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Google buys Motorola and its giant patent portfolio

August 15, 2011 in Business, infrastructure, Technology | 8 comments

The official statement from Google says,

Google Inc. (NASDAQ:GOOG – News) and Motorola Mobility Holdings, Inc. (NYSE:MMI – News) today announced that they have entered into a definitive agreement under which Google will acquire Motorola Mobility for $40.00 per share in cash, or a total of about $12.5 billion, a premium of 63% to the closing price of Motorola Mobility shares on Friday, August 12, 2011. The transaction was unanimously approved by the boards of directors of both companies.

The acquisition of Motorola Mobility, a dedicated Android partner, will enable Google to supercharge the Android ecosystem and will enhance competition in mobile computing. Motorola Mobility will remain a licensee of Android and Android will remain open. Google will run Motorola Mobility as a separate business.

Meanwhile, over in the Google Blog, Larry Page explains,

Since its launch in November 2007, Android has not only dramatically increased consumer choice but also improved the entire mobile experience for users. Today, more than 150 million Android devices have been activated worldwide—with over 550,000 devices now lit up every day—through a network of about 39 manufacturers and 231 carriers in 123 countries. Given Android’s phenomenal success, we are always looking for new ways to supercharge the Android ecosystem. That is why I am so excited today to announce that we have agreed to acquire Motorola.

Motorola has a history of over 80 years of innovation in communications technology and products, and in the development of intellectual property, which have helped drive the remarkable revolution in mobile computing we are all enjoying today. Its many industry milestones include the introduction of the world’s first portable cell phone nearly 30 years ago, and the StarTAC—the smallest and lightest phone on earth at time of launch. In 2007, Motorola was a founding member of the Open Handset Alliance that worked to make Android the first truly open and comprehensive platform for mobile devices. I have loved my Motorola phones from the StarTAC era up to the current DROIDs.

The bold-faces are mine.

First, note how Larry says Google is acquiring Motorola, rather than Motorola Mobility. That’s because mobility is the heart and soul of Motorola, Inc., which has been synonymous with mobile radio since the company was founded by Paul Galvin in 1928. Motorola, Inc.’s other division, Motorola Solutions, is big and blah, selling gear and services to business and government. Now that Motorola Solutions will be 100% of Motorola, Inc., it’s an open question where the Motorola name will go. Since Larry says Google bought Motorola, I’m guessing that the acquisition included the name. Nothing was said about it in either the release or the blog post, but it’s bound to be an issue. I hope somebody’s bringing it up in the shareholder webcast going on right now (starting 8:30 Eastern). If Google got the Motorola name, Motorola solutions will probably go the way of Accenture, which used to be Andersen Consulting.

At the very least, this is patent play. That’s why Larry talked about intellectual property. In mobile, Motorola (I’m guessing, but I’m sure I’m right) has a bigger patent portfolio than anybody else, going back to the dawn of the whole category. Oracle started a patent war a year ago by suing Google, and Google looked a bit weak in that first battle. So now, in buying Motorola, Google is building the biggest patent fort that it can. In that area alone, Google now holds more cards than anybody, especially its arch-rival, Apple.

Until now, Apple actually wasn’t a direct enemy of Google’s, since Google wasn’t in the hardware business. In fact, Android itself was hardly a business at all — just a way to open up the mostly-closed mobile phone business. But now Google is one of the biggest players in mobile hardware. The game changes.

For Google’s Android partners other than Motorola, this has to hurt. (Henry Blodget calls it a “stab in the back.”)

For Windows Mobile, it’s a huge win, because Microsoft is now the only major mobile operating systems supplier that doesn’t also own a hardware company.

Unless, of course, Microsoft buys Nokia.

[Later…]

The conference call with shareholders is now over, and the strategy is now clear. From Business Insider’s notes:

David Drummond, Google’s legal chief: Android under threat from some companies, while I’m not prepped to talk strategies, combining with Motorola and having that portfolio to protect the ecosystem is a good thing.

Sanjay Jha: Over 17,000 issued, over 7,500 applications out there. Much better support to the businesses.

8:47: Android partners, a risk to them?

Andy Rubin: I spoke yesterday to top 5 licensees, all showed enthusiastic support. Android was born as an open system, doesn’t make sense to be a single OEM.

8:48: What convinced you this was optimal solution? Competencies that aren’t core to Google?

Larry Page: I’m excited about this deal, while competencies that aren’t core to us, we plan to operate as a separate business, excited about protecting the Android ecosystem.

Always watch the verbs. “Protecting” is the operative one here.

Eric S. Raymond weighs in, optimistic as ever about Google/Android’s position here:

We’ll see a lot of silly talk about Google getting direct into the handset business while the dust settles, but make no mistake: this purchase is all about Motorola’s patent portfolio. This is Google telling Apple and Microsoft and Oracle “You want to play silly-buggers with junk patents? Bring it on; we’ll countersue you into oblivion.”

Yes, $12 billion is a lot to pay for that privilege. But, unlike the $4.5 billion an Apple/Microsoft-led consortium payed for the Nortel patents not too long ago, that $12 billion buys a lot of other tangible assets that Google can sell off. It wouldn’t surprise me if Google’s expenditure on the deal actually nets out to less – and Motorola’s patents will be much heavier artillery than Nortel’s. Motorola, after all, was making smartphone precursors like the StarTac well before the Danger hiptop or the iPhone; it will have blocking patents.

I don’t think Google is going to get into the handset business in any serious way. It’s not a kind of business they know how to run, and why piss off all their partners in the Android army? Much more likely is that the hardware end of the company will be flogged to the Chinese or Germans and Google will absorb the software engineers. Likely Google’s partners have already been briefed in on this plan, which is why Google is publishing happy-face quotes about the deal from the CEOs of HTC, LG, and Sony Ericsson.

