Kevin Kelly has a great post on editors vs. the hive mind. Kelly begins by explaining that as the amount of bottom-up content on the web exploded, he believed that “the need for some top-down selection and guidance would only increase in value. As the amount of content expanded, the demand for some intelligent guidance and selection would be worth a lot to some people.” He was shocked, then, “to see the Wikipedia disprove this notion, and show how well the bottom could work without any editors at all.” But, he goes on to say, “the supposed paragon of adhocracy — the Wikipedia itself — is itself far from strictly bottom-up. In fact a close inspection of Wikipedia’s process reveals that it has an elite at its center, (and that it does have an elite center is news to most). Turns out there is far more deliberate top-down design management going on than first appears. This is why Wikipedia has worked in such a short time.”

From here, Kelly begins to build an explanation of the forces at play by drawing an analogy to evolution and intelligent design. Pure hive mind systems may eventually evolve into a valuable end-state, but they do it in biological time - relative eons when compared to internet time. No one can wait that long, so enter intelligent design.

We are too much in a hurry to wait around for a pure hive mind. Our best technological systems are marked by the fact that we have introduced intelligent design into them. This is the top-down control we insert to speed and direct a system toward our goals. Every successful technological system, including Wikipedia, has design wired into it.

What’s new is only this: never before have we been able to make systems with as much “hive” in it as we have recently made with the web. Until this era, technology was primarily all control, all design. Now it can contain both design and no-design, or hive-ness. In fact, this Web 2.0 business is chiefly the first step in exploring all the ways in which we can combine design and the hive in innumerable permutations. We are tweaking the dial in hundreds of combos:

1) dumb writers, smart filters, no editors.
2) smart writers, dumb filters, no editors
3) smart editors, smart filters, no writers
…ad infinitum.

The key, then, is to find just that right combination of hive mind and intelligent design. This searching is going on everywhere now, with a great example being Citizendium’s effort to improve upon Wikipedia.

We mostly find legacy companies tending toward an overabundance of design, while new toddler companies place an emphasis on the hive mind. Somewhere in the middle lies the right mix, but that somewhere changes over time. As the new variable in the equation, the hive mind is underestimated by most, leaving those “hive mind centric” applications to achieve real innovation and garner the strongest accolades. The problem for legacy companies is that their perception of how far the hive mind can take us is too conservative. Add that conservatism to institutional constraints on audience control and a legacy company that feels like it’s pushing the envelop is often just pulling its head out of the sand. With many bottom up applications available as examples, companies with deep expertise in editing should have an advantage over pure hive mind companies at taking some of these models and applying judicious amounts of intelligent design. The challenge, though, is one of attitude.

Jaron Lanier writes an op-ed in the New York Times disavowing his “Piracy is Your Friend” days, and announces that he now believes content creators should be paid for their work.

Like so many in Silicon Valley in the 1990s, I thought the Web would increase business opportunities for writers and artists. Instead they have decreased. Most of the big names in the industry — Google, Facebook, MySpace and increasingly even Apple and Microsoft — are now in the business of assembling content from unpaid Internet users to sell advertising to other Internet users.

Oddly, Lanier believes that the solution lies with “software engineers and Internet evangelists [who] need to exercise the power they hold as designers.” He goes on to note that people are quite willing to pay for virtual goods online in Second Life, as well as music “within the ecosystem of the iPod.” Although many would like to believe that “We could design information systems so that people can pay for content” and voila, people would, it’s hard to see that actually happening. People can also drive 55mph, exercise regularly, and floss between their teeth, but that doesn’t mean they do. The problem is the abundance and digital nature of content. No popular movement will ever result in paid content, only a change in the underlying economics can do that. As for Second Life and the iPod, there have always been people willing to pay for games, and the iPod became so popular because it provided a portable platform for everyone’s pirated music. iTunes wasn’t even launched until two years after the iPod came out.

When it comes to free content, the genie is out of the bottle, although it’s not clear that the bottle was ever strong enough for the genie. Content aggregators and content consumers delight in criticising the creators (aka MSM) for not understanding the new world, but none of them have exactly stepped up to show everyone how it’s done; how to produce high quality, original content in exchange for online advertising revenue. Until someone does, it seems that the fate of the internet as a vehicle for communicating information is dependent on the success of those creaky old mainstream media companies in finding a solution.

