Sequential Logic

I just finished watching the movie Bullitt on DVD. What a great movie, best known for it’s “one of cinema’s best car chase” scene. This swingin’ 60’s movie has a great jazzy soundtrack, and is peppered with…one curse word…, when Steve McQueen, as Frank Bullitt, tells the dirty politician exactly what he thinks of him and his plans. It’s dramatic, and it stands out, as Frank tells him “Bulls**t”. Ahh, gone are the days of one-curse-word cop films, and plotlines that involve the bad guy carrying a loaded handgun in a shoulder rig onboard a San Francisco to Rome flight.

But I digress. While watching Bullitt, I almost leapt off the couch, never knowing the tribute that Michael Mann had made to Bullitt in one of my all-time favorite movies, Heat. See for yourself:

1968’s Bullitt

1995’s Heat

Over on TechCrunch, there is post about the new Mundu chat software for the iPhone that I have to take issue with. It makes some ridiculous statements about the price and pricing of software, but if you can get past (and discard) those statements, the argument may be sound.

In a nutshell, Mundu wants to charge $11 lifetime to use their web-enabled iPhone chat software/service, and Nick thinks they are out of their minds to be charging money. He makes two statements that are absolutely ridiculous in defense of his argument:

1) “There are way better ways to monetize software. Offer a free version and drop an advertisement …”
2) “The marginal production cost of software is zero. That’s what the price should be.”

If there are “way better ways to monetize software”, then why are two of the richest people on the planet sellers of software? Being a fan of all the new concepts, services and software falling under the Web 2.0 umbrella, this is the one part of this movement that I can’t always agree with; software should be free, supported by advertising. I can’t find the site now, but several months ago I went to a new Web 2.0 service that was launching, and on its front page it said something like “It has become accepted that this type of service should be free, and be supported by advertising”. Wow, way to be proud of the service you’ve built and the expectations of your users. You’ve just said your software isn’t worth much to your users, and its best feature is that it can be turned into a billboard.

Next, we have the almost-always true statement “The marginal production cost of software is zero.” followed by the utterly ridiculous “That’s what the price should be.”. Yes, that is one of the beautiful things about software compared to hard goods; the marginal cost of production of a web service/software is zero. Marketing guys love to take this fact and extrapolate it into all kinds of falsehoods, like “therefore the cost should be zero”, or “so giving away 100 copies for free costs us nothing.”. Wrong. What really matters is the marginal cost of distribution, the cost to have another person use the software. There are support costs, upgrade costs, and for web services, additional server and bandwidth resources, which cost more money. Having the marginal cost of production be zero means you can put a zero in your spreadsheet for that category, where you could not for physical goods, and that’s all, nothing more.

If I can take serious liberties with what Nick has written, I think under there is a good argument. If we can say “There are way better ways to market this type of software at the point in time they find themselves”, then there is value here. As he notes, Mundu’s main challenge is to get a critical mass of users before Apple releases their own chat application for free. To do so, he asserts that Mundu needs a freemium pricing model; free with advertisements, or paid with no advertisements. I’m a big fan of this model, as it allows users to try the service, and make some money from the users who would never pay for it in the first place. It also allows users who find it valuable to pay for it, and clear up some of the valuable screen space (incredibly valuable on a handheld device) that would have been taken up by ads.

However, getting a critical mass of users to beat the big guy to the punch is not the only way to make money, nor is it the best. The best way is to make a superior product, and people will have no problem paying for it. I know this for a fact, because I am in the middle of a 14-day trial period for some contact software for my Windows Mobile phone that is far superior to the built in stuff, and I’ll definitely pay the $30 after the trial is up.

So the takeaways from this are: 1) If you want to make some money, and the 800 pound gorilla is breathing down your neck with his free version, make a superior product, and serious users will pay for it. For the rest of the users, monetize them with ads. 2) Having the marginal cost of production of software be zero only means that it is a cheaper thing to manufacture than a physical good. Nothing else.

In a classic Innovator’s Dilemma move, Gemstar has invested $2.8 million in BuddyTV. The Innovator’s Dilemma basically says that for a company to survive, it must get into new technologies long before they are as profitable as their existing technology. If they wait too long, newer, smaller companies will embrace and develop the new technology, giving them the lead when the new technology is as or more profitable than the old stuff.

Gemstar’s cash cow is the Electronic Program Guide (EPG), the time and channel based “what’s on” listing you see on your cable company’s Guide Channel, and on many set-top boxes. Gemstar has a patent on that style of listing, and gets $9 per device that uses it. They also sell and license the TV Guide brand.

This is a very interesting move for such an entrenched, traditional TV based business. Gemstar has seen the future, and they know it is broadband-enabled.

A Reuters article entitled “Participation on Web 2.0 sites remains weak” takes the cake for the most ridiculous reporting I have seen today. The author takes statistics such as “…0.16 percent of visits to Google’s top video-sharing site, YouTube, are by users seeking to upload video for others to watch…” and “…two-tenths of one percent of visits to Flickr … are to upload new photos…” to mean that participation is weak. This is ridiculous for two obvious reasons.