The biggest loser, of course, is Apple; it’s going to have to settle for an armed truce in the IP wars now. This is also a bad hit for Microsoft, which is going to have to fold up the extortion racket that’s been collecting more fees on HTC Android phones than the company makes on WP7. This deal actually drops a nuke on the whole tangle of smartphone-patent lawsuits; expect to see a lot of them softly and silently vanish away before the acquisition even closes.

I don’t think anybody has paid more attention to this whole thing than Eric has, and he brings the perspective of a veteran developer and open source operative as well. (Without Eric, we wouldn’t be talking about open source today.)

On August 17, Holman Jenkins in the Wall Street Journal added this bit of important analysis:

Android has been hugely advantageous for everyone who is a successful phone maker not named Apple. Remember, Apple’s premium smartphone holds up the pricing structure for the whole industry. Samsung, HTC and the rest have been selling phones into this market and pocketing huge margins because they pay nothing for Android.

Google wouldn’t be human if it didn’t want some of this loot, which buying Motorola would enable it to grab. But that doesn’t mean, in the long term or the short term, that other hardware makers will walk away from a relationship that has lined their pockets and propelled them to the top of the rapidly growing and giant new business of making smartphones. Let’s just say that while having Google as a competitor is not ideal, handset makers will learn to live with it.

Jenkins’ columns often rub me the wrong way, but this bit seems spot-on.

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Learnings from the Browser Wars

January 30, 2011 in Business, history, Ideas, Journalism, Past, problems, Quote, Technology | 5 comments

The question on Quora goes, What lessons can be learned from the first browser war between Microsoft and Netscape?

I covered that war when it broke out, more than fifteen years ago. No magazine was interested in my writing then. Blogging was several years off in the future. All we had were websites, and that was good enough. The following is what I put up on mine — in as much of the original HTML as can survive WordPress’ HTML-rewriting mill. I’ll continue below the piece…

MICROSOFT+NETSCAPE

WHY THE PRESS NEEDS TO SNAP OUT OF ITS WAR-COVERAGE TRANCE

By Doc Searls
December 11, 1995

Outline

Wars?

Am I wrong here, or has the Web turned into a Star Wars movie?

I learn from the papers that the desktop world has fallen under the iron grip of the most wealthy and powerful warlord in the galaxy. With a boundless greed for money and control, Bill Gates of Microsoft now seeks to extend his evil empire across all of cyberspace.

The galaxy’s only hope is a small but popular rebel force called Netscape. Led by a young pilot (Marc Andreesen as Luke Skywalker), a noble elder (Jim Clark as Obi-wan Kanobe) and a cocky veteran (Jim Barksdale as Han Solo), Netscape’s mission is joined by the crafty and resourceful Java People from Sun.

Heavy with portent, the headlines tromp across the pages (cue the Death Star music — dum dum dum, dum da dum, dum da dummm)…

  • “MICROSOFT TAKES WAR TO THE NET: Software giant plots defensive course based on openness”
  • “MICROSOFT UNVEILS INTERNET STRATEGY: Stage set for battle with Netscape.”
  • “MICROSOFT, SUN FACE OFF IN INTERNET RING”
  • “MICROSOFT STORMS THE WEB”

The mind’s eye conjures a vision of The Emperor, deep in the half-built Death Star of Microsoft’s new Internet Strategy, looking across space at the Rebel fleet, his face twisted with contempt. “Your puny forces cannot win against this fully operational battle station!” he growls.

But the rebels are confident. “In a fight between a bear and an alligator, what determines the victor is the terrain,” Marc Andreessen says. “What Microsoft just did was move into our terrain.”

And Microsoft knows its strengths. December 7th, The Wall Street Journal writes, Bill Gates “issued a thinly veiled warning to Netscape and other upstarts that included a reference to the Pearl Harbor attack on the same date in 1941.”

Exciting stuff. But is there really a war going on? Should there be?

are the facts?

After reading all these alarming headlines, I decided to fire up my own copy of Netscape Navigator and search out a transcript of Bill’s December 7th speech.

I started at Microsoft’s own site, but got an “access forbidden” message. Then I went up to the internet level of the site’s directory, but found the Netscape view was impaired. (“Best viewed with Microsoft Explorer,” it said.) I finally found a Netscape-friendly copy at Dave Winer’s site. It appears to be the original, verbatim:*

MR. GATES: Well, good morning. I was realizing this morning that December 7th is kind of a famous day. (Laughter.) Fifty-four years ago or something. And I was trying to think if there were any parallels to what was going on here. And I really couldn’t come up with any. The only connection I could think of at all was that probably the most intelligent comment that was made on that day wasn’t made on Wall Street, or even by any type of that analyst; it was actually Admiral Yamomoto, who observed that he feared they had awakened a sleeping giant. (Laughter.)

I see. The “veiled threat” was Bill’s opening laugh line. Even if this was “a veiled threat,” it was made in good humor. The rest of the talk hardly seemed hostile. Instead, Bill showed a substantial understanding of how both competition and cooperation work to build markets, and of the roles played by users, developers, leaders and followers in creating the Internet. In his final sentence, Bill says, “We believe that integration and continuity are going to be valuable to end users and developers…”

Of course, I wish he’d pay a little more attention to Macintosh users and developers, but I don’t blame him for avoiding them. I blame Apple, which dissed and sued Microsoft for years, to no positive effect. Apple played a zero-sum game and — sure enough — ended up with zero. Brilliant strategy.

Think how much farther along we would be today if this relationship was still Apple plus Microsoft, rather than Apple vs. Microsoft.

The truth is that the Web will be better served by Microsoft plus Netscape than by Microsoft vs. Netscape. Plus is what most of us want, and it’s probably what we’ll get, regardless of how the press plays the story.

give a big AND to the Web

So what is the best way to characterize Microsoft, if not as the Heaviest of Heavies?

I think Release 1.0‘s Jerry Michalski gets closest to it when he says: “Microsoft thinks more broadly than any other company about what it’s doing. Its plans include global telecommunications, information creation, applications — even community building.” That tells us a lot more than “Microsoft goes to war.”

