technology required to provide the DisneyFile does not come for free, and that there is a price to be paid for convenience – but at what price should I be able to “own” the media that I have paid to view, in whichever format I choose?  I had already paid $13.75 to see the movie in the theatre, and combined with the special edition DVD purchase at $32.95 + tax, I was looking at nearly $50.00 to be able to enjoy one of my new favourite movies as I wished.

The second experience came when reading about an $8 million theatre overhaul in Toronto that is taking an old revue cinema (late first-run movies, smaller screens) and transforming it in to a new destination, featuring “business-class” loveseats and high-end concessions (like sushi and liquor – not so new in many places).  Now I may be alone here, but as a less than frequent movie-goer, what’s kept me out of the theatre hasn’t been the lack of higher-end food or uncomfortable seats – it’s been a lack of value proposition on other fronts – i.e. lack of showtimes, lack of social interaction (film festivals get this one right and encourage discussion around a film, feature speakers etc.) and, the 10 minutes of commercials that come before the previews and feature film.

Personally, the quality of home theatre systems is not much of a detractor for me, as I do appreciate the picture and audio quality of a true theatre, but many comments on the article seem to point to the fact that “it’s just not my living room” as the main reason for not going “to the movies,” anymore.

Maybe I’m just cheap, or it could be my Net Gen drive for customization, but each of these experiences has left me less than impressed, and made me just that bit less concerned for an industry that is still crying foul at piracy and declining profits.

I, for one, would be a strong supporter of a middle of the road payment, say $25 – $30, that would allow me to see a movie in the theatres, and later have the rights to the DVD and its viewing (in all formats), once the disc(s) became available.  With the time between a movie’s release and its digital availability decreasing, in both legitimate and illegitimate format, it’s time for a new pricing model that (re)engages movie-goers, even if it does take some collaboration between studios and exhibitors.

How much would you pay for “ownership” of full format-viewing capabilities of the latest flick?

How would you help save the experience of “going to the movies?”  Is it a tradition worth saving?

Culbert asserts that performance reviews “destroys morale, kills teamwork and hurts the bottom line.” He goes on to outline seven points explaining why performance reviews aren’t the answer. Although the goal of performance reviews is to give employees feedback on how they’re doing and look at how they can improve, I find that many people I talk to (colleagues and friends from school) all find performance review time a bit nerve-racking. But why is that? I know performance reviews aren’t meant to make employees uncomfortable, affecting morale and communications. 360-degree feedback has since been introduced but Culbert also has a few criticisms regarding this method. I know that it’s important to give feedback to employees, but maybe the format needs to be improved…
(Please keep in mind these are my interpretations of his seven points. I strongly suggest you read the full article to get your own sense of his arguments.)

1. Two parties with misaligned goals. When walking into a performance review the boss’ goal of discussing areas of improvement don’t match up with the employee’s goal of promotion and compensation.
2. The false belief that performance affects pay. Culbert argues that pay is primarily determined by market forces (which makes sense – just look at our current economic situation – are many people expecting big raises/bonuses this year?) and most jobs are placed in a pay range even before the employee is hired.
3. As objective as we try to be – there are always personal biases. This is a fundamental conflict. Depending on one’s position, their opinion and view will differ. This is where Culbert also brings up the “360-degree feedback”. When feedback is anonymized that creates more opportunity for various parties to further their personal agenda since there is no accountability associated with their review.
4. Everyone is different – “once size does not fit all”. Performance reviews often revolve around a predetermined checklist. This is why people may focus more on pleasing their boss than doing a good job. Since a happy boss will (theoretically) leave you with a higher score.
5. Employees are reluctant to go to their bosses for help (for fear that it will reflect badly on their performance review). It makes sense that employees would go to their bosses for help, guidance and improvement. But, “thanks to the performance review, the boss is often the last person an employee would turn to”.
6. Disrupts teamwork. The most important type of teamwork is the one-on-one relationship between a boss and their subordinates. But in performance reviews, as opposed to taking the stance “how will we work together as a team”, it’s “how are you performing for me”.
7. At the end of the day… performance reviews don’t improve corporate performance.