Last month, Duncan Watts, a professor of sociology at Columbia University, wrote a New York Times article about some work he and two colleagues did on the predictability of hit songs.  The work had much broader applicability than just music, of course, and offers an explanation of why predicting hits (in music, movies, fashion, etc.) is so difficult.

 After noting that “Conventional marketing wisdom holds that predicting success in cultural markets is mostly a matter of anticipating the preferences of the millions of individual people who participate in them,” he goes on to say that

The common-sense view, however, makes a big assumption: that when people make decisions about what they like, they do so independently of one another. But people almost never make decisions independently — in part because the world abounds with so many choices that we have little hope of ever finding what we want on our own; in part because we are never really sure what we want anyway; and in part because what we often want is not so much to experience the “best” of everything as it is to experience the same things as other people and thereby also experience the benefits of sharing.

This idea that what is slightly more popular can become even more popular as a result of that initial popularity, is called “cumulative advantage.”  In the experiment Watts and his colleagues conducted, subjects chose favorite songs in situations in which they knew what songs others had chosen, and in which they did not ( the actual experiment was a bit more complicated, of course). 

In all the social-influence worlds, the most popular songs were much more popular (and the least popular songs were less popular) than in the independent condition. At the same time, however, the particular songs that became hits were different in different worlds, just as cumulative-advantage theory would predict. Introducing social influence into human decision making, in other words, didn’t just make the hits bigger; it also made them more unpredictable.

The results suggested that predicting the future is not just difficult, but impossible, no matter how much knowledge we have or analysis we do.  Because we can always create a story after the fact about why something was successful, or a hit, we rarely lose our belief in the predictability of the world.  As Watts says, we can’t stop trying to predict the future, but we do need to be more skeptical about both predictions and explanations.  That skepticism holds for predictions of failure too.  Perhaps the best way to look for hits is to launch as many new products as possible in ways that allow you to hold back substantial investment until it’s likelihood of success becomes clearer.  A little early humility may go a long way.

MOO, that darling of the Digerati (is that still a word?), has launched MOO notecards.  MOO is best known for its mini-cards, which are small versions of business cards with a picture of your choosing on the back and text and an icon of your choosing on the front (or is it the other way around?).  In other words, they are almost totally customizable.

Similarly, MOO notecards will allow you to choose a picture for the front and text and an icon for the inside.  Inside, however, is a bit of a misnomer as the cards are really postcards with a flap that allows them to stand up for display.  Plenty of online card companies allow you to customize cards, but MOO’s format gives the whole thing a twist and makes it a bit  less formal.  Because the customer base for its mini-cards is  probably not the same as online card buyers (just a guess), MOO may also find that it is able to tap into a relatively new market for cards.

While hardly earth-shattering, this product launch is simply more evidence that the world is passing traditional card companies by.  If you open up the greeting card market to include substitutes (as you must), you find yourself in the “social expressions” market.  Now you realize that text messages, emails, blog comments, video cards, and Facebook “Wall” postings are all competition for greeting cards.  Like so many businesses, card companies are faced with some tough choices - become a true social expressions company and broaden into technology based tools as well as paper, stay with paper but move into customizable cards online, or stay with traditional, non-customizable paper cards.  The first choice is dangerous because you’re moving into unknown territory, while the last two mean you have to accept a shrinking market (rapidly shrinking in the latter case) and enter new businesses to make up the lost revenue.  Sourcing low cost cards from China will only get you so far.

PSFK posted an extract from a Bob Lefsetz article arguing that not only is the old music industry model dead, but the price of music will soon be zero.  From Lefsetz:

YOU need to pay the mortgage. YOU need to go on vacation to the Caribbean. But the new musicians? They’re willing to sleep on the floor and eat ramen. Hell, they’re in their twenties, they’re not on the corporate track, they’ve got different ambitions!

…You say kids can’t make it giving their music away for free because YOU can’t make it. But they can outlast you, starve for years all in pursuit of their art. They don’t want an expensive video, never mind a stylist. They don’t want to play the game. And, if you don’t play the game, I hate to tell you, it just doesn’t cost that much.