Markets are more than battlefields. The OR logic of war and sports get us excited, but tells us little of real substance. For that we also need the AND logic of cooperation, choice, partnership and working together. What we all want most — love — is hardly an OR proposition. Imagine a lover saying “there’s only room in this relationship for one of us, baby.”

But the press is caught in an OR trance. Blind to the AND logic that gives markets their full color, the press reduces every hot story to the black vs. white metaphors of war and sports. Why cover the Web as the strange, unprecedented place it is, when you can play it as yet another story about two guys trying to beat the crap out of each other? Especially when the antagonists are little good guy and a big bad guy?

Look, the Internet didn’t take off because Netscape showed up; and it wasn’t slowed down because Microsoft didn’t. It took off because millions of people added their creative energies to something that welcomed them — which was mostly each other. Death-fight competition didn’t make the Web we know now, and it won’t make the Web that’s coming, either.

That’s because every site on the Web is AND logic at work. So is every vendor/developer relationship that ever produced a product or created a market. So is the near-infinite P/E ratio Netscape enjoys today.

, what IS Microsoft doing?

“Embrace and extend,” Bill Gates called it in his December 7 talk. That’s what he said Microsoft will do with products from Oracle, Spyglass, Compuserve and Sun. Is this an AND strategy? Or is it yet an other example of what Gary Reback, Judge Sporkin and other Microsoft enemies call a “lock and leverage” strategy, intended to drive out competition and let Microsoft charge tolls to every traveler on the Information Highway?

We’ll see.

It should be clear by now that the Web does not welcome OR strategies. Microsoft Network was an OR strategy, and it didn’t work. If history repeats itself (as it usually does with Microsoft), the company will learn from this experience (as Apple learned earlier from its eWorld failure) and move on to do the Right Thing.

Not that most of the press would notice. To them Microsoft is The Empire and Bill is its gold-armored emperor. But reporters are the ones putting clothes on this emperor. To the people who make Microsoft’s markets — the users and developers — “billg” is as naked as a newborn.

Take away the war-front headlines, the play-by-play reporting, the color commentary by industry analysts, the infatuation with personal wealth — and you see Bill as an extremely competitive guy who’s also trying to do right by users and developers. And hiding little in the process. Is he a bully? Sometimes. Is this bad? No, it’s typical of big companies since the dawn of business. It looks to me more like a personality trait than a business strategy. And what makes Microsoft win is far more strategic than personal.

George Gilder puts it this way in Forbes ASAP (“Angst & Awe on the Internet“):

Blinded by the robber-baron image assigned in U.S. history courses to the heroic builders of American capitalism, many critics see Bill Gates as a menacing monopolist. They mistake for greed the gargantuan tenacity of Microsoft as it struggles to assure the compatibility of its standard with tens of thousands of applications and peripherals over generations of dynamically changing technology.

to win users and influence developers

How does Bill express that tenacity? As Dave Winer puts it in “The Platform is a Chinese Household,” Bill “sends flowers.” Bill courts developers and delivers for customers, who return the favor by buying Microsoft products.

Markets are conversations, and there isn’t a more willing conversational participant than Bill. That’s why I’m not surprised when Dave says “the only big company that’s responsive to my needs is Microsoft.” And Dave, by the way, is a pillar of the Macintosh community. To my knowledge, he hasn’t developed a DOS-compatible product since the original ThinkTank.

Users and developers don’t need to hear vendors talk about how much their competition sucks. No good ever comes of it. Is it just coincidence that Microsoft almost never bad-mouths its competition? Though Bill is hardly innocent of the occasional raspberry, he’s a long way from matching the nasty remarks made about him and his company by leaders at Sun, Apple, Netscape and Novell, just to name an obvious few.

It especially saddens me to hear competition-bashing from Guy Kawasaki, whose positive energies Apple desperately needs right now. As a customer and user of both Apple and Microsoft products, I see Guy’s “how to drive your competition crazy” rap as OR logic at its antiproductive worst.

At the opposite end of the diplomacy scale, I like the way Gordon Eubanks of Symantec has consistently been fair and constructive in his public remarks about Bill and Microsoft (and has reaped ample rewards in the process).

What makes markets work is a combination of AND and OR processes that deserve thoughtful and observant journalism. They also call for vendors who can drop their fists, open their minds and look at opportunities from users’ and developers’ points of view. This is how Microsoft came to change its Internet strategy. And this is what makes Microsoft the most adaptive company in the business, regardless of size. No wonder the laws of Darwin have been kind to them.

new breed of life

Urge and urge and urge,
Always the procreant urge of the world.
Out of the dimness opposite equals advance…
Always substance and increase,
Always a knit of identity… always distinction…
Always a breed of life.
—Walt Whitman

Where the language of war fails, perhaps the language of Whitman can succeed.

By the great poet’s lights, the Web is a new breed of life. An original knit of identity. Its substance increases when opposite equals like Netscape and Microsoft advance out of the dimness and obey their procreant urges — not their will to kill.

The Web is a product of relationships, not of victors and victims. Not one dime Netscape makes is at Microsoft’s expense. And Netscape won’t bleed to death if Microsoft produces a worthy browser. The Web as we know it won’t be the same in six weeks, much less six months or six years. As a “breed of life,” it is original, crazy and already immense. It is not like anything. To describe it with cheap-shot war and sports metaphors is worse than wrong — it is bad journalism.

A week after this experience, I went back to Microsoft site and found its whole Internet Strategy directory much more Netscape-friendly and nicely organized. Every presentation is there, including all the slides. Though the slides are in PowerPoint 4.0 for Windows, my Mac is able to view them with the Mac version of the program. [Back to *]

George Gilder’s Forbes ASAP article archives are at his Telecosm site.

Dave Winer’s provocative “rants” come out every few days, and accumulate at his DaveNet site. Check out “The User’s Software Company,” which inspired this essay.