After proposing all of these flaws, there must be an alternative. The one that Culber offers up isn’t that bad. As opposed to doing performance reviews, managers should start doing performance previews. This way the focus is not on the past, and things that cannot be changed. Instead the manager and employee can work together to figure out what needs to be done in the future and how goals may be met. This performance preview wouldn’t be done yearly, it would be done whenever either the boss or the employee has a feeling things aren’t working well. Past performance may be used for illustrative purposes and this is an ideal way to evaluate your boss as well and get a two-way conversation going. It then becomes the boss’s responsibility to develop the employee based on their individual strengths and weaknesses.

I guess performance review isn’t something that people talk about too openly, but do other people feel funny (if not nervous) about performance reviews? Is Culbert’s solution a viable one?

• Highlighting a social agenda and reinforcing the idea “we do meaningful work”
• Give Net Geners the opportunity to drive the business
• Connect generations across the company: Boomers to Xers to Net Geners
• Recognition; highlight employee achievements (not necessarily with monetary awards)

Always on the lookout for businesses that illustrate ideas in action I came across 504ward. Their mission is to keep the young talent in New Orleans (504 is the city area code). If companies in healthy, balanced economic regions are experiencing difficulties in retaining their Net Gen talent, these challenges are amplified in regions where a great disparity between the socio-economic classes exists. The following is an excerpt from how 504ward came into existence and their social-based mission statement:

In early 2008, following an independent consulting firm’s assessment of the unique challenges and opportunities facing New Orleans, Leslie Jacobs, a local venture philanthropist, spearheaded the 504ward movement to engage the young movers and shakers who are arriving in New Orleans with dual aspirations of sparking social change and advancing their careers.

Representatives from a broad spectrum of New Orleans organizations have united to address the issues pertinent to this 23-35 year-old dynamic: career prospects, social engagement, and opportunity for community impact.

An initiative of The Idea Village, 504ward was developed in collaboration with our partner organizations to retain the New Orleans “Vanguards,” those brave enough to see an opportunity and crazy enough to lunge for it. It is our belief that this generation is capable of delivering social and economic change, and we are committed to making New Orleans the hub of opportunity.

Join the Movement. Our mission is to engage and retain New Orleans’ best and brightest: the talented and ambitious young people like you, people committed to working hard, playing harder, and giving back to a community with so much to offer.

Clearly highlighted by the ambitious mission statement, 504ward encourages young people to embrace a social agenda by re-building a community that has been devastated by both natural and economic disasters. Another initiative undertaken by 504ward in conjunction with businesses in the New Orleans area is the $100,000 Business Competition for entrepreneurs with “business ideas that retain and engage the 23-35 year old demographic in New Orleans.” The competition closes on December 4, and the winning entrepreneur will be selected from a group of 5 finalists to be determined, in part, by an audience of 23-35 year olds in New Orleans region. Certainly a way to let Net Geners drive the business process, wouldn’t you say?

Geared towards retaining and engaging the Net Geners, the 504connect program emphasizes the importance of fostering connectivity across generational lines. The idea is to connect “seasoned pros” with young, ambitious professionals in New Orleans and create a learning environment where the veterans share experiences, knowledge and provide career guidance to the up-and-coming leaders. The ultimate goal of this program is to turn six degrees of separation into two and help erase the generational divide which can hinder business improvement or limit business success.

504ward’s Talent Profiles is a place that recognizes one “young New Orleans cultural rock star” each week. This Talent Profile shines the spotlight on a member of the New Orleans vanguard community and the contributions that he/she made in order to make a difference in New Orleans. Take for instance this week’s cultural rock star, Will Donaldson. He is president of the Tulane Entrepreneurs Association which hosts business workshops and sponsors business competitions that award $20,000 grants for workable social and business enterprises.

Born of necessity, New Orleans has pioneered an initiative to retain and develop young talent in a community that has faced considerable adversity. With an ever increasing level of global mobility among business people, and a giant chasm separating generations in the workforce I believe the value of such an initiative will continue to grow. Developing a talented group of emerging young people requires not only commitment on their part, but on the part of established generations as well. Bridging this generational gap is vital to preserving existing skill-sets and knowledge, while such collaboration also augments the business community with fresh thinking and new ideas. Adversity or not, it’s easy to see how such an endeavor would benefit any community, and I believe it’s only a matter of time before others stand up and take notice of what is going on in the 504.