If you’re a music consumer, this is great stuff, if you’re a record label executive, this is scary stuff.  While this is all true, you can never, ever discount the profit motive.  You know when fans get upset because their favorite band just sold out by lending their music to a car commercial?  What happened is that the members of the band realized that THEY need to pay a mortgage and THEY need to go on vacation to the Caribbean.  For sure, new bands can now bypass the old labels, but sooner or later music for the love of music gets old, and it becomes music for the love of money.  Just read about altruism’s current poster boy Bono’s efforts to avoid taxes and you’ll see what I mean.

The point, then, is not that the music business is dead because all music will forever be free (although it may be in certain modes of delivery), but that the business has changed and anyone who hopes to make a living in it needs to play by the new rules.  A large part of MySpace’s value comes from it’s ability to give new and independent musicians a forum and a delivery channel.  MySpace is trying to play by the new rules (or at least, was).  There is money to be made and some of it will be made by helping new artists avoid the old labels.  If the labels are smart, they’ll begin to develop products and services that have the potential to destroy their traditional business (and current cash cow).  How many companies do you know that  have the guts to do that?

Several months ago, Malcolm Gladwell wrote an article for the New Yorker in which he explored the difference between puzzles and mysteries. It’s a fairly long article, but full of excellent insights. Gladwell, noting Gregory Trevington’s distinction between puzzles and mysteries, described the location of Osama bin Laden as a puzzle, while what would happen in Iraq after the fall of Saddam Hussein was a mystery.

The distinction is not trivial. If you consider the motivation and methods behind the attacks of September 11th to be mainly a puzzle, for instance, then the logical response is to increase the collection of intelligence, recruit more spies, add to the volume of information we have about Al Qaeda. If you consider September 11th a mystery, though, you’d have to wonder whether adding to the volume of information will only make things worse. You’d want to improve the analysis within the intelligence community; you’d want more thoughtful and skeptical people with the skills to look more closely at what we already know about Al Qaeda. You’d want to send the counterterrorism team from the C.I.A. on a golfing trip twice a month with the counterterrorism teams from the F.B.I. and the N.S.A. and the Defense Department, so they could get to know one another and compare notes.

The distinction may be easiest to see in national security affairs, but much of the article is about Enron, which has been treated as a puzzle (we weren’t told enough), but was more accurately a mystery (we didn’t properly interpret what we were told). Those analysts that treated Enron’s financial statements as a mystery, were the people who recognized the compnay’s problems before the rest of the financial world.

There are major ramifications for national security as we move from treating the world as a puzzle to treating it as a mystery. During the Cold War the CIA spent a lot of time trying to solve puzzles like the size of the Soviet missile arsenal.

Now most of the world is open, not closed. Intelligence officers aren’t dependent on scraps from spies. They are inundated with information. Solving puzzles remains critical: we still want to know precisely where Osama bin Laden is hiding, where North Korea’s nuclear-weapons facilities are situated. But mysteries increasingly take center stage. The stable and predictable divisions of East and West have been shattered. Now the task of the intelligence analyst is to help policymakers navigate the disorder.

It seems to me that when companies with strong financial controls and frequent internal financial reporting still somehow find themselves surprised by bad news they feel they should’ve known earlier, they have fallen victim to a puzzle mindset. With controls in place to set standard costs, capture variances, and report massive amounts of information monthly, the company believes the puzzle can be solved. With perfect information, costs are a puzzle, it’s just that the “perfect” part never quite seems to happen. For that reason, treating costs as a bit of a mystery, may just be the proper approach. What CFO, though, is willing to admit that despite a smart staff and millions of dollars spent on an ERP system, costs are still a bit of a mystery? Yet with the hubris of believing that your system will capture all of the information you need, often comes an inability to recognize when unexpected business events disrupt the system. You may be set up to capture all of those emergency air freight costs coming out of Shanghai, but what about the vendor who decided to air freight out of Tianjin?

Strategy, of course, is a mystery at its heart. It’s tempting to view it as a puzzle, using what happened yesterday as the interlocking pieces, because that means there is an answer certain. We want that to be true, but it isn’t. As Gladwell explains, “Puzzles are ‘transmitter-dependent’; they turn on what we are told. Mysteries are ‘receiver dependent’; they turn on the skills of the listener…” For this reason, puzzles “require the application of energy and persistence, which are the virtues of youth,” while “Mysteries demand experience and insight.” This is a good lesson for businesses trying to transform themselves as they move into a new century. While many things have aspects of both puzzles and mysteries, the future is a mystery. Some puzzles need to be solved along the way, but after the data is collected, it still comes down to the application of experience and insight.