One might look back on this and say “Yeah, but Microsoft still killed Netscape.” I don’t think so. Netscape had many advantages, including one it tried too late to save the company — but not too late to save the browser and keep it competititve: open-sourcing the Mozilla code. Five years after I wrote the above, I wrote a piece in Linux Journal describing Netscape’s mistakes:

For a year or two, Netscape looked like it could do no wrong. It was a Miata being chased down a mountain road by a tractor trailer. As long as it moved fast and looked ahead, there was no problem with the truck behind. But at some point, Netscape got fixated on the rear-view mirror. That’s where they were looking when they drove off the cliff.

Why did they do that?

  1. They forgot where they came from: the hacker community that had for years been developing the Net as a free and open place—one hospitable to business, but not constrained by anybody’s business agenda. The browser was born free, like Apache, Sendmail and other developments that framed the Net’s infrastructure. The decision to charge for the browser—especially while still offering it for free—put Netscape in a terminal business from the start.
  2. They got caught up in transient market’s fashions, which were all about leveraging pre-Web business models into an environment that wouldn’t support them. Mostly, they changed the browser from a tool of Demand (browsing) to an instrument of Supply. They added channels during the “push” craze. They portalized their web site. They turned the location bar into a search term window for a separate domain directory, to be populated by the identities of companies that paid to be put there (a major insult to the user’s intentions). Worst of all, they bloated the browser from a compact, single-purpose tool to an immense contraption that eventually included authoring software, a newsgroup reader, a conferencing system and an e-mail client—all of which were done better by stand-alone applications.
  3. They became arrogant and presumptuous about their advantages. At one point, Marc Andreessen said an OS was “just a device driver”.
  4. Their engineering went to hell. By the time Netscape was sold (at top dollar) to AOL, the dirty secret was that its browser code was a big kluge and had been for a long time. Jamie Zawinski (one of the company’s first and best-known engineers) put it bluntly: “Netscape was shipping garbage, and shipping it late.” Not exactly competitive.
  5. They lost touch with their first and best market: those customers who had actually paid for that damn browser.
So, back to the original question. What have we learned, now that IE is still around, and most of its competitors are either open source or based on open source code? Here’s a quick list:

  1. The browser was never a product in the sense that it’s something that can be charged and paid for as a scarce good. It wanted to be open source in the first place.
  2. The war metaphor is distracting and misleading, even when it’s appropriate.
  3. No browser is even close to perfect, and none will ever be.

Feel free to add more of your own, here or on Quora. (I’m very curious to see how Quora evolves.)

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The longer view

October 30, 2010 in Business | 6 comments

We have two iPhones in our family. Yesterday we traded in the older one — my wife’s first-generation model, bought in 2007 — at Radio Shack. They gave us $72.94 for the phone and charger, against $199 for a new 16Gb iPhone 4. We’ll probably trade our other iPhone, my second-generation 3g one, pretty soon too.

Apple doesn’t have the same offer. I’m not sure who else does. I wouldn’t have known about it if I hadn’t stopped in a Radio Shack to buy an ethernet cable a few days ago, when the kid behind the counter told me about it. Turns out Radio Shack will take a lot of stuff in trade. Since my iPhone 3g is brand new (I replaced it at an Apple store last month for $79, before I knew about this deal), I can get $116.13 for it, according to the online appraisal system at that last link.

Yes, it bothers me that we’re staying inside Apple and AT&T’s joint silo. It also bothers me that Fake Steve Jobs is right about Android fragmentation. I also see a serious risk that Real Steve Jobs might succeed at repositioning closed systems as “integrated”. Just because, well, he’s Steve. We’re all in his reality distortion field now.

Speaking of which, Apple is now bigger than Microsoft, and the iPhone is now bigger than Rim.

I still see this as a phase, and not a bad one. Apple and Google have together cracked open the unholy death grip that phone makers and carriers have long had on the mobile world. At some point those two halves will come completely apart.

Until they do, we won’t have ambient connectivity, or what I call the Frankston Threshold.

But we’ll get there. It’s inevitable.

[Later…] If you do trade in an old iPhone, be sure to erase it before handing it over. Do that under Settings/General/Reset/Erase all content and settings.

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We’re gonna need a bigger boat

May 27, 2009 in Art, Business, Future, Gear, Ideas, infrastructure, Past, Politics, problems, Sports, VRM | 9 comments

WebTV webtvwas way ahead of its time and exactly backwards. The idea was to put the Web on TV. In the prevailing media framework of the time, this made complete sense. TV had been around since the Forties, and nearly everybody devoted many hours of their daily lives to it. The Web was brand new then. And, since the Web used a tube like TV did, it only made sense to make the Web work on TV, rather than vice versa.

Microsoft bought WebTV for $.425 billion in April 1997. It was the most Microsoft had ever spent on an acquisition, and a stunning sum to spend on what was clearly a speculative play. But Microsoft clearly thought it was skating to where the puck was going.

Not long after that I heard from Dave Feinleib, an executive at Microsoft. Dave wanted to know if I would be interested in writing a chapter for a book he was putting together on the convergence of the Web and television. What brought him to my door was that I was the only writer he found who claimed the Web would eat TV, rather than vice versa. Everybody else was saying that history was going the other way — including Microsoft itself, with its enormous bet.

Dave was an outstanding editor, and did a great job pulling his book together. Originally he wanted it to be published by somebody other than Microsoft, but that didn’t work out. If I’m not mistaken (and Dave, if you’re out there somewhere, correct me), his choices of title also didn’t make it. The title finally chosen was a kiss of death: The Inside Story of Interactive TV and (in much larger type) WebTV for Windows. (Cool: You can still get it at Amazon, so death in this case is only slightly exaggerated.)

It was a good book, and an important historic document. At least for me. Much of what I later contributed to The Cluetrain Manifesto I prototyped in my chapter of Dave’s book. My title was “The Message Is Not the Medium.”

Amazingly, I just found a draft of the chapter, which I assumed had been long gone in an old disk crash or something. Begging the indulgence of Dave and Microsoft, I’ll quote from it wholesale. Remember that this was written in 1998, at the very height of the dot-com bubble.

