Media Bands

For most of media history, the creation of a full media package has had to involve many professional people. Whether it was a book (or other forms of printed content), a recording (or other forms of audio content) or a movie (or other forms of video content), the production of media goods have traditionally involved multiple people, starting with the basic creator, continuing with his or her editors, and ending with the packagers who put finishing ancillary touches to the product.

Over the years, many such structures crystallized, providing gainful employment to all those involved in the content creation chain. This portion of media creation was then followed by a supply chain surrounding the complete packaging, marketing, sales, and distribution (and not always in that order) of media pieces.

In the early 1990s, with the rise of the Internet and development of web based media, many outfits started emulating the traditional models surrounding media creation, focusing only on the fact that distribution costs were lower than they were for traditional media. So people talked about online magazines, online TV shows, etc… attempting to replicate the old business templates on this new world.

In each case, an interesting phenomenon developed: the packaged output became the brands that were known, with the vast majority of the people who created that media brand being largely unknown. For example, a publication like Time magazine or Business Week would be recognized as a popular media brand but few of the people who wrote, edited, and generally packaged it were as well known. With the rise of television and movies, some sub-brands started emerging, with actors and directors getting more recognized and becoming more important as brands that the studios or channels that were carrying their latest offerings. As such, individual talent started getting some level of recognition, and it became possible to build brands around an an individual.

With the rise of the web and the lowering in the cost of media production and distribution, whether it is for printed media (blogs), video (YouTube), or audio (MySpace, LastFM, Pandora), it became possible to establish virtual teams that quickly banded for an individual effort and disbanded once that effort was completed. So individuals started getting more noticed, with certain blogs being single-man or single-woman operations and building new brands around that person (in this context, TNL.net qualifies as my own personal brand but could be considered as a sub-brand of Tristan Louis, which is spread across a wider audience).

Media Brands

Meanwhile, certain forms of media brands emerged organically because of the input of thousands or millions of individuals who contributed their effort for free. Think, for example, of the mostly anonymous contributors that wrote and edited most of wikipedia. I would call this category of people bands. The name on top (Wikipedia) can continue to exist with or without the current contributors as new contributors can come in to replace the ones who have left.

In a way, the people who have not established themselves as individual brands run the risk of being forced in an out from under other brands. A writer for Bloomberg today can easily be a writer for Business Week or Fortune tomorrow (this is precisely why Bloomberg became a content creation powerhouse by surprise as no one paid attention to who was creating the content).

Challenges

Depending on the side you are on, new issues are about to arise. On the media band side, the contest for supply and demand is going to get worth. Non-internet media brands are generally packed with tens or hundreds of people producing a very glossy, very professional package most of the time. By contrast, internet media is produced in an unfinished form, updating stories as they go along with feedback from other sources as well as from the people who read or view the content. In the battle between individual contributors, an equilibrium eventually arises, sorting the truth out thanks to the balance of input from different parties. This means that the process of editing is no longer in the hands of editors but it becomes a collaborative effort from everyone touching the media product at hand.

On the other side of the spectrum, the media brands now have to compete with a larger set of brands. As distribution costs move close to zero and the established structure of media creation can be replaced by a participatory model where the brand is mainly involved in the business of curating input from its consumer/producer, the rise of individual curators as individual brands is reshaping the competitive landscape. When a single individual can reach hundreds of thousands of people on a regular basis merely by writing and sharing in public, the economics of brand stardom start falling apart.

With content creation and content curation now getting so close to each other that they will soon embrace and form a new model of media, created in a much cheaper fashion, in partnership between the media initiator and his/her audience-communicators, traditional media organizations will have to get focused on creating media that is not only to be consumed but that cannot exist without active participation from its consumers/creators.

Shows like “America’s Idol” or “Britain’s Got Talent” are starting to present this media band approach, while wikipedia has already demonstrated it works in new gathering and efforts around user-generated content in journalism, whether it is of an entertainment nature (eg. Gawker) or investigative one (eg. the undoing of George Allen or the Walter Reade Hospital scandals being covered by bloggers until mainstream kicked in).

And now, I will turn it to you, my media band, to help me build on this scaffolding of a concept.

The many faces of subsidized media

Do you buy the media you consume or is the media you consume subsidized in some way?

For the most part, one could argue that, in the United States, media is subsidized. When mentioning that word, most people will think of government subsidies but, while such subsidies exist in countries like the UK (eg. the BBC) or France (eg. France 24), the subsidies tend to come from more commercial sources.

We will look into that type of subsidies a bit later but let’s first look at one form that people seldom consider as a subsidy: advertising.

In the USA, such subsidies come in the form of advertising, which often represents the largest part of the revenue pie for newspapers, magazines, television, radio, or web media. The cost of a particular item is generally lower than one could find in Europe and consumer behavior treats such media accordingly, as a potentially disposable consumer good to which little value is given. This creates a particularly tricky situation for most media outlet as they are seeing their advertising margin erode, the result of greater efficiencies and return on investment presented by web media.