From Agenda comes some stories that should provide clues to mainstream media players about how they can serve their advertisers better. First is a story in USA Today about how teens are being targeted with cell phone marketing. Cell phone marketing isn’t particularly new, especially if you’ve ever driven into mainland China (where your cell phone is immediately bombarded by text message ads), but one statistic in the story especially caught my eye:

[The] CEO of Access 360 Media, says a holiday coupon campaign for retailers including f.y.e. saw redemption rates of about 40% compared with less than 2% for many print or online coupon campaigns. Shoppers text a code found on store signs to get the coupon, then show it displayed on their phone at checkout.

If you’re a newspaper, you realize that you’re selling a product (print circular) with a 2% response rate, when there’s a competing product available with a 40% response rate. Ouch! How do you compete with that? Well, maybe you don’t. Maybe you join in and figure out a way to bring that kind of relevant advertising to your readers, thereby serving your advertisers. Maybe you print ShotCodes in the paper so that your advertisers can run the digital version of the old Blue Light Special. When readers who took a picture of the ShotCode with a location aware phone are in your advertiser’s store, a time limited coupon can be sent to their phone, bringing a sense of anticipation and excitement to the shopping experience. Can you act as the clearinghouse for these messages for your advertisers?

Next, we read of Kate Moss’s new clothes collection’s debut at London’s Topshop. The debut of this line on May 1st is garnering an incredible amount of attention (try Googling “Kate Moss” and “Topshop”), with large crowds expected at Topshop stores. I wonder if a London newspaper or UK magazine was able to sell an ad package leading up to this launch. A combination online and print package, among other things (how about Twitter messages about the crowd size at various stores?), that reveals a few items in the days before the launch could really help whip up a frenzy!

Finally, there’s “Bum Rush the Charts,” an indie effort to push the song “Mine Again” by Black Lab to the top of the iTunes charts. As the Web site says:

We can match and exceed the reach of big media, corporate media, labels, and the entrenched interests. On March 22nd, we are going to take an indie podsafe music artist to number one on the iTunes singles charts as a demonstration of our reach to Main Street and our purchasing power to Wall Street. The track we’ve chosen is “Mine Again” by the band Black Lab. A band that was dropped from not just one, but two major record labels (Geffen and Sony/Epic) and in the process forced them to fight to get their own music back. We picked them because making them number one, even for just one day, will remind the RIAA record labels of what they turned their backs on - and who they ignore at their peril.

This is happening today and I wouldn’t bet against these guys. The question for mainstream advertising vehicles is obvious - how can I generate this kind of enthusiasm and reach and passion among my readers for my advertisers. This kind of thing is particularly difficult because as a traditional advertising vehicle you are immediately suspect. The first question then, is how do I get the credibility with my readers to even suggest I can create a community that they would be interested in, much less actually do it.

On second thought, I guess the first question, if you’re a newspaper, is how do I get readers with passion, period? They all seem to be talking about everything but traditional media.

Any day now, China’s National People’s Congress is expected to pass a private property law that gives the property of individuals the same protection as that of the state. The New York Times notes that,

Approval of the property law was expected last year, but party leaders tabled the proposal after an unusually public and passionate ideological fight erupted. It was led by leftist scholars who argued that the law would worsen income inequality, legalize the misappropriation of state assets and undermine the socialist tenet of state ownership of property.

No doubt there were some sleepless nights spent at CCP headquarters over this one, but in the end, economic progress won out over communist ideology (wasn’t that battle won long ago?).

Also reporting on the law’s imminent passage, the Economist notes,

Every month sees thousands of protests across China by poor farmers outraged at the expropriation of their land for piffling or no compensation. As in previous years, placating those left behind in China’s rush for growth has been a main theme of the NPC

As if to prove the point, 20,000 people rioted in Hunan during the first week of the Congress. Although ostensibly over transportation costs, it’s easy to see this as another protest by those “left behind.” Lest we expect instant change from the impending law, the Economist gives us a dose of reality:

This latest law, likewise, will not bring the full property-rights revolution China’s development demands. Indeed, it will not meet the most crying need: to give peasants marketable ownership rights to the land they farm. If they could sell their land, tens of millions of underemployed farmers might find productive work. Those who stay on the farm could acquire bigger land holdings and use them more efficiently. Nor will the new law let peasants use their land as security on which they could borrow and invest to boost productivity. Nor, even now, will they be free from the threat of expropriation, another disincentive to investment. Much good land has already been grabbed, and the new law will merely protect the grabbers’ gains.