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As the Wall Street Journal notes:

Closer ties are crucial to both sides. P&G, the biggest advertising spender in the world, is waking up to the reality that the next generation of laundry-detergent, toilet-paper and skin-cream buyers now spends more time online than watching TV. Google craves a bigger slice of P&G’s $8.7 billion annual ad pie as its own revenue growth slows.

One can imagine many comical, yet extremely valuable exchanges like the one captured in the WSJ article:

As the two companies started working together, the gulf between them quickly became apparent. In April, when actress Salma Hayek unveiled an ambitious promotion for P&G’s Pampers brand, the Google team was stunned to learn that Pampers hadn’t invited any “motherhood” bloggers — women who run popular Web sites about child-rearing — to attend the press conference. “Where are the bloggers?” asked a Google staffer in disbelief, according one person present.

For their part, P&G employees gasped in surprise during a Tide brand meeting when a Google job-swapper apparently didn’t realize that Tide’s signature orange-colored packaging is a key part of the brand’s image.

I wonder what other kinds of collaborative employee exchanges could prove beneficial? How about healthcare providers and pharmaceuticals? Large retailers and product design teams? Marketers and contact center employees? Anyone thinking about video game designers and corporate IT executives? University professors and social media companies?

As humans, it’s difficult to separate what we see from what we think – it’s in our nature to use every incoming stimulus to interpret our environment, and then use that information in assessing and responding to a situation. Case in point: shopping has long been an exercise in ‘try before you buy’. You pick something up, turn it over on its side, hold it up for observation, and perhaps shake it like a Christmas present. The item’s weight, appearance, texture, and other variables affect the way in which we shape our judgement of that object. How then do you reproduce the real world shopping experience… online?

When the Internet first hit center stage, there was some doubt about its application for shopping – after all, how can you replace the experience of exploring down side streets, window shopping, and of course, flipping through, touching, and trying on clothing. Those concerns have thus far proven largely unfounded; the Internet has become a major battleground for sales, the virtual facing storefront that appeals to traditionalists as well as an entirely different demographic. According to Nielsen, approximately 85% of global Internet users have used the Internet to make a purchase, up 40% from two years ago. The most common Internet purchases are books, apparel, videos/DVDs/Games, airline tickets and electronics. With the exception of apparel (which one might expect to be a brick and mortar purchase only) I would argue that sales in each category are actually supplemented by access to information online, where you can conduct product related research, and where Web 2.0 communities provide strong feedback mechanisms through ratings, reviews, visual demos, and cost comparison shopping.

Enter Amazon Windowshop. In September, Amazon launched the BETA version of this virtual store, which is an initial bridge between physical-world product browsing and online shopping. The store is a fluid, interactive, and user friendly interface that lets you better interact with the items you’re interested in, creating a more sophisticated online shopping experience. Amazon uses Windowshop as a showcase for books, music, movies, TV shows, video games, and by categorizing products by new, bestselling, and editor’s picks items, the company has a good opportunity to put select, enticing, items in front of your face, similar to the supermarket corner aisle. What I like most about this interface is that it is entertaining – customers can approach this tool much in the same way they would a YouTube or a StumbleUpon – it’s a multimedia platform which enables serendipitous exploration and consumption of media … which you can buy. By providing an alternative outlet for people who want to browse and be entertained by the Internet, rather than simply shop, Amazon may be able to attract people to Windowshop simply to browse, which may in turn convert to a purchase – pulling people in rather than pushing content at them.

Where will Amazon and online shopping go from here?
The next step for Amazon Windowshop is to tie-in those aforementioned Web 2.0 community mechanisms that are already integrated into the main site. Internet users prefer to use other users’ experiences as a feedback mechanism that shapes their experience (Do I watch this? No, because 9/10 of previous viewers say it’s not worth it, just like an actual friend might tell me not to). Amazon must find a way to make Windowshop a place that people enjoy going to, to preview the latest hot media (music, movies, etc.), and which is built into their regular web-wanderings.  If the company is unable to integrate Windowshop into Internet users’ regular web-activities then they will not have any exposure, and therefore limited sales. A parallel is iTunes which uses an application platform, rather than Amazon’s web-based one, and which leverages users’ primary interest in music, to get people using the software, and once doing so, provide opportunities to entertain and purchase media from the e-store.