Genesis of low ad rates

In a way, such wound is self-inflicted. Once upon a time, in the early days of the commercial web (a bit over a decade ago), traditional media looked down on the new media. They treated it as something of little value and many of the larger media outlets decided to toss their online space as a freebie in exchange for richer ad buys in traditional media. Of course, they continued to apply the same ROI metrics to this emergent form of media, forcing many of the online components of larger corporations to figure out way to make their cost structure more efficient while presenting advertisers with a better value than their offline brethens.

I remember finding myself in several meetings, when working either as a full-time employee or consultant to media outlets small and large, in meetings where traditional media salespeople would “toss in online for free.” Eventually, advertisers started demanding online media and continued asking for lower costs on it, creating a prisoner’s dilemma scenario for most media organization as they all knew that the ads could go to their competitors if they didn’t acquiesce to the deal. Online media was now seen as inexpensive and, save for a few publishers who argued based on the merit of delivering a narrow but highly targeted audience, cost remained low while inventory continued to be very high.

Then came Google, which not only showed that online media could stay cheap but could also be offered on a performance basis, leaving advertisers with close to a dollar’s worth of value for every dollar they spend, something that just wasn’t true in the offline space. It was then only natural that the price pressures that had driven online media down be applied to all media.

This is slowly sending media organization into a death spiral as low ad costs force a reduction in costs associated with producing media content, which results in a lowered interest in that content from consumers. Those consumer have eyeballs which the media companies are trying to sell to advertisers and when those go away, it puts even further pressure on media cost. I call this the ad rate death spiral:

Why ad rates keep going down

And that’s the first problem with the current crop of ad-subsidized media: the model is just not sustainable because the cost of production for most media can never go to zero.

So where does that leave most media organization?

Advocacy Media

One option is to go with a different subsidy source. For example, some organizations could get rid of the pretense of impartiality and look to get subsidized to advocate a particular viewpoint or philosophy. In Europe, for example, many publications receive substantial parts of their funding from political parties. They are propaganda tools of those parties used to further the party’s agenda. While they are not fully subsidized by those parties, they are known to present a viewpoint that’s in line with the party’s ideals.

While many would argue that this could not work in the United States, there are substantial precedent to highlight that this, in fact, is an avenue that more media organizations could explore. The federalist papers, for example, were largely embracing a set of ideals from a limited constituency and were largely funded by those who espoused the ideals presented. In fact, one could argue that most newspapers have, at one time or other, been tools of certain political forces. To carry such alliances on their sleeve might actually result in a more diverse and balanced set of stories.

Non-Core Media

A different solution is to look at media as an non-core adjunct to a corporation, there to give the corporation a sheen as a corporate citizen that does good. Where it not for its pre-existing history as media company, one could argue that the Washington Post is now such a corporation, as it derives better margins from the services it offers through its Kaplan test preparation organization than it does from its news and media operation. The issue one could find with such balance is that it works as long as the shareholders are happy with the idea of a non-financially optimal media operation. This situation does not seem like a sustainable model in the long run because it could expose such corporation to the chances of a take-over or change in ownership control through acquisition. No family, no matter how much of the corporation stock they control, is so virtuous that it might not break at a certain price point, as was witnessed with the takeover of Dow Jones.

Paid Media

Another route would be to change the public they serve completely by embracing their consumer as the people they sell to.

The reason I create that distinction is that currently, most media is not looking at their consumers as the customers they are serving. In advertising, the actual customers of media companies are the ad agencies and ad buyers, with the media consumer being the goods sold and the content being there solely as a way to deliver more eyeballs to the advertisers. By moving to consumer-focused media, organizations could radically redefine the relationship they have with the people who consume their content, treating them as customers instead of products.

Of course, the model may not work for everyone as it requires a change in the way the media product is marketed. When shifting to “paid media” where the consumers pays a fair value for the media they consume, the product position has to be one of value to the consumer. Bloomberg can deliver such value to the people who pay thousands of dollars yearly for access to their product because the content is of value to those consumers. NPR tries to position its programming as being a lifestyle choice by its consumers, asking them in pledge drives to join the NPR tribe by paying for some of the programming (but let’s not fool ourselves, NPR is more of a hybrid model as its “supporters” can include large corporations that contribute to show their “social responsibility”).

Consumer Reports is another example of such “paid media” as are smaller publications like Lapham’s Quarterly, for example.

What are the challenges?

The challenge presented by the paid media model is one of how much? How much can one charge and how much can one cover. And this comes back to the question of content value to the consumer. Certain tribes can exist but how does one cover the “important” stories? Is that something that can only be done via advocacy type media? Or is there a different model that mixes parts of subsidies with higher paid models?