Outsourcing manufacturing to China continues to be protectionists’ bugbear, and they will likely see anything that makes the country more welcoming to capitalists as bad. A freer China, though, is good for the United States and for the world. Yes, it may prompt more businesses to outsource or invest in China, but that train has already left the station. The best thing for the US economy is for China to move from hungry capitalists to satisfied capitalists. When that happens wages will begin to equalize and China will fulfill its potential as the home of billions of prosperous consumers. This property law is one more step down that road.

As a sad aside, the Times notes the confiscation of land by “corrupt officials working in concert with developers.” As China moves closer to a Western economy, not so long ago the US took a step closer to China’s economy.

[Update: For more extensive coverage see China Law Blog.]

A few other noteworthy nuggets that came out of the PSFK conference on Tuesday were from the panel discussion titled “Eco Shift or Greenwash.” The panel was comprised of Tamara Giltsoff, Hemal Vasavada-Gill, Jill Fehrenbacher, and Marc Alt.

The first few people to speak, Marc and Jill, both noted companies that they felt hadn’t received proper credit for their Green efforts. In Marc’s case it was Wal-Mart (several initiatives) and in Jill’s case it was H&M (organic cotton). I had expected fire-breathing eco-dragons on this panel and instead heard some rational discussion of corporate Green efforts. This, along with some other discussion, made me feel that the eco-ground is truly shifting for activists. With opinions expressed in the media and among the urban cognoscenti swelling in their favor, they seem to be shifting into business mode from fire-breathing mode. If I’m right, this should mean that companies can stop trying to please activists with their Green products and start trying to please consumers. I’ve said many times before that Green products will only become widely accepted when they offer benefits beyond their Greenness. Those who truly believe in the cause should work on creating superior Green products, not just Green products. It looks like there may be hope that the shift is beginning to occur.

The danger for companies is not over yet, however, as evidenced by an interesting quote from Hemal: “Green is a liability.” She wasn’t entirely clear on what she meant, but I took her to mean that if you do Green “wrong,” the price you pay is high. To me, this brings to mind the lessons learned by the college football world as a result of the criticism Notre Dame received when it fired Ty Willingham. Whatever it was that the critics wanted to teach, the lesson learned was don’t hire a black coach unless you are absolutely positive you won’t need to fire him. With Green products the lesson may be don’t bother unless you are willing to make your product, initiative, etc. absolutely unassailable. The shame of this is that it leaves no room for companies to make honest, but flawed, efforts. What I heard from this panel, I hope, means that is also beginning to change.

The best evidence of a change in the air came from Tamara who said she has been, somewhat controversially, “pro-greenwash.” Her belief is that even if flawed, a Green initiative at least starts the conversation. I think that’s a healthy attitude and one that may actually result in truly remarkable Green products.

The New York Times reports today on a new Internet start-up.

Next New Networks, a New York-based Internet start-up run and backed by former executives of MTV and Nickelodeon, will announce plans today to begin a series of video-oriented Web sites — what the company calls micro-networks — on niche topics like do-it-yourself fashion, comic books, car racing and cartoons.

The company has notable founders, credible investors, and is targeted at online video, all aspects to give it that buzz juice every new company wants when it launches. What interests me about the company is the kind of shows it plans to offer:

Next New Networks plans to blend elements of old and new media into a type of hybrid entertainment that is different from traditional television and user-generated sites like YouTube. Its various Web properties will revolve around professionally produced videos of three to eight minutes, which it plans to pitch to sponsors as safe and predictable places to advertise online.

Many of the programs will solicit contributions from their audiences, but the company will screen submissions before they approved as final product. The company plans to generate some programming itself while also identifying talented video contributors and bringing them into the Next New Networks fold.

The article leads us to believe that this format is mainly driven by the need to find a real revenue model from short Internet video. With YouTube only pulling in $15mm in 2006, it’s pretty clear that the right model hasn’t been developed yet. Advertisers are worried about associating their brands with the free-for-all that is consumer generated video. They’re happy to support the best of it, run away screaming from the worst of it, and right now there’s no way to know if the best or the worst will follow their ad. With this “curator” model, Next New hopes to deliver consistent quality which should allow advertisers to buy space with much greater confidence in the product.