A website called Enjoy3D, despite being tacky, provides an initial look at 3D based shopping experiences. Going a step beyond Windowshop, Enjoy3D allows you to use your keyboard to navigate a three dimensional virtual space with ‘shelves’ full of from books, toys, T-shirts and more. By ‘walking around’ you are exposed to visual stimuli that may lead to further interest – upon clicking on an object, you are shown Amazon’s online store, including the Web 2.0 feedback tools mentioned above, and Amazon’s shopping cart.  Although the experience can never truly replace the physical-one, it doesn’t have to; the goal is not to replace physical-world shopping, it is to best enhance the Internet-based shopping experience, which has a different value proposition. Looking forward, I expect that we will see the integration of the interface shown by both websites, bringing a slick aesthetic, community orientation, and deep visual stimuli.

I have previously talked about SearchMe, the visual search engine that changes the search experience. Increasingly companies are understanding that the real world philosophy of “it’s not just what you sell but how you sell it” also applies to how companies engage with customers online. As Internet based programming, and computer hardware, becomes more sophisticated, a continuous stream of tools will become available to supplement this experience – imagine putting on your 3D web-connected goggles, walking around using brainwave signal-detection, and flipping through racks of clothes with the flip of a finger on a computer touchscreen. A whole virtual world of possibility.

My question for you then is, what would your ultimate virtual shopping experience look like?
What was the last thing you bought online and why?

Mine was a 28 inch monitor, bought last week (it’s awesome!). I did some research, found the best price at newegg.ca, checked to make sure other users and electronics reviewers have had good experiences, and had it shipped to my door 4 days later. Easy on the mind, easy on the legs, and easy on the wallet.

There is speculation that companies in countries like India and China will take the lead in terms of green innovation. Early examples support this notion. A project by the Center for Scientific and Industrial Research, an Indian organization, has resulted in a solar powered rickshaw with a top speed of 15 km an hour and a range of 50-70 km. The rickshaw runs on a 36-volt battery that can be replaced at a local solar-power charging station. The vehicle is now being tested in Delhi with the aim of replacing some of the city’s 500 000 rickshaws. If successful, the soleckshaw as it is called, will provide a clean and relatively speedy option for moving around Delhi’s crowded streets.

Another innovation in China produced an inexpensive solar powered car. The vehicle has a sticker price of just over $5000 with a range of up to 150 km. The tiny Chery QQ clone has been fitted with roof mounted solar panels that absorb 95% of the solar energy coming in. Although far from luxurious, the vehicle may be attractive to China’s rising middle class. It will be interesting to see if emerging economy companies and public sector institutions manage to leapfrog developed countries in both green technologies and their market applications. We would be interested to learn of any other green innovations from outside of the developed world that our readers might have come across.

The Bilski patent involved a method to determine appropriate pricing and apportioning of commodity hedging instruments—a process by which companies can mitigate price risk in volatile markets. Hedging and risk management are on the tips of everyone’s tongues these days: Don has written thoroughly about it, and “risk managers” seem to be the only people on Bay and Wall Streets who still get calls from recruiters (not ones who worked for these guys, of course). But the fundamental question, as seen by the court, was “Is this ‘machine-or-transformation’ test satisfied?”

The test is simple in premise, but as are many legal concepts, is readily abstracted into realms unknown. The decision said it clearest:

“an applicant may show that a process claim satisfies §101 either by showing that his claim is tied to a particular machine, or by showing that his claim transforms an article.”