Understanding iTunes LP and iTunes Extras

For the near future, Apple’s dominance in the mobile entertainment market will remain uncontested. Entering its 8th year, the iPod has successfully morphed from an interesting new player in a small category into an all-purpose platform spanning the breadth of the audio consumer electronic landscape, portions of the mobile phone business, and while its AppleTV business is still lagging, the introduction of iTunes LP can easily be seen as part of a revamp for that platform.

The company talked a fair amount about the ability to add extra content to music tracks, forming an experience that is much more akin to that of a music LP. But let’s stop for a second and think of what a stereotypical Apple customer might look like? Somehow, the immediate image that pops in my mind is not someone who was born prior to the late 70s.

Sure, now that the iPod line has established itself as the dominant line in the portable entertainment consumer electronics world, one can see a lot of people over 40 sporting the devices but truth be told, most of Apple customers are probably younger and, to them, LPs are either something that belongs in a museum or falls in the category of music snobs. The sit-back experience and add-ons that came with most LPs is not how they have ever experienced music and it is highly probable that they will not change their behavior because Apple believes that retro is cool.

The music experience is more of an ambient one, where the track itself is the thing and where even music videos have mostly fallen by the wayside (YouTube killed the video star?) In today’s short attention span world, extra attachments to media exists in two places: on DVD and on BluRay disks, technologies best experienced when dealing with a TV screen.

In fact, when delving into the details of the iTunes LP specification,developer Jay Robinson discovered the following:

The LP frame seems to have a width and height of 1280×720. This is nice, but means I get ugly scrollbars all over my 13″ MacBook screen.

The resolution seemed interesting as I remembered it from somewhere but had to think about it for a few minutes (I’ll get into that in a the next paragraph) but it was fascinating to me that one would experience ugly scrollbars on a MacBook. Say what you want about Apple products, ugly is not something that generally comes to mind. In find, the fact that things were ugly on a computer monitor immediately gives us clues into where Apple may be going next. Since we can safely assume that Apple would not push something ugly out the door, we can also assume that the 1280×720 resolution is no fluke. And since it looks ugly on a MacBook, we may think of where else this type of media can be consumed.

720p?

1280 x 720 is the kind of 16:9 ratio that is found in a 720p high definition video mode. That mode has become more or less the default low end mode for high definition and is how most television broadcasts in the US and Western Europe are handled. It is also a format that most plasma or LCD TV can handle. But also of note is that it is the highest resolution format offered in terms of movies and TV shows sold through the iTunes store, and the highest resolution HD video resolution now supported by AppleTV players.

So we now have a clear sign that the iTunes LP content seems specifically formatted to be best experienced on a TV screen and it seems that Apple’s recommendation would be to use an AppleTV to do so.

And then, this week, Apple retired its low-end AppleTV and dropped the price of its mid-range (now entry level) offering by one third. Such a move is not just based on the idea of moving units but appears to represent a potential need for disk space and anyone who looked at the size of a DVD or Blu-Ray disk can attest to the fact that such video offerings can chew up space relatively quickly. And extras tend to add a fair amount too, which seems to increase the need for space if you are intent on renting or selling DVD or Blu-Ray like content via the Internet.

Add to this the general reluctance Apple has had to supporting Blu-Ray in their computer hardware platform (the main advantage of Blu-Ray, according to its advocates, is the ability to display video at a higher resolution format than 720p) and it seems Apple is gearing up for an assault on that category (especially since the problem of extras is now solved by iTunes Extras).

720p Recording

Meanwhile, on the Mac, the new operating system came out with a version of Quicktime that removed ability to support plugins for extensibility. While Apple is already a strong player in the video editing world, offering both professional (Final Cut Pro) and consumer (iMovie) tools, it is also interesting to note that they are starting to introduce light editing video capabilities directly into the operating system.

We already know that the iPhone 3G S can record video, a key feature of the offering, and we’ve just witnessed the introduction of video recording capabilities within the iPod Nano (and we can assume that it’s only a matter of time before the iPod Touch gets its own video recording capabilities) but here’s where it gets interesting: the iPhone 3G S could theoretically shoot 720p video as all the hardware to do so is there.

The rise of YouTube and the success of Flip cameras have shown Apple that a portion of the consumer market is interested in recording and viewing video. While the YouTube offerings tend to be generally of a lower video quality, the introduction of 720p as a default recording chipset in Apple’s offerings appears consistent with the company’s attempt to cater to a higher end whatever market it enters.

So it would seem to be a normal progression for Apple to eventually move its product lines to producing 720p content that can then be redistributed.

Today, that exporting can happen via synchronizing one’s iPhone’s GS or exporting content to iTunes, YouTube, or MobileMe from Quicktime X. MobileMe and YouTube appeared to make sense but why export to iTunes?

A user generated marketplace

The success of the iPhone as a development platform has surprised many, myself included. In the short span of a few years, Apple has created a marketplace that is rumored to be selling US$200 million a month’s worth of application software in increments of about a dollar. If you’re making 30 percent of that revenue by hosting the apps and handling the distribution, you might notice.