Another reality, however, is the fact that we all know deep down that to be really valuable, online video needs to be curated. That is, we need someone to root through the mass of stuff and separate the wheat from the chaff. Not because we can’t decide for ourselves, but because we don’t have the time.

Remember chat rooms? In the early and mid 90s, people flocked to them for the sheer novelty of telling absolute strangers what was wrong with the world and how to fix it, all while using this cool new technology. There were specific community oriented chat rooms, but the wide open general subject rooms were most popular. Soon, though, we realized that it was all a bit like walking down the street and asking the first person you saw what he thought of US foreign policy. Turns out you really don’t care all that much what he thinks. You care what people you respect think, whether they are friends, family, or experts.

Consumer generated video is a bit like chat rooms were. Neat technology, a chance to express yourself, and some hidden gems among the generally boring or idiotic mass. Just as we found a way to connect with those people with whom we really wanted to talk, we’ll find a way to watch those videos that really interest us. That, I think, is what Next New Networks is really about.

I find it interesting how many people think of the internet as a product. For many, the internet is simply the World Wide Web and the sites that are found on it. This is why, for example, people spend so much time worrying about the battle of internet video vs TV, and why Wal-Mart’s video download service is declared a failure because DVDs are easier. Well, I find it hard to imagine a future in which TVs cannot access the internet and DVDs are the dominant form of video distribution. Maybe that future isn’t real close, but it’s there. It seems silly to mock early (if not pioneering) efforts at new forms of content distribution simply because those efforts are not yet ready to dominate.

The internet is a distribution and communication channel that is often confused with the device that currently dominates human interaction with that channel - the PC. Remember how silly the idea of an internet accessible oven seemed? That’s because we thought of the internet as a product. It didn’t seem like there would be a large market for people who want to read internet recipes on their oven. Well, there isn’t, but if we think of the internet as a communication channel, we begin to think that there might be a larger market for people who want to control and monitor their ovens remotely. If we think of the internet as Web sites, we have trouble moving beyond the PC. If we think of it as a channel, all sorts of opportunities open up.

One day, our TVs will connect seamlessly to the internet. Because the TV can’t do it today, if you’re a hardware company that seems to be a pretty profitable area to work on. If, on the other hand, you’re a video or movie producer, it sure seems like you should be preparing for that converged future while spending as little time as possible on today’s methods of distribution. Make sure you have a plan for the day when viewers aren’t bound to network schedules and have a broad choice of content distributors. Beyond TVs and PCs, though, are many other devices that can benefit from connecting to the internet. Mobile phones are an obvious one (since that process is well underway), as are cars.

In reality, if such connectivity were cheap enough, just about anything could benefit. Sensors on your furnace relay performance information to the manufacturer’s diagnostic application which returns the results to you. Your dog’s gps collar tracks him for you when he runs away. The list is endless but the point is that the internet (or whatever it evolves into), as a channel, will become ubiquitous. This means that information will become ubiquitous as well. It will always be at our fingertips. Content producers need to understand that and then make some judgements about how long that future will take and what intermediate steps will be needed to reach it.

we make money not art has an interesting interview with Takashi Matsumoto who is a Ph.D. student of Keio University, Media Design Program and belongs to Okude Lab. Okude Lab is working on a research project called “Ubiquitous Content.” One of Matsumoto’s projects is Pileus: The Internet Umbrella. “This is an internet browser of an umbrella to entertain people in a rain.” Yeah, I’d say the internet on an umbrella is making it ubiquitous. If you look at pictures of this device, it looks unwieldy, unsaleable, and in many ways just silly. If I were a Wal-Mart movie download critic I’d call it a failure. If I were someone else I’d think of it as interesting and wonder where it might lead.

Edmund Phelps, the 2006 Nobel Laureate in economics, wrote a fascinating piece on OpinionJournal.com Monday, in which he discussed reasons for the disparate economic performance of certain Continental European nations vs. the United States. As I read this, two questions kept running through my mind - what might this mean for a company’s European expansion plans, and is my own company more like the Continent or the US?