The Bilski patents were not seen as a transformation of the underlying “article” (in this case, obligations and concepts of risk), as these articles were considered ineligible: they were not “physical objects or substances, and are not representative of physical objects or substances.” (Emphasis added) The applicants hoped that their process, which produced “useful, concrete and tangible results” would be sufficient, but when considered in isolation, that wasn’t enough. An aside

But what does it all mean, Basil? What are the implications to future innovation, especially given the shift to knowledge work, where razor-thin profit margins are often a direct product of business processes (albeit, ones with more gravitas and specificity)? For that we go to one of the dissenting judge’s opinions, Judge Newman. She (and I agree) that the redefinition of the “process” to depend on machines or tangibility (or representation thereof) is imprudent:

“…thus excludes many of the kinds of inventions that apply today’s electronic and photonic technologies, as well as other processes that handle data and information in novel ways. Such processes have long been patent eligible, and contribute to the vigor and variety of today’s Information Age. This exclusion of process inventions is contrary to statute, contrary to precedent, and a negation of the constitutional mandate. Its impact on the future, as well as on the thousands of patents already granted, is unknown.”

The other two dissenters, Rader and Mayer, speak to the desirability of a more concise resolution and the devolution of the patent landscape:

• Rader argues that stressing process-machine relationship is outdated given the current state of science and technology.
  

• Mayer’s dissent is a little more vigorous, and disagrees with business method patents wholly as they stand now
  

• The argument is one that patent law is meant to spur innovation and science, not help financiers structure business arrangements.
  

So who is right? One potential school of thought is that since most technology process innovations are tied to machines so closely, that patenting shouldn’t be slowed by this decision, and Newman has nothing to fear.

My stance is this: Hedging, computer aided or not, is still a fundamental business principle: alone, it’s unpatentable. But the idea that something non-physical needs to be tied to a machine to make it patentable is a surprising (and unwise) decision. It seems like the decision failed to speak to the future, but instead seems to gain its only ammunition on the basis of the “transformation” argument. I agree with Rader that the patent could have been just as ably defeated by arguing its scope was too broad, effectively damaging antecedent work in the area.

My Wikinomics Angle: I’m decidedly Mayer-esque in his “Six Million Dollar Man” idea that we can rebuild the system. Why? Because “we have the technology” that necessitates it (apologies, but we needed some levity. This far it’s been Churchill martini-dry). Patents aren’t meant to replace a business model or prevent others from even doing business. Ideally, they’re meant as an avenue through which innovators can be compensated for their role in science and technological evolution. Instead we’re seeing companies set up defensive minefields as a competitive strategy. Weak. In 1995, Michel Robert wrote that innovation was considered to be the business “Fountain of Youth”, as it was the cornerstone to both success (a product of competitiveness) and longevity (a product of success). Jeff Roberts at McGill University in Montreal wrote a great blog post about how IP should mean innovation, not litigation. He’s a sharp cookie, and fear not, he’s not an anarchist. He just advocates that if IP policy is careless with what he calls the “rights-rewards balance”, innovation becomes an afterthought, not the goal.

Wikinomics in law isn’t about free (little joke), and it isn’t about ignoring property rights; that rigidity was born out of the old vanguard that created walled gardens. But the only way to see over those tall-walled enclaves is a return to a founding tenet of past science:

“If I have seen further it is by standing on the shoulders of giants” – Isaac Newton, 1676

[Aside: The whole "useful…" phrase sounds like something written by Teresa Amabile a researcher who studies creativity and innovation. The stickiest phrase I remember from one of her academic papers was criteria for judging something as creative was dependent on it being "novel and appropriate". I also felt that Jerome Bruner said it really well that true creativity would produce "a shock of recognition, following which there is no longer astonishment." Pretty neat reading for you academic folks.] Back to Post

Auditude explains how their technology will work as follows:

The new platform will automatically identify any uploaded video clips from a number of shows produced by MTV Networks (including my personal favorite “The Daily Show”), and will display an overlay when the clip is played that shows which episode the clip originally came from, its original air-date, and links to online stores where users can buy the entire episode. In the past it has been nearly impossible to effectively monetize user-uploaded videos because they are typically tagged with such informative titles as “REally cool!” and “hilarious”. The Auditude platform ignores this information, relying solely on fingerprints taken from the clip’s audio and video data. These fingerprints are matched to prints in Auditude’s massive database, which spans over 250 million videos and 4 years of television content, all sorted by show and airdate.

As the LA Times article notes, this is a distinct improvement from the old mindset of Let’s sue YouTube (or other video distribution platform) and block this. In the words of Auditude CEO Vance Ikezoye:

“The first stage was clearly more focused on ‘How do I protect my content as a copyright holder and how do I keep from being sued as a site publisher? The stage we are entering now is much more about openness to try new business models to try to monetize the content.”