I would venture that there are now a number of discussions around Apple as to how to reproduce this phenomenon across other categories. With the rise of YouTube, Last.fm, MySpace, and other, Apple is now also witnessing the rise of the independent and while the company has had some success in bringing video content to the iTunes store, it has not been able to get the rich margins it is getting from the music industry (something the music industry now appears to regret) and from iPhone developers (who, for the most part, are not large companies) from TV and movie producers.

True, the company now offers rentals and sales of video content but what if it could open up a marketplace where every independent content creator could distribute content? What if independent movie-makers or musicians could sell directly through the iTunes store and provide content on all the apple platforms (TV, iPod, phone, computer) with a single click. I suspect that many would be willing to give up 30 percent of their revenue in order to get to that public.

The components all seem to be there and it seems to me that it won’t be long before Apple starts pushing the idea that we are all content producers (an old idea at Apple, which was at the source of their creating the iLife suite) and we can all make some money at producing that content. Having done so, Apple would not only have control of the music industry but could also assert itself in the TV and movie space.

It has a relatively low but highly dedicated audience and is garnering good press both in the blogging community and the mainstream media.

The service is suffering from growth related issues which force it to be down at unexpected times but users put up with it because of its supposed transformational nature.

The service allows people to build things on top of it, offering external parties a greater chance to generate revenue than the company providing the service.

And, establishing further proof that service is going to be important in the future, a lot of mainstream stars are establishing presence quickly, only to slowly abandon those points of presence after a while.

But those stars are no different from most of the service’s users, which tend to abandon it only a month of two after trying it out.

What is that service called?

If you said Twitter, you are clearly reading this in 2009. But, only two years ago, the answer would have been Second Life (something I learned first hand, having been part of the hype around it back then).

of course, I have no doubt that this post will probably receive a high amount of flames because supporters will tell me how Twitter is different. But is it?

The Coral Reef

I’ve always had an affinity for Dave Winer’s Coral Reef analogy. However, even the coral reef analogy seems to eventually break down, leaving people like Winer to think of ways to move out (in a way, Winer fell into the same trap with Twitter as Scoble did with Friendfeed).

The issue here is that a lot of energy gets poured by developers into supporting an ultimately closed system. While artificial coral reefs exists, they are generally part of the larger ocean and tend to be pushed into creation by sinking boats or subway trains. But an important distinction is that the creator of an artificial reef is generally present at the creation but then lets the ecosystem take over and doesn’t try to control anything.

In the tech field, the best analogy for an artificial coral reef would be opening sourcing an important source of code (for example, the apache web server) or making a set of protocols or ideas open to all (eg. HTML or RSS) without requiring that the implementor cede any control to the party which made the code or idea available. Today, you can fok the httpd server if you feel like it or you can adapt parts of HTML or RSS to your heart’s content.

Fauxpenness

But there’s a different set of ecosystems out there that becomes more of a venus flytrap of technology. I would describe this as fauxpenness:

Fauxpenness: Calling a system or platform open while it is, when more closely scrutinized, under the tight control of its provider.

Fauxpen system (or fauxpen platform): a system or platform that claims to be open but, upon closer examination, isn’t.

It’s the kind of approach that pretends to be open but provides some level of lock-in.

In 2006-2007, we saw that happen with SecondLife, as many developers (myself included) built software code that could run within the SecondLife world but was ultimately stuck there because you could not run it outside that world and/or run SecondLife servers on your own machines.

in 2007-2008, we saw that happen with the F8 Facebook platform, which locks your applications inside of Facebook and, while many developers have pushed to force the company to open up, tends to stay there. In 2007-today, we’re seeing the same thing with Twitter, which allows you to build whatever you want on top of it but doesn’t decentralize their approach, leaving developers potential slaves to the whims of the company. The same is true of the iPhone, which provides unusual access to the phone operating system and allows to develop interesting software on top of it but still keep developers away from being able to access basic things like calendar information via an SDK.

The endless cycle

Interestingly enough, it’s not an unusual phenomenon in the technology world. It works like this:

It happened with SecondLife; it happened with F8; it will happen with Twitter and it will happen with the iPhone at some point. It appears that the natural course of locked API is to get to a point where the developers get so annoyed that they decide to go look somewhere else.

But there’s hope.

Breaking Free of Fauxpenness

Because of the lock-in, it is possible for companies to break free of the cycle. In order to do so, two things need to happen:

• First, the company needs to find a way to establish a business model that does not require lock-in
• Then, the company needs to start removing the lock-in components it offers.

I’m not saying that either of those step is an easy one. In fact, few companies have successfully managed them and, even when they do, the developer community will keep asking for more.

For example, Microsoft’s history is one of establishing initial lock-ins, weeding out the competition and, when its lead is established enough, relaxing the choke-hold it has on the developer community and playing a little nicer until it tries to enter another market. That was the case with Windows; it was the case with Office; and it is the case with IE today.