About the conversational nature of markets:

So what we have here are two metaphors for a marketplace: 1) a battlefield; and 2) a conversation. Which is the better metaphor for the Web market? One is zero-sum and the other is positive-sum. One is physical and the other is virtual. One uses OR logic, and the other uses AND logic.

It’s no contest. The conversation metaphor describes a world exploding with positive new sums. The battlefield metaphor insults that world by denying those sums. It works fine when we’re talking about battles for shelf space in grocery stores; but when we’re talking about the Web, battlefield metaphors ignore the most important developments.

There are two other advantages to the conversation metaphor. First, it works as a synonym. Substitute the word “conversation” for  “market” and this fact becomes clear. The bookselling conversation and the bookselling market are the same. Second, conversations are the fundamental connections human beings make with each other. We may love or hate one another, but unless we’re in conversation, not much happens between us. Societies grow around conversations. That includes the business societies we call markets…

About the Web as a marketplace:

Today the Web remains an extraordinarily useful way to publish, archive, research and connect all kinds of information. No medium better serves curious or inventive minds.

While commerce may not have been the first priority of the Web’s prime movers, their medium has quickly proven to be the most commercial medium ever created. It invites every business in the Yellow Pages either to sell on the Web or to support their existing business by using the Web to publish useful information and invite dialog with customers and other involved parties. In fact, by serving as both an ultimate yellow page directory and an endless spread of real estate for stores and businesses, the Web demonstrates extreme synergy between the publishing and retailing metaphors, along with their underlying conceptual systems.

So, in simple terms, the Web efficiently serves two fundamental human needs:

1.    The need to know; and
2.    The need to buy.

While it also serves as a fine way to ship messages to eyeballs, we should pause to observe that the message market is a conversation that takes place entirely on the supply side of TV’s shipping system. In the advertising market, media sell space or time to companies that advertise. Not to consumers. The consumers get messages for free, whether they want them or not.

What happens when consumers can speak back — not just to the media, but to the companies who pay for the media? In the past we never faced that question. Now we do. And the Web will answer with a new division of labor between advertising and the rest of commerce. That division will further expose the limits of both the advertising and entertainment metaphors.

On Sales vs. Advertsing, and how the Web does more for the former than the latter:

“Advertising is what you do when you can’t go see somebody. That’s all  it is.” — Fairfax Cone

Fairfax “Fax” Cone founded one of the world’s top advertising agencies, Foote, Cone & Belding, and ran it for forty years. A no-nonsense guy from Chicago, Cone knew exactly what advertising was and wasn’t about. With this simple definition — what you do when you can’t go see somebody — he drew a clear line between advertising and sales. Today, thirty years after he retired, we can draw the same line between TV and the Web, and divide the labors accordingly.

On one side we have television, the best medium ever created for advertising. On the other side we have the Web, the best medium ever created for sales.

The Web, like the telephone, is a much better tool for sales than for promotion. It’s what you do when you can go see somebody: a way to inform customers and for them to inform you. The range of benefits is incalculable. You can learn from each other, confer in groups, have visually informed phone conversations, or sell directly with no sales people at all.

In other words, you can do business. All kinds of business. As with the phone, it’s hard to imagine any business you can’t do, or can’t help do, with the Web.

So we have a choice. See or be seen: see with the Web, or be seen on TV. Talk with people or talk at them. Converse with them, or send them messages.

Once we divide these labors, advertising on the Web will make no more sense than advertising on the phone does today. It will be just as unwelcome, just as intrusive, just as rude and just as useless.

The Web will call forth — from both vendors and customers — a new kind of marketing: one that seeks to enlarge the conversations we call business, not to assault potential customers with messages they don’t want. This will expose Web advertising — and most other advertising — as the spam it is, and invite the development of something that serves supply without insulting demand, and establishes market conversations equally needed by both.

This new marketing conversation will embrace what Rob McDaniel  calls a “divine awful truth”  — a truth whose veracity is exceeded only by its deniability. When that truth becomes clear, we will recognize most advertising as an ugly art form  that only dumb funding can justify, and damn it for the sin of unwelcome supply in the absence of demand.

That truth is this: There is no demand for messages. And there never was.

In fact, most advertising has negative demand, especially on TV. It actually subtracts value. To get an idea just how negative TV advertising is, imagine what would happen if the mute buttons on remote controls delivered we-don’t-want-to-hear-this messages back to advertisers. When that feedback finally gets through, the $180+ billion/year advertising market will fall like a bad soufflé.

It will fall because the Web will bring two developments advertising has never seen before, and has always feared:  1) direct feedback; and 2) accountability. These will expose another divine awful truth: most advertising doesn’t work.

In the safety of absent alternatives, advertising people have always admitted as much. There’s an old expression in the business that goes, “I know half my advertising is wasted. I just don’t know which half.” (And let’s face it, “half” is exceedingly generous.)

With the Web, you can know. Add the Web to TV, and you can measure waste on the tube too.

Use the Web wisely, and you don’t have to settle for any waste at all.

About advertising’s fatal flaw:

Television is two businesses: 1) an entertainment delivery service; and 2) an advertising delivery service. They involve two very different conversations. The first is huge and includes everybody. The second is narrow and only includes advertisers and broadcasters.

TV’s entertainment producers are program sources such as production companies, network entertainment divisions, and the programming sides of TV stations. These are also the vendors of the programs they produce. Their customers and distributors are the networks and TV stations, who give away the product for free to their consumers, the viewers.

In TV’s advertising business, the advertising is produced by the advertisers themselves, or by their agencies. But in this market conversation, advertisers paly the customer role. They buy time from the networks and the stations, which serve as both vendors and distributors. Again, viewers consume the product for free.

In the past, the difference between these conversations didn’t matter much, because consumers were not part of TV’s money-for-goods market conversation.  Instead, consumers were part of the conversation around the product TV gives away: programming.