To quote Jeff Berman, the President of sales and marketing at MySpace:

“This is a game-changer. We’re going from a world of no to a world of yes while protecting the rights of the copyright holder.”

While I agree this is good progress towards a wikinomics enabled business model, it’s notable that the plans make no mention of sharing ad revenue with the individuals that upload the content – i.e. the prosumers. That would be the real game changer to me – while not suing people anymore is a nice start, giving prosumers an economic incentive to help distribute the content, particularly if they are adding value to it in some way (a mash up, for example), could unleas a wave of innovation. It also wouldn’t be that hard to do – it just involves a slightly different split of the revenue, mimicing what the likes of YouTube are already doing with “pure” user-generated content.

P2P lending involves borrowing and lending between participants without the use of traditional financial channels. This is a flagship example of how Wikinomics (and the Internet in general) is fostering a “disintermediation” trend, stripping down marketing and distribution channels. To be fair, P2P lending marketplaces are a version of “disintermediation-lite”, as they do broker transactions, and add a layer between counterparties.

U.S.-based lending firms have also been feeling the squeeze, as they say default rates creep higher and return-on-investment drops for lenders taking the plunge. I did some surfing on LendingStats, a visualization site that feeds from Prosper’s open data feed. I went in expecting to see delinquency rates rise when comparing YTD 2008 with the same period in 2007, and it turns out delinquency rates have dropped markedly. For YTD 2008, 615 of 11,542 loans on Prosper (5.3%) are delinquent (late or defaulted). The same period in 2007 the delinquency rate was 2,429 of 9,356 loans (25.9%). Big difference. So what’s the deal? Seems contrary to what most of us expect.

So I took a look at the average amount per delinquent account between years, and 2008′s average is around $5,800 and 2007 is around $7,400. So not only is the proportion of defaulters dropping, but so is the average amount of the delinquency.

The only thing I could glean from the data that seems consistent with the Big Banks’ experiences was that the average credit score of the delinquent pool is getting better. In other words, people with better credit scores are delinquent more on average than last year (average delinquent score 4.55 in 2008 versus 5.04, lower is better)

[I must disclaim: The figures from LendingStats are on an average basis, and as such may not be as accurate as would be a dollar-weighted measure of credit score etc. But I thought it interesting nonetheless. ]

Where the SEC fits in is that it’s reviewing requests by Prosper and Lending Club to allow a secondary market for the P2P loans arranged through their site. In other words, it will create a marketplace where lenders can sell their loans to others. This reselling scheme smacks like what got us into hot water with mortgage-backed securities, but I guess the trouble will only start if loans are bundled together into a jumbled mess and sold off tranche by tranche. The size of the marketplace probably makes transparency easier—for now. Perhaps some readers have some insight as to whether this is a good idea or not, or the likelihood of history repeating in the P2P market.

Also, I wanted to post another question to the Wikinomics Community: are we getting away from what made P2P work? Many think that it was the personal aspect of P2P that turned people on to it, a welcome change from the rubber-stamp mortgage managers at your local branch. Could a secondary marketplace promote detachment, where the loan buyer doesn’t care (or know) that his $500 is helping Joe the Plumber get his plumber’s license?

Maybe I’m just too sentimental.

In turn, I’m going to start with what I consider to be the most interesting messages I receive – information about new start-ups that appear to be being built on wikinomics principles (all titles will involve the words Wikinomics in Action Start-Up). What’s slowed us down in the past is we try to investigate them all fairly thoroughly, which can take a lot of time. Instead, I’m going to throw up here the link, a summary of any extra information an individual may have sent us, and a couple more tidbits from the site, and then ask the community for feedback on it. What I’d really love to see is our readers collectively helping out some new start-ups (constructive criticism, new ideas, etc)… so I implore you to get involved.

For no other reason than that I got the message this morning while I was thinking about this, today I’m going to start with Laboratory Films. The new entity describes itself as a network based filmmaking enterprise, and is honest in saying they are not the first in the category. How they are seeking to differentiate themselves is:

- being profit oriented.
- requiring no financial backing from investors and no financial participation from its peers.
- running on a simple, global, public system.