IBM also took the same approach, initially being a provider of proprietary systems and slowly, over the last 15-20 years, moving to become one of the largest supporters of the open source movement.

The Kindle Lawsuit

In my last entry, I pointed to the case of Justin Gawronski, who was mentioned almost as an aside in the New York Times article about Amazon deleting legally purchased and downloaded content from their users’ Kindle devices. At the time, I suspected that the deletion of annotations could eventually lead to lawsuits:

Beyond the irony of Amazon throwing a book like Nineteen Eighty Four down the memory hole (a large incinerator in that book), Amazon’s action raise troubling questions as to the ability of online providers to remove content they have not created. I leave it to legal scholar to assess whether Amazon could actually be considered to have infringed on the intellectual property rights of people whose annotations were removed along with the books.

Today, news comes out that this student is one of the plaintiffs in a lawsuit against Amazon, making this the first legal case to test what a cloud-based provider can and cannot do with legitimately purchased content. The complaint uses language similar to what I talked about:

2. With an uncanny knack for irony, Amazon recently remotely deleted any traces of
certain electronic copies of George Orwell’s “1984” and “Animal Farm” from customers’
Kindles and iPhones, thereby sending these books down Orwell’s so-called “memory hole.”

[...]

16. On or about July 16 and 17, 2009, Amazon withdrew from sale certain e-books,
including George Orwell’s “1984” and “Animal Farm.” Amazon then remotely deleted these ebooks
from purchasers’ Kindles and iPhones. In doing so, Amazon not only deleted the e-books,
but also rendered useless any electronic notes and annotations that consumers had made within
these e-books because the notes were no longer tied to the referenced or highlighted text.

While I had initially thought that the content was deleted, it turns out that the annotations are still available on the device, albeit without any context to them, which is what the lawsuit is now testing:

54. Plaintiff Gawronski and the Big Brother Work-Product Subclass suffered
damages because they created content on their Kindles within the purchased content that
Amazon deleted.

Most surprising is that the lawsuit did not look at Amazon’s infringement of its customer’s rights under the first sale doctrine. The first sale doctrine, which has been in place since the beginning of the 20th century, basically states that purchases can transfer a lawfully acquired copy of a copyrighted work without requiring permission from the copyright holder. Many people interpret this to mean that:

the copyright holder’s rights to control the change of ownership of a particular copy end once that copy is sold, as long as no additional copies are made. This doctrine is also referred to as the “first sale rule” or “exhaustion rule.”

It could be argued that, by taking the book away from its users, Amazon has controlled the ownership of a particular copy that had already been sold, even though no additional copy was made. It was surprising to not see the lawsuit also incorporating this point as it is probably one of the larger legal infrigements Amazon could be charged with when it comes to that incident.

The Apple Store and iPhone community

Meanwhile, while there are no legal rumblings yet around Apple’s treatment of its development community. With every incident of an app being denied access, it appears that a few more developers decide that, while the platform is exciting to use, developing for the iPhone is not worth the trouble. If it were one case, that could be considered a disgruntled developer; if it were two, that could also be ignored; but with every new incident, it appears another developer or group of developer decides that they’d rather not develop for the platform.

When I was in journalism school, we were told that when there is a high similarity between three different events in a very short time, we ought to pay closer attention as it could be a trend. When that similarity pops over and over again, as in the case of the iPhone development community, it seems like a slow grumble is turning into something more potent.

But of course, one could argue that such grumbles are really nothing to worry about, as long as Apple can continue growing its user base. After all, the company makes more money selling devices that it does from the revenue generated by the app store.

True to some extent but that particular issue starts falling on its face when one considers two important facts:

1. Selling applications through the App Store is probably a more profitable business (as costs associated to the sale, as represented by a percentage of the revenue is probably lower than it would be on hardware).
2. Prominent users are starting to complain loudly.

Of course, none of this is going to single handedly stop the growth of the iPhone but what is increasingly appearing is that Apple is having a potential communication challenge on its hands. A single disgruntled developer or disgruntled user cannot bring the product down but a continuous stream of complaints starts creating the appearance of wrong-doing, potentially undermining the long term success of the offering.

Apple is still thought of by the majority of the people as a cool company (as Google and Microsoft once were), a shinning beacon highlighting the power of innovation and capitalism. As it grows marketshare, what was once considered OK as a way to help the company compete against larger players (the aforementioned Microsoft) is increasingly being considered as arrogant and evil.

What does it all mean?

Of course, at this point, if you’re still reading, you’re probably wondering how this is an example of a new hope. The new hope is arising out of the fact that a largely quiet population is now starting to fight back against the over-reach of large corporations into what level of controls such corporations will be able to excert. In the case of Amazon, the class action has the potential of redefining what a company can and cannot do with a purchase device. Such decision could also establish some precedents as to the use of kill-switches in electronic devices (or invertly, give large corporations more power and legally codify the level of control they have been afforded).