1) By the author’s standards, viewing of web content, and leaving comments are not “participation”, and a site on which 100% of the visits were to upload content, and 0% of the visits were to view it or comment on it would have very high participation.

2) YouTube and Flickr have massive amounts of traffic, so a small percentage of that number amounts to a very large amount of content being uploaded. These are incredibly strong communities that many Web 2.0 sites aspire to be like.

It’s obvious the author’s intent is to say that the ratio of content producers to content consumers is small, but these types of numbers reflect the intent of media distribution since cavemen drew on walls; valuable content, produced by a small number of people, for consumption by a much larger group of people. This is what makes good content with great production values so valuable; it is highly leverageable.

To infer that “participation” is weak because of this small ratio is incorrect, and makes for an inaccurate view of the power of Web 2.0 sites.

I saw a post on TechCrunch about a new video sharing/aggregation site called Magnify.net. Magnify.net allows you to link to other video sites that allow embedding (Youtube, Google Video, etc.), and aggregate videos from those sites to your Magnify.net “channel”. It also allows users to upload video directly to the Magnify.net channel, with configurable options as to how many reviews a video must get, and a minimum rating, before the video is published to the channel. This is a “community policing” way of keeping spam off the channel.

I created a channel for the New Media Expo, and found the software to be fairly intuitive, but still somewhat buggy. I already posted a bug report. In posting the bug report, I spotted another bug, as I was clearly logged in as myself, but the forum software identified me as Guest. Obviously, they’ve bolted on some third party forum software, but haven’t fully integrated it into their system.

We’ll link to it from the Attendee Tools page for the Podcast and New Media Expo, and keep the channel updated with videos about the Expo. If you have a video you want posted, feel free to upload it to the channel.

I’ve been reading Valleywag for the past couple months, and enjoy their mix of humor and commentary a great deal. However, they have one habit that I find extremely annoying. Take a look at this post. For some reason, when they mention a company or person, they feel the need to link that mention to their internal page about every story that is tagged with that person’s or company’s name, rather than to the person’s blog or company URL itself. So instead of going to the company they are talking about, I click on the link and get another Valleywag page with stories about that company, then I have to go on a scavenger hunt to find the real page for that company. Annoying!

A few days ago when Apple/EMI non-DRM’ed music was the hot story of the day, CNBC’s Power Lunch ran a clip about it. After the clip ran, Bill Griffeth wondered aloud about how that couldn’t be good for their business, because those files would surely appear on the peer-to-peer networks.

I’m guessing Bill hasn’t logged on to any of those networks lately. Approximately .2 seconds after a CD hits store shelves, there are thousands of DRM-free copies of those songs on the networks. Half of the time, those albums have somehow “slipped out” of the studios hands onto the networks several weeks before the official release.

Until the studios can plug the CD-to-P2P network hole, releasing DRM-free songs and getting paid for them is a no-brainer.

The comments following the TechCrunch post about the new SanDisk/Yahoo media device quickly hammer home the generational difference in MP3 player usage and music consumption.

In a quote from a Yahoo guy about the device, he brings up the often-heard argument that “..we all know iPods are mostly full of not-paid-for MP3s.”, and then numerous people chime in with “mine are all legal, I ripped them from the CDs I own” argument. It is, however, the first comment in the sequence that makes this whole exchange interesting. Some young whippersnapper (19 years old we learn later in the comments) says “I don’t think you understand youth culture … most of my friends probably only know how to download and add illegal MP3’s as opposed to ripping their CD’s.”, which brought me to the realization that for us old fogies (I’m 34), we get to easily make the “ripped it from CD” argument because back in the day, the only way to acquire new music was to buy the CD/album, and this is the reason we have a box full of them collecting dust in the first place. The younger generation doesn’t have this constraint; it makes more sense for them to download the track than buy the CD and rip it, as those are just extra steps to the final result, which is an MP3 file.

I don’t think I’ve ever seen the argument that “All my downloaded music is legal”, it’s always “All my music is legal, because I ripped it from my CD collection”. As we move away from having to buy physical media to obtain new music, we’ll lose the “ripped from CD” argument, and we’ll be forced to deal with the legal versus illegal downloads issue in an even bigger way.

As I read the TechCrunch comment stream, I found it funny that the majority of comments about this “new media” device were made by the old-school crowd, those of us older than, say, 25. It reminded me of the Grumpy Old Man character Dana Carvey played on Saturday Night Live. “That was the way it was, and we liked it! We loved it!” And notice that I just referenced something that only us old folks will remember, to describe something that only us old folks will remember.

Twilight Zone theme plays…..wait, there it is again!

Jack Dorsey of Twitter and the L.A. Times Travel Show “How Will Travel Change You?” guy:

Many people have been asking us what tag to use for blog posts, Flickr pictures, etc. for the upcoming Podcast and New Media Expo 2007, so we’re going with newmediaexpo2007. Hope to see you there.