As they describe it, Laboratory Films is as much a school environment as a business – and they’re particularly highlighting some “interesting approaches to dealing with trust and anonymity.” They have been running simulations for months, and are now prepping to launch their first major motion picture production, on the condition that at least 500 peers join their talent pool.

The site not particularly extensive yet, but there are two main areas you can explore. The first is a quick seven step test to determine if you share common views with Laboratory Films – questions on things like how you like to be compensated for your work, risk taking, etc., where you are given a choice of two answers. After selecting your response, you get to see their view / philosophy. Alternatively, you can skip the test and go directly to seeing how it works – who can join the talent pool, how to do it, the pathfinder, and perhaps most importantly (to some) how shares in the company are allocated.

So that’s what I know – thanks to Twowan for the message, and we’d love to hear from wikinomics readers what they think about Laboratory Films. Love it? Hate it? Suggestions to make it better?

To start things off, here’s one from me – when you come to the main page, it doesn’t look like there’s a lot there – just some very basic information, and a hopeful launch date in 2010. However, if you work through the seven step test and/or the “how it works” link (which is small, in the bottom corner), there’s a fair bit of interesting stuff. I’m afraid that most people who come to the site won’t neccesarily bother – it could be advantageous to make more of the content readily available / more prominent on the main page. The “how it works” section would be a natural for this.

By rewarding those who are really taking a chance by purchasing cutting-edge/often unheard of music, I think popcuts is really on to something here…Each track sells for 99 cents, of which the site takes 10-20%, with the artist able to dictate how much of the remaining funds they would like to claim.   The remainder of the $0.99 is earmarked for distribution to every person who has already purchased the track.

While I wouldn’t suggest liquidating your savings account to make a quick cash-grab (unless your ideal portfolio consists of music credits), the site’s value proposition capitalizes upon important principles that I think will make this going concern, if not a solid buyout target for one of the bigger music stores out there (shudder):

1. Rewarding early adopters – Getting Paid: As a gadget geek and a reformed overzealous music experimenter, I know the pain of early adoption costs.  Site founders express their intentions to reward early buyers with cash as opposed to music credit, but for the time being, at least purchases can be seen as investments in future discoveries.

2. Rewarding early adopters – Earning Street Cred: There is little pleasure greater for early adopters than the ability to be known as such.  Top “earners” are featured on the popcuts homepage, capitalizing upon the social recognition and reverance that may come from being a trailblazer.

3. Low (entry) cost for artists: Unproven artists can upload their tracks and take advantage of the low-cost distribution model that only costs when the artist gets paid.  The ability to set the percentage of revenue demanded per track will allow for the evolution of pricing based on the artists’ stage in their popularity lifecycle.  There may even be a solid value proposition here for “known” artists whose name can sustain sales, with a lesser need for label support.

4. Harnessing (niche) fan communities:  While it’s no challenge to find someone with whom to chat with about the latest pop sensation, this same experience is not enjoyed by fans of lesser-known, often local artists, whose fan base can often be very dedicated and eager to get the word out there.

5. Power to the artists:  Artists retain full rights to their music and are able to peddle their tracks elsewhere, simultaneously.

We’ll continue to keep an eye on popcuts and the music industry as we always do here at Wikinomics and here’s to hoping the little guys pull out a victory over the giants in this one.

In February of 2007 I wrote a post entitled The Perils and Promise of Marketocracy, a company that was taking a very wikinomics-type approach to finding the “best investors in the world by tracking, analyzing and evaluating their performance in managing virtual portfolios on the site.” While I was, and continue to be, quite intrigued by the possibilities of their model, the bulk of the post was fairly critical. The reason for this was a clear disconnect between the performance of the virtual m100 index, which was based on the stock picks of the best investors in the Marketocracy community, and the Marketocracy Masters 100, which was the real mutual fund supposedly based on the m100.