In the public arena, the push-back Apple is encountering from both its developer and early adopter communities could help establish new boundaries as to what is and isn’t accepted in terms of controlling access through online gateways (in the case of Apple, that gateway is the App store but one could argue that the social rules established around the App store could eventually extend to the kind of perception around what is and isn’t acceptable in terms of consumer ISPs blocking internet sites).

With each event, the online community is also establishing some precedent as to what will be considered acceptable in an environment where all data is stored not a user’s machine but on some remote corporate server.

In each of these individual cases, awareness is raised and with every other skirmish, more people become aware of the issues at stake. It is my belief that, as more people become aware, more people will require less corporate control and more individual control. And that gives me hope.

Update: The government is now looking into Apple’s removal of Google Voice related apps from their App store. This is getting interesting.

The Kindle Incident

For readers who may not know this, Amazon unveiled an interesting electronic reader called the Kindle, allowing people who bought it to legally purchase electronic copies of books. Along the way, Amazon also opened up a program allowing small publishers to publish books directly into their marketplace.

However, it appears that Amazon’s own quality control seemed to fail when it came to establishing ownership of the intellectual property uploaded to its site when two titles by George Orwell, Nineteen Eighty Four and Animal Farm, were uploaded and sold by a rogue bookaneer.

Subsequently discovering that it had sold e-books for which the publisher did not have rights, Amazon issued refunds to its customers and removed the books from the user’s device. Where it gets a little gray in terms of what they did is that, along with the removal of the books, they also removed any annotation users already had made, thus erasing content that was created ON the device if not FOR the device. The New York Times story on the deletion listed the following:

Justin Gawronski, a 17-year-old from the Detroit area, was reading “1984” on his Kindle for a summer assignment and lost all his notes and annotations when the file vanished. “They didn’t just take a book back, they stole my work,” he said.

Beyond the irony of Amazon throwing a book like Nineteen Eighty Four down the memory hole (a large incinerator in that book), Amazon’s action raise troubling questions as to the ability of online providers to remove content they have not created. I leave it to legal scholar to assess whether Amazon could actually be considered to have infringed on the intellectual property rights of people whose annotations were removed along with the books.

Amazon was justified in protecting the copyright holders for the infringing books but where it went wrong is when it over-reached by deleting content that was created by its customers. In that particular case, one could argue that Amazon was responsible for censorship. The company will need to change its systems and policies to ensure that it does not impede the customer’s experience. While it currently has only removed a couple of titles along with annotations, the company should ensure that it keep annotations separate so that any further title removal does not destroy user generated content. An extra nice move would be if the company were to replace the titles with their legal equivalent. The common should also be a lot more thorough in verifying intellectual property claims before offering titles, especially since they control every piece of the delivery chain from the intellectual property holder to the reader.

AT&T and 4chan.org

In a somewhat related incident, AT&T had a recent run-in with one of the most influential (and that does not necessarily mean good) entity on the internet: the 4chan.org community. 4chan is primarily and image and discussion board and word started to spread that AT&T customers had lost accesses to its images over the weekend. After a substantial amount of noise in several online forums, AT&T claimed that it had blocked the site because it was suffering from a denial of service attack from it.

What is interesting here is that AT&T acted without prior notice and blocked a site without providing any information upfront as to the reason for blocking the site. While AT&T stopped blocking the site as the result of a concerted effort by its fans, the founder of 4chan hit the nail on the head when he said (emphasis is mine):

In the end, this wasn’t a sinister act of censorship, but rather a bit of a mistake and a poorly executed, disproportionate response on AT&T’s part. Whoever pulled the trigger on blackholing the site probably didn’t anticipate [nor intend] the consequences of doing so. We’re glad to see this short-lived debacle has prompted renewed interest and debate over net neutrality and internet censorship—two very important issues that don’t get nearly enough attention—so perhaps this was all just a blessing in disguise.

Net Neutrality is the basic idea that any broadband provider should offer access to the internet without any limitations as to what kind of content can be accessed and here we have an example of an ISP selectively blocking a site. While the AT&T example is only the most recent one to come to light, it appears that this is a phenomenon that could become more common as internet service providers decide what kind of content takes too much bandwidth or for other reasons.

In the past, such censorship would have meant that a provider censoring access were to be considered as a publisher. In 1995, with Stratton Oakmont vs. Prodigy, the supreme court of the United States held that online services which were removing content from their online forums could be considered as publishers and therefore held liable for any content they gave users access to. Since then, Lobbyists in the telecom industry have ensured that such decision would no longer be applicable by getting the US Congress to amend the US code and reverse the Supreme Court decision.