In the economics of television, however, programming is just bait. It’s very attractive bait, of course; but it’s on the cost side of the balance sheet, not the revenue side. TV’s $45+ billion revenues come from advertising, not programming. And the sources of programming make most of their money from their customers: networks, syndicators and stations. Not from viewers.

Broadcasters, however, are accustomed to believing that their audience is deeply involved in their business, and often speak of demographics (e.g. men 25-54) as “markets.” But there is no market conversation here, because the relationship — such as it is — is restricted to terms set by what the supply side requires, which are ratings numbers and impersonal information such as demographic breakouts and lifestyle characterizations. This may be useful information, but it lacks the authenticity of real market demand, expressed in hard cash. In fact, very few viewers are engaged in conversations with the stations and networks they watch. It’s a one-way, one-to-many distribution system. TV’s consumers are important only in aggregate, not as individuals. They are many, not one. And, as Reese Jones told us earlier, there is no such thing as a many-to-one conversation. At best there is only a perception of one. Big difference.

So, without a cash voice, audience members can only consume. Their role is to take the bait. If the advertisements work, of course, they’ll take the hook as well. But the advertising business is still a conversation that does not include its consumers..

So we get supply without demand, which isn’t a bad definition of advertising.

Now let’s look at the Web.

Here, the customer and consumer are the same. He or she can buy the advertisers’ goods directly from the advertiser, and enjoy two-way one-to-one market conversations that don’t involve the intervention either of TV as a medium or of one-way messages intended as bait. He or she can also buy entertainment directly from program sources, which in this relationship vend as well as produce. The distribution role of TV stations and networks is unnecessary, or at least peripheral. In other words, the Web disintermediates TV, plus other media.

So the real threat to TV isn’t just that the Web makes advertising accountable. It’s that it makes business more efficient. In fact the Web serves as both a medium for business and as a necessary accessory to it, much like the telephone. No medium since the telephone does a better job of getting vendors and customers together, and of fostering the word-of-mouth that even advertisers admit is the best advertising.

The Web is an unprecedented clue-exchange system. And when companies get enough clues about how poorly their advertising actually works, they’ll drop it like a bad transmission, or change it so much we can’t call it advertising any more.

We may have a blood bath. Killing ad budgets is a snap. Advertising is protected by no government agencies, and encouraged by no tax incentives. It’s just an expense, a line item, overhead. You can waste it with a phone call and almost nobody will get fired, aside from a few marketing communications (“marcom”) types and their expensive ad agencies.

About TV’s fatal flaw:

Few would argue that TV is a good thing. Hand-wringing over TV’s awfulness is a huge nonbusiness. TV Free America counts four thousand studies of TV’s effects on children. The TVFA also says 49% of Americans think they watch too much TV, and 73% of American parents think they should limit their kid’s TV watching.

And, as the tobacco industry will tell you, smoking is an “adult custom” and “a simple matter of personal choice.”

Then let’s admit it: TV is a drug. So why do we take it when we clearly know it’s bad for our brains?

Six reasons: 1) because it’s free; 2) because it’s everywhere; 3) because it’s narcotic; 4) because we enjoy it; 5) because it’s the one thing we can all talk about without getting too personal; and 6) because it’s been with us for half a century.

Television isn’t just part of our culture; it is our culture. As Howard Beale tells his audience, “You dress like the tube, you eat like the tube, you raise your children like the tube.” And we do business like the tube, too. It’s standard.

Howard Beale had it right: television is a tube. Let’s look at it one more time, from our point of view.

What we see is a one-way freight forwarding system, from producers to consumers. Networks and stations “put out,” “send out” and “deliver” programs through “channels” on “signals” that an “audience” of “viewers” “receive,” or “get” through this “tube.” We “consume” those products by “watching” them, often intending to “vege out” in the process.

Note that this activity is bovine at best, vegetative at worst and narcotic in any case. To put it mildly, there is no room in this metaphor for interactivity. And let’s face it, when most people watch TV, the only thing they want to interact with is the refrigerator.

Metaphorically speaking, it doesn’t matter that TV contains plenty of engaging and stimulating content, any more than it matters that life in many ways isn’t a journey. TV is a tube. It goes from them to us. We just sit here and consume it like fish in a tank, staring at glass.

Of course we’re not really like that. We’re conscious when we watch TV.

Well, of course we are. So are lots of people. But that’s not how the concept works, and its not what the system values. TV’s delivery-system metaphors reduce viewing to an effect — a noise at the end of the trough. And they reduce programming to container cargo. “Content,” for example, is a tubular noun that comes straight out of the TV conversation. What retailers would demean their goods with such a value-subtracting label?   Does Macy’s sell “content?” With TV, the label is accurate. The product is value-free, since consumers don’t pay a damn thing for it.

There is a positive side to the entertainment conversation, of course. Writers, producers, directors and stars all put out “shows” to entertain an “audience.” Here the underlying metaphor is theater. By this conceptual metaphor, TV is a stage.  But the negotiable market value of this conversation is provided entirely by its customers: the TV stations and networks. The audience, however, pays nothing for the product. Its customers use it as advertising bait. This isolates the show-biz conversation and its value. You might say that TV actually subtracts value from its own product, by giving it away.

And, the story of TV’s death foretold:

In the long run (which may not be very long), the Web conversation will win for the simple reason that it supports and nurtures direct conversations, and therefore grows business at a much faster rate. It also has conceptual metaphors that do a better job of supporting commerce.

Drugs have their uses. But it’s better to bet on the nurtured market than on the drugged one.

Trees don’t grow to the sky. TV’s $45 billion business may be the biggest redwood in the advertising forest, but in a few more years we’ll be counting its rings. “Propaganda ends where dialog begins,” Jacques Ellul says.