Phelps posits that the relative economic underperformance of the big three Continentals (France, Germany, and Italy) stem from their different economic model. In Phelps’s words:

There are two dimensions to a country’s economic model. One part consists of its economic institutions. These institutions on the Continent do not look to be good for dynamism. They typically exhibit a Balkanized/segmented financial sector favoring insiders, myriad impediments and penalties placed before outsider entrepreneurs, a consumer sector not venturesome about new products or short of the needed education, union voting (not just advice) in management decisions, and state interventionism. Some studies of mine on what attributes determine which of the advanced economies are the least vibrant–or the least responsive to the stimulus of a technological revolution–pointed to the strength in the less vibrant economies of inhibiting institutions such as employment protection legislation and red tape, and to the weakness of enabling institutions, such as a well-functioning stock market and ample liberal-arts education.

The other part of the economic model consists of various elements of the country’s economic culture. Some cultural attributes in a country may have direct effects on performance–on top of their indirect effects through the institutions they foster. Values and attitudes are analogous to institutions–some impede, others enable. They are as much a part of the “economy,” and possibly as important for how well it functions, as the institutions are. Clearly, any study of the sources of poor performance on the Continent that omits that part of the system can yield results only of unknown reliability.

Phelps also explores attitudes and values of people in the Continentals toward work, decisionmaking, and responsibility, and finds them quite different from those in the US and Canada.

The weakness of these values on the Continent is not the only impediment to a revival of dynamism there. There is the solidarist aim of protecting the “social partners”–communities and regions, business owners, organized labor and the professions–from disruptive market forces. There is also the consensualist aim of blocking business initiatives that lack the consent of the “stakeholders”–those, such as employees, customers and rival companies, thought to have a stake besides the owners. There is an intellectual current elevating community and society over individual engagement and personal growth, which springs from antimaterialist and egalitarian strains in Western culture. There is also the “scientism” that holds that state-directed research is the key to higher productivity. Equally, there is the tradition of hierarchical organization in Continental countries. Lastly, there a strain of anti-commercialism. “A German would rather say he had inherited his fortune than say he made it himself,” the economist Hans-Werner Sinn once remarked to me.

Much of this seems to come down to a country’s ability and willingness to innovate and implement that innovation. We’re so fond of complaining here in the US about all of our jobs being outsourced and wondering what can be left as our comparative advantage, when the answer is staring us in the face - us! We, and our society, and our attitudes are our advantage. Policymakers had better understand this and start working to get government out of the way of innovation and entrepreneurialism. Notice, I didn’t say government should spur innovation and entrepreneurialism; government should get out of the way. The more we try to close down our economy’s freedom to innovate, whether by imposing restrictive regulation or cutting off the flow of immigrants, the more we squander our competitive advantage. The same holds true for companies. Companies with stifling cultures of controls and risk avoidance mechanisms kill the advantage they have over foreign competition. Whether in societies or economies or companies, rewards come to those with more (responsible) freedom, not less.

Steve Rubel at Micro Persuasion has an interesting post on “The Future of Cable TV in an Open World.” He posits three scenarios:

1) The Cablecos Embrace Change and Re-address the Economics
Right now cable and satellite TV are very inefficient. If you hate sports, you’re out of luck. You still need to pay for it since it sits on your deck. The smart cable/satellite companies will begin to experiment with a-la-carte pricing. Further, they will make sure their set top boxes can connect to the Internet, allowing you to choose what goes on your set from a virtually limitless choices.

2) The Cablecos Simply Become Plumbing
Cable and satellite companies are not exactly known for their speed. The tech players mentioned above and others, such as Google and Yahoo, could rush in to provide subsidized boxes for your TV if you were to subscribe to their so far non-existent IPTV services. They will deal directly with the networks and reduce the value that your cable company offers to just pipes. This will turn their services into plumbing - commodity bandwidth.

3) A Hybrid Scenario
Under a third scenario, both IPTV and cable co-exist together in your living room. They are used for different purposes. Cable recognizes that they offer the greatest value in serving up live and local and leave the canned national content to go the way of IPTV carried by others.

While I agree these are likely scenarios, I look at the issue a little differently. I think much of the future hinges upon how the content creators get paid. As a principle, that’s obvious, but the answer, I think, drives the cablecos’ future.