The Urge to kill(switch)

About a year ago, a storm arose around rumors that Apple’s iPhone devices were sporting code that could disable applications running on them. The existence of such code, also known as a kill switch, was later confirmed by Steve Jobs:

Jobs confirmed that iPhones routinely check an Apple Web site that could, in theory, trigger the removal of the undesirable software from the devices.

He told the paper that Apple needed the capability in case it inadvertently allowed a malicious program to be distributed to iPhones through the App Store.

Once again, we see here a company with the best of intentions (protecting people from malicious programs) with its finger on a button that could be very scary if misuse. It is worth noting that Apple is not uniquely in this position as Google fessed up to having similar code embedded in Android-based phones:

Google may discover a product that violates the developer distribution agreement … in such an instance, Google retains the right to remotely remove those applications from your device at its sole discretion

And while one may think that such devices are limited to high end cell phones catering to a limited community, it appears that such devices are now becoming more common in children computers, cheap laptops, and even cars. And while many will claim that the solution to this is to open up source code, the Mozilla foundation itself has admitted to the appearance of such kill switch in the popular Firefox browser.

So kill switches are there for the best of intentions but how does one define those?

Apple and the App Store

The same kind of issue arises out of the treatment of applications to enter the Apple Application Store. A month doesn’t seem to pass by without another example of a developer seeing Apple remove his/her programs from their store.

The latest example is that of a developer who apparently committed the crime of offering an application that allowed iPhone users to use Google Voice, a Voice over IP program. And apparently, similar applications were subsequently removed from the Apple App Store.

While no official word has been given as to whether the fact that application were potentially representing a threat to the business model of Apple’s exclusive partners in the telecom industry, it doesn’t seem to be too much of a stretch to think so.

Can such intention be considered in the best interest of the end user? or in the best interest of the device manufacturer? And can such intention be changed retroactively, leveraging the presence of an existing kill switch?

Questions about the future?

In a previous entry, I’ve argued that we were moving to an economy where goods tended to be rented rather than bought. Embedded in what I was trying to communicate there was the question around what ownership actually means.

If an external party can control when or how you can use a device or decide on what you can or cannot see, or select what programs you can install on it, are you still owning it?

And while today’s corporate interventions are based on the best of intentions, what about tomorrow’s? or the next day’s? Will those intentions still sync up with yours?

A bit of history

In order to understand the importance of the current shift, one needs to study a bit of history. Since the dawn of the personal computer era, applications have been written and running largely on the user’s desktop. In the mid-90s, Sun Microsystems co-founder John Gage started claiming that “the network is the computer.” Marc Andreessen, co-founder of Netscape, the leading browser company at the time, was claiming that Netscape would “reduce Windows to a set of poorly debugged device drivers.”

However, due to limitation in terms of bandwidth and computer power, this vision didn’t come to be until well into our current decade. Today, individuals still mostly use Windows, even if most use it primarily to launch their web browser.

In more recent times, the availability of always-on, higher speed internet access, has allowed companies like Google to start offering more powerful websites, which took on features of full-fledged software applications. Leveraging technology that first saw the light of day in the 1990s (Flash was born in 1995 and XMLhttp, which powers AJAX applications was created by Microsoft in 1999), those applications started offering compelling competitors to existing products.

One the leader in that revolution has been Google. First with the release of Gmail and then with the release of Google Apps, the company has been working on offering online version of tools like email, word processing, spreadsheets, and presentation software. Leveraging its establish power in the advertising space, Google has figured that, by offering document and email management features to its users for free, it could create extra advertising inventory that it could then resell.

So Gmail, Google Docs, and Google Apps were born. Since they were consumer focused products, presenting them as products “in progress”, complete with a beta stamp and an advertising-based model. Jeff Jarvis warrants that such act was not only bourne out of humility but also as a  call to collaborate. This week, however, the company decided to shed the beta logo for most of its applications.

With its direct language to IT manager and its message emerging from the enterprise group, Google is making it clear that this announcement is not targeted at the consumer space. In a sign of growing business maturity (most software company attempt to appeal to the enterprise space as they get older and need to develop more predictable financial groundings), the company is now trying to appeal to the enterprise space, aiming its offerings towards a space that has traditionally been controlled by Microsoft (with its Office Suite) and, to a lesser extent, IBM (with its Lotus division offerings).

Poorly debugged device drivers?

But Google realizes that much of what it does is dependent on the continued goodwill of the different operating system providers and browser suppliers. Were it not for web browsers or operating systems, Google could not exist. Last year, the company started reducing that dependency by introducing its own web browser, named Chrome. Chrome was actually quite interesting in terms of browser development as it was the first browser to treat each window session as a separate application, ensuring that if one web page failed, the other tabs would not. This could be seen as something not completely unlike the way an operating system (or kernel, etc) doles out memory and CPU power to each of the applications it deals with and orchestrate who gets what.