The Web is about dialog. The fact that it supports entertainment, and does a great job of it, does nothing to change that fact. What the Web brings to the entertainment business (and every business), for the first time, is dialog like nobody has ever seen before. Now everybody can get into the entertainment conversation. Or the conversations that comprise any other market you can name. Embracing that is the safest bet in the world. Betting on the old illusion machine, however popular it may be at the moment, is risky to say the least…

TV is just chewing gum for the eyes. — Fred Allen

This may look like a long shot, but I’m going to bet that the first fifty years of TV will be the only fifty years. We’ll look back on it the way we now look back on radio’s golden age. It was something communal and friendly that brought the family together. It was a way we could be silent together. Something of complete unimportance we could all talk about.

And, to be fair, TV has always had a very high quantity of Good Stuff. But it also had a much higher quantity of drugs. Fred Allen was being kind when he called it “chewing gum for the eyes.” It was much worse. It made us stupid. It started us on real drugs like cannabis and cocaine. It taught us that guns solve problems and that violence is ordinary. It disconnected us from our families and communities and plugged us into a system that treated us as a product to be fattened and led around blind, like cattle.

Convergence between the Web and TV is inevitable. But it will happen on the terms of the metaphors that make sense of it, such as publishing and retailing. There is plenty of room in these metaphors — especially retailing — for ordering and shipping entertainment freight. The Web is a perfect way to enable the direct-demand market for video goods that the television industry was never equipped to provide, because it could never embrace the concept. They were in the eyeballs-for-advertisers business. Their job was to give away entertainment, not to charge for it.

So what will we get? Gum on the computer screen, or choice on the tube?

It’ll be no contest, especially when the form starts funding itself.

Bet on Web/TV, not TV/Web.

Looking back on all that, I wince at how hyperbolic some of it was (like, there really is some demand for some messages), but I’m still pleased with what I got right, which is that the Web eats TV. Which brings me to the precipitating post, YouTube is Huge and About to Get Even Bigger, by Jennifer Van Grove in Mashable. Sez Jennifer,

According to YouTube, the hours of video uploaded to YouTube every minute has been growing astronomically since mid-2007, when it was just a measly six hours per minute. Then, in “January of this year, it became 15 hours of video uploaded every minute, the equivalent of Hollywood releasing over 86,000 new full-length movies into theaters each week.”

Now, just a few months later and we’ve hit the 20 hour per minute milestone, which means that for every second in time about 33 minutes of video make it to YouTube, and that for any given day 28,800 hours of video are uploaded in total…

Even though YouTube (YouTube reviews) is seeing such massive upload numbers, and we think that speaks to the strength of their community, they still have monetization challenges that are only exacerbated by the rising bandwidth costs required to support such an enormous load. Bandwidth costs are already proving to be the bane of YouTube’s existence, possibly resulting in $470 million in loses for this year alone.

So while YouTube’s outwardly celebrating that we’re dumping 20 hours of video on their servers every minute, we think they should count their blessings with a little more realism since, based on previous patterns, this number, along with bandwidth costs, will only continue to rise.

“Rise” is too weak a verb. What we have here is something of an artesian flood, a continent of blooming volcanoes.

In the old top-down world of broadcasting, all we had were a few thousand big transmitters, each with limited reach, stretched and widened by cable and satellite TV. (Remember that what we call “cable” began as CATV: Community Antenna TeleVision.) It is over these legacy systems, plus the upgraded phone system, that most of us are connected to the Internet today.

In the legacy TV world, transmitters are obsolete to the verge of pointlessness. So are “channels.” So are the “networks” that are now just distributors for TV shows. All that matters is “content,” as they say. And that’s moving online, huge-time.

Tomorrow’s shows  won’t be coming only from big-time program producers.  We’ll be getting them from each other as well. We already see that with YouTube, but in relatively low-def resolutions. Still, it’s a start. At the end of the next growth stage we’ll be producing out own damn shows, and at resolutions higher than cable can bear. So will the incumbent producers, of course, but they won’t be taking the lead in pushing for wider bandwidth. That’s an easy call because they’re not taking the lead right now, and they should be. Instead they’ve left it up to us: the “viewers” who are now becoming producers and reproducers.

Already you can get a camcorder that will shoot 1080p video for well under a $grand. That’s more resolution than you’ll get from cable or satellite, with a few pay-per-view exceptions. Combine the sphinctered nature of cable and satellite TV bandwidth with the carriers’ need to compete by carrying more and more channels, and what you get is stuff that’s “HD” in name only. While the resolution might be 720p or 1080i, the amount of actual data carried on each channel is minimal or worse, resulting in skies that look plaid and skin that looks damaged. All of whch means that the best thing you can see — today — on your new 1080p screen comes from your new 1080p camcorder. (Unless you pay bux deluxe for a Blu-Ray player, which not many of us are doing.) So: how long before ordinary folks are producing their own high-def movies, in large numbers? How long before that pounds out the walls of pipes all over the place?

Even if that takes awhile, we have to face facts. We’re going to need the bandwidth. Storage and processing we’ve got covered, because that’s at the edges, where there’s not much standing in the way of growth and enterprise. In the middle we’ve got a world wide bandwidth challenge.

The phone and cable companies can’t give it to us — at least not the way they’re currently set up. Even the best of the carrier breed — Verizon FiOS, which I’m using right now, and appreciating a great deal — is set up as a top-grade cable TV system that also delivers Internet. Not as a fat data pipe between any two points, which is what we’ll need.

Pause for a moment and recall this scene from the movie “Jaws”. “We’re gonna need a bigger boat,” Roy Scheider says.

TV on the Net is the shark in this story. The Quinn role is being played by the carriers right now. They need to be smarter than what we’ve seen so far. So do the rest of us.

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Getting real about fixing health care

April 22, 2009 in Future, Health, infrastructure, problems, Science, VRM | 15 comments

I’m listening right now to On Point*, where the topic is Pushing E-Health Records. The only case against electronic health records (EHR, aka electronic medical recordsk, or EMR) is risk of compromised privacy. Exposure goes up. The friction involved in grabbing electronic medical records is lower than that involved in grabbing paper ones, especially with the Internet connecting damn near everything.