The main problem I had is pretty easy to demonstrate For example, if you looked at the performance of the virtual fund (as posted on the site), it seemed to perform remarkably well from (for example) January ’03 to January ’05- a net gain in the 70 % range. If you looked at the performance of the real fund over the same time period, it went from $9.93 on January 3rd 2003 to $10.86 on January 7th 2005. Suffice to say, that’s a lot less than 70%- which doesn’t make a lot of sense if one is based on the other. You can read the post for more details, which was an update on the original post (after I interviewed the CEO).

What inspired me to revisit the company was a TechCrunch story about Cakedex. The idea behind Cakedex is similar to the original idea behind Marketocracy – create a mutual fund based on the top performing investors on a their social investing platform. What differentiates it is that on Marketocracy, individual performance is based on their success running a fictional $1 Million portfolio (with transaction and management costs applied to mimic reality) – while the Cakedex offering is based on tracking the success of the actual brokerage accounts. This seems appealing – measuring people on how they actually invest their money. Notably, Morningstar research has indicated about 1/2 of mutual fund managers have no money in the funds they manage. Scary thought.

What I don’t like about Cakedex is a repeat of a disturbing trend that seems to be emerging among such sites. The graphic in the TechCrunch article represents the fictional performance of the Cakedex index since 2003- and it blows away the Nasdaq, Dow, S&P 500 (the same graphic can be found at their site, in addition to an explanation of how it works).  The actual Cakedex index went live in May of 2008. Since then, here is the performance versus the S&P:

See what I mean about a disturbing trend? Fictionally, these funds seem to do well – but make them real and something falls apart. I’m going to be watching this one closely to see what happens.

Which takes me back to Marketocracy. I’m still not sure what to make of their performance, and how they promote it – you’ll note that not only is the m100 virtual portfolio still presented (vs. the S&P) on their about page, rather than the actual portfolio performance, the chart hasn’t been updated since November of 2006. The “how have we done” part talks about performance in the first 11 quarters of inception (which was in 2001), and nothing more recent. That’s kind of weird. It’s also notable that their real fund seems to have been crushed over the last year or so – from a peak of $17 in July of 2007 to $11.72 yesterday, and is down to net assets of about $33 Million.

However, they do appear to show the actual performance of the fund here, and it appears they are handily thumping the S&P index. I must mention, however, that most of the finance sites classify the fund (based on holdings) as more of a mid-cap blend. Using this comparable, the performance gap is much lower – but they do still outperform this comparable last year, and over the last 3 years, but not the last 5. Could this be a sign that they’re really figuring it out?

We’ll see – but what I really want to (belatedly) focus on is some really cool elements evolving on their site. One example is this Barron’s article about Trader Mark, who’s garned $3M in pledges so far for the creation of his own mutual fund – and the reason he seems to be getting them is based on the performance of his Marketocracy fund. This article also provides more details on the interworkings of Marketocracy, and how their internal intelligence is being utilized.

What’s notable here is that Marketocracy how has 30,000 people with trackr ecords of over five years. 500 “research contracts” have been granted to participants. Moreover,

Since January, the virtual portfolios of 12 of the best-performing virtual managers have been made available to investors willing to plunk down $50,000 in a separately managed account format. So far, $5 million has been allocated to the top managers, and Mr. Kam said he expects that number to double by the end of the month.

This is a fascinating development from many perspectives. That 5 year track record, and the transparency into it, really highlights the fact that most investors have NO insight into the real track record of who’s investing their money – I agree with the article that a 5-year virtual track record may very well trump a newly minted MBA. This could be a situation where that m100 / Masters portfolio problem does not matter so much anymore – could the real value be in bubbling those star investors to the top and letting them do their own thing? If so, it’s not something Marketocracy just stumbled into – when we interviewed them way back when, Kevin Kam talked at length about their hopes in doing just that.

It’s also interesting because Ken Kam is showing a commitment to the long haul that is often lacking in new start-ups – particularly those tied to wikinomics principles. As he says in the article, there are no short-cuts: if you want a 5-year track record, it will take 5 years. In my mind, this not only applies to the participants, but the company he is trying to create – one where the intelligence being collected is evolving into the core asset. It also gives Kevin Kam something any investor would love – barriers to entry. New sites like this may pop up all the time, but you can’t suddenly create all that history.

Unless, of course, something like Cakedex could instantly tap into the multi-year histories tied to online brokerage accounts…