As a consumer, I want as much programming as possible, from wherever it comes, and I want it on my TV screen. The cable operator’s goal must be to become the consumer’s gateway to all video programming. If this is accomplished, the operator has at least secured a role as plumbing. Next, the operator must seek to provide that video to the consumer. The degree to which this is accomplished determines if the future is the hybrid scenario or a re-addressing of the economics.

The role of video provider also depends, however, on how the content creator gets paid. If the creator is paid in advertising dollars, cable begins sliding back toward plumbing because it has little to offer the content creators. One possibility is that the cablecos develop strong ad sales operations, gurantee revenue to content creators and then try to sell enough ads to cover the guarantee plus a profit. Or, perhaps a licensing model, which would be similar.

If networks (content creators) get paid as they do today - a combination of ads and carriage fees - the future may look much like it does today. NBC may have its videos on the Web, but only a viewer using a Comcast (or other “partner” cable operator) cable modem/set-top box can see them. YouTube will become another network earning carriage fees from the cablecos. Cable and its competitors will all scramble to make sure they have at least the same content as each other, while trying to get one more network, online network, or user generated network that the rest don’t have. The model for new networks would be flipped on its head. They would no longer have to beg cablecos for carriage, they would just start out as free networks with carriage everywhere. As they became more popular they could choose to join with cablecos for carriage fees. Pricing models for this type of arrangement abound, although none is obviously superior. There’s all-you-can-eat (one subscription price gets you everything), tiers, (as the cable companies currently offer), a-la-carte, the New York Times model (some content free, some premium, charge for archives), etc. The key point here is that the cablecos pay the content creators.

Another possibility is that consumers pay the content creators themselves by subscribing to individual networks or Web sites. This seems the messiest and least consumer friendly, but it’s a possibility.

If I were a cable operator today, I would be thinking about how I can make the most money for content creators. If I can make them money, I’ll get access to their content (maybe exclusive access), and I’ll remain relevant to consumers. If I don’t make them money, they don’t need me and I become plumbing.

One other thing - cablecos ignore wireless (whether by satellite, wifi, cellular, or otherwise) at their peril. The world naturally moves from less freedom to more freedom (though it’s always a bumpy road) and there’s no way we’ll continue to be happy tethered to a cable.

Just a couple of weeks ago I wrote about grafitti’s (not recent) move into the mainstream. As if on cue, I see this January article from the Telegraph, discussing the high prices of graffiti art. From the article:

The die-hards will say it’s a sell-out, but it’s a sign of the times. Graffiti art has shifted: from back alleys and railway carriages to high-street galleries; from vandal status to cultural worship; from the unsaleable to the hip consumer product.

With works selling for thousands, and tens of thousands, of pounds, this art style is ready to influence the design of mass market products.

From Artnet News comes word of the launch of Slart, a magazine covering Second Life art. Slart is

designed to bring ‘real world art issues’ into the virtual sphere, and to make sense of an imaginary art scene that already involves some 100 online galleries. Among the articles on tap for the premiere issue are ‘Will virtual artworks appreciate in value?’ and ‘Is all virtual art illustration?’

Many believe that Second Life’s influence on our First Life is overblown, and I don’t want to join the hype, but clearly some people are taking Second Life virtual art pretty seriously. If you create and sell graphic centric products, you definitely want to keep an eye on what is happening there. Below you can see a video of Second Life’s Aho Museum opening. To my eyes, the objects range from pretty basic to pretty interesting. I’ll leave it to others to debate if it’s “art” or “illustration.”

(Both articles via artkrush)

A few weeks ago I noted Don Norman’s article on consumers’ desire for more complex products. Yesterday’s New York Times pointed out the corollary to that rule - consumers like higher prices. Well, not really, but when you’re trying to sell a product with more features than an alternative, consumers tend to suspect its quality if it’s sold for the same price. The New York Times article, which cites a study done on all-in-one (i.e. more features) products, says:

‘If you combine different products, you must give people a reason why they should not discount the performance of each individual function,’ said Alexander Chernev, the paper’s author and an associate professor of marketing at Northwestern University. ‘The moment they think it’s more expensive, they find a way to account for this discrepancy’

At first blush, this may not seem like new news, but let’s stop and think for a minute. We’ve now learned that consumers prefer complex products to simple ones, and they like those complex products to cost more because the price serves as confirmation of the product’s value. This doesn’t tell us how to expand the market for high-priced, complex products, but it does tell us how to go about capturing as much of the intrinsic market as possible.