Here’s the problem with privacy in the Internet Age (which we are now in, with no hope of ever getting out, unless we live the connectionless life): the Net is a big copy machine. It’s amazing how a fact so simple escapes attention until a first-rate metaphorist such as Kevin Kelly comes along to expound on what ought to be obvious:

The internet is a copy machine. At its most foundational level, it copies every action, every character, every thought we make while we ride upon it. In order to send a message from one corner of the internet to another, the protocols of communication demand that the whole message be copied along the way several times. IT companies make a lot of money selling equipment that facilitates this ceaseless copying. Every bit of data ever produced on any computer is copied somewhere. The digital economy is thus run on a river of copies. Unlike the mass-produced reproductions of the machine age, these copies are not just cheap, they are free.

Our digital communication network has been engineered so that copies flow with as little friction as possible. Indeed, copies flow so freely we could think of the internet as a super-distribution system, where once a copy is introduced it will continue to flow through the network forever, much like electricity in a superconductive wire. We see evidence of this in real life. Once anything that can be copied is brought into contact with internet, it will be copied, and those copies never leave. Even a dog knows you can’t erase something once it’s flowed on the internet.

We’re not going to fix that. The copying nature of the Net is a feature, not a bug. We can fight some of it with crypto between trusting parties. But until we find ways to make that easy, the exposure is there. And, as long as it is, we’re going to have people who say risk of exposure overrides other concerns, such as the fact that dozens of thousands of people in the U.S. alone die every year of bad health care record keeping and communications — in other words, of bad data.

Still, if we want good medical care, we need EHR. That much is plain. The question is, How?

The answer will not be an information silo, or a set of silos. We have too many of those already. That’s the problem we have now — both on paper and in electronic formats (as I discovered last year in one of my own medical adventures).

The patient needs to be the point of integration for his or her own data, and the point of origination about what gets done with it. Even if the patient’s primary care physician serves as a trusted originator of medical decisions, the patient needs to anchor the vector of his or her own care, for the simple reason that the patient is the one constant as he or she moves through various medical specialties and systems.

The patient needs to be the platform. Not Google, or Microsoft, or your HMO, or the VA, or some kieretsu involving Big Pharma, Big Software Companies and Big Equipment Makers.

This requires classic VRM: tools of independence and engagement. That is, tools that enable the patient to be independent of any health care provider, yet better able to engage any provider.

In other words, while the answer needs to be systematic, it does not need to be A Big System (which I fear both BigCos and BigGovs whish to provide).

The answer needs to come from geeks who know how to eliminate big problems with simple solutions. For example,

  • Consider how the Internet Protocol solved the problem of multiple networks that didn’t get along.
  • Consider how email protocols such as SMTP, POP3 and IMAP solved the problem of multiple email systems that didn’t get along.
  • Consider how the XMPP protocol solves the problem of multiple instant messaging systems that don’t get along.

We need new ways of organizing our own health care data, and communicating that data selectively to trusted health care providers through open and standard protocols (that may or may not already exist… I don’t know).

I wanted to get those thoughts down because there’s a bunch of stuff going on around health care right now (including two conferences in Boston), detailed to some degree in Health Care Relationship Management, over at the ProjectVRM blog.

* On WBUR, a Boston station I pick up here in Santa Barbara over my Public Radio Tuner.

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May the best giants adapt

May 3, 2008 in Business, Future, Life, News, VRM | 13 comments

I may be alone in thinking that Microsoft’s offers for Yahoo were all mistakes. All were too much to pay for a company that would be hollow on Day Two. But don’t get the idea that I care all that much. I don’t.

On the Gillmor Gang (where I am also a participant at the moment) Dan Farber just called online advertising “the most efficient way to make money in the world right now”. That might be true. But advertising itself is a bubble in the long run, because it’s guesswork even at its best, and making it better and better only improves a system that has been flawed fundamentally from the start, because it proceeds only from the sell side, and still involves enormous waste (of server cycles, of bandwidth, of pixels, rods, cones and patience).

Advertising is a big churning system by which sellers hunt down buyers, rather than the reverse. It pollutes the media environment and theatens to corrupt the producers it pays.

I could go on. Or I could just point to Bill Hicks’ wisdom on the matter. Bill goes way over the top in that routine, but he’s talking to your soul, not to your wallet. It’s important to pull them apart once in awhile.

Yes, I know some advertising is good. A lot of it, in fact. But I’m not talking about that advertising. I’m talking about the 99+ percent of it that’s wasted.

I’m sure few at Google, Microsoft, Yahoo or Facebook (or TechCrunch, or pretty much anywhere that makes money from advertising) agrees with much if anything of I just said. And I’d rather not argue it, because I don’t have evidence to prove my points. There still is no system by which demand takes the lead in driving (and not just finding) supply. But I believe that’ll happen eventually. And when it does, advertising will fall. Advertising is not a tree that grows to the sky, no matter how fast the Google redwood is gaining altitude.

But… I might be wrong. I dunno. It happens.

Mike Arrington just said on the Gang that he is “outraged” by something I said. I forget what it was. Some of the above, I guess.

Anyway, I don’t know what will happen to Yahoo or Microsoft. I am sure Google will still grow like crazy as long as advertising money flows from other media to the Web. But that’s not the whole story. What Google’s doing with Web services, with Android, with the Summer of Code, with Earth, Maps, Talk, Gmail, Docs… are mostly Net-friendly, cross-platform (including Linux) innovative and positive. They’re far from perfect, but not as far as Microsoft and Yahoo. That’s an advantage, if you’re into vendor sports. Which I’m not. (Well, a little, but not much.)

Who’s buying whom, who’s committing suicide by saying yes or no to acquisition offers, or the rest of the Stuff that’s front and center right now, kinda bores me. I care far more about the independence and empowerment of individual users, and of independent developers working to make a world where free markets are not “your choice of walled garden”. We don’t have that world yet. One walled gardener succeeding or failing to buy another doesn’t move us any closer.

What gets us closer will come from the edge. It’ll move under the feet of clashing giants.

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