The unstated strategic goal of the Chrome browser is to help reduce the dominance of Internet Explorer in the online space while providing Google with more of a say in terms of where web standards were heading (I’m sure some people will try to debate that point but, if Chrome is not intended as an Internet Explorer competitor, why is the only “official” version of the browser a Windows one, with no such offering on OSX or Linux?)

Chrome is not only an attack on Microsoft’s browser dominance in the web space but also an attempt at ensuring that neither Microsoft NOR Adobe get control of the future of web applications. Google’s CEO Eric Schmidt knows how trying to fight Microsoft can distract a company from very real threats by other unexpected contenders: he did come from Sun Microsystems and Novell before joining Google and saw, first-hand, how those two companies saw their focus on unseating Microsoft’s dominance in their respective areas blinded them to the threat that Linux came to be to both of them, ultimately dooming each of the companies’ efforts without Microsoft having to do too much.

So, as a veteran of the OS wars, Schmidt is now being careful in balancing its entry in the space. On one hand, he doesn’t want to offend existing partners like Apple and the open source community. On the other hand, he needs to ensure that his company’s offerings are actually going to appeal to hardware vendors. The OS will ultimately be little more than the minimum required to make the Chrome browser run. That means it will include an IP stack, some basic drivers to interact with the keyboard and screen (or a way for companies to offer those) and a UI that will be a full screen version of the Chrome web browser.

The description of the OS, as stated in the press release, describe it as such:

Google Chrome OS is being created for people who spend most of their time on the web… without wasting time waiting for their computers to boot and browsers to start up. They want their computers to always run as fast as when they first bought them. They want their data to be accessible to them wherever they are and not have to worry about losing their computer or forgetting to back up files… Even more importantly, they don’t want to spend hours configuring their computers to work with every new piece of hardware, or have to worry about constant software updates.

Put quite simply, this is a web browser with the basics to make it run online and offline (the offline components probably being based on Google Gears (already built into the Chrome browser) or some HTML 5 offline approach). Users will not really store much on their computer but everything will be sitting on Google’s servers, accessible from anywhere. Operating system upgrades will happen automatically in the background and everything will run in the browser. For those people expecting to run Firefox (or any other application) on this thing, sorry… it won’t happen.

Google’s view is that everything will run online and all data will be stored online. In technical terms, this is called sending information into “the cloud.”

However, there’s the question of how to plug components in there. I suspect that Google will lean heavily on its partners to release any device related drivers through the equivalent of an online application store, similar to the app store on the iphone, where Google controls the experience in terms of what gets installed on the user’s desktop and can recall or upgrade an install if needs be. The idea being that the hardware device does not need much power as most everything is coming from the web.

Developers will not be allowed to develop anything that runs on the machine itself:

For application developers, the web is the platform. All web-based applications will automatically work and new applications can be written using your favorite web technologies. And of course, these apps will run not only on Google Chrome OS, but on any standards-based browser

With these few words, Google is taking the same approach as Apple first did when itintroduced the iPhone: don’t look to us to provide you with any SDK, the web is the platform. Build your application using HTML 5 and all will be OK. This basically means that right now, Google either has no intention to provide an SDK or will keep it accessible only to select partners who want to integrate with their OS. They will first provide access to the device makers and then, over time, will create an SDK and an app store that they may even be willing to share with partners by white-labeling that store to sweeten the deal for any partner willing to install the OS.

The reason I suspect this would be part of the strategy is that pricing will not be a heavy deciding factor in whether partners will adopt the new OS and Google desperately needs the new OS to be implemented as widely as possible.

Many have said that cost was a large part of their strategy but I suspect it cannot be: Consumers have already been trained to consider the operating system as a freebie or low cost tool. On the windows side, consumers see the OS as something that comes with their machine, not something they buy separately. This effectively brings the price to 0. Even Mac users, who generally tend to be more willing to pay for products offered by Apple, were grousing at pricing on OSX, forcing the company to take a deeply discounted approach when offering the next version of its operating system for about the price of dinner and a movie. And pricing has proven to be a contrarian indicator in the netbook market, as consumers decided to pay extra for the Windows XP version of devices that also offered the same hardware at a lower price point with Linux.

Interesting timing

Having established that the company is looking to get more control of its end to end experience, one big question is why do it now? Why not do this, for example, at their developer conference, as they did for Google Wave? Why announce something that will not be available in the near term?

My suspicion here is that part of the reason for this vaporwave release is that Microsoft is about to unveil a series of cloud focused initiatives at its WorldWide Partner Conference next week: those offerings will include a major push for their cloud platform, Microsoft Azure, along with announcements regarding the Gazelle project (their own browser as an OS offering), and Office 2010, a substantially revamped version of the popular suite that will move collaboration and synchronization front and center. At its core, the revamped Office suite will not only include the existing components and features of older version but its guts will have been rebuilt with some DNA acquired as part of the acquisition of Ray Ozzie’s Groove Networks and its offerings.

I suspect that Groove and Ozzie have Google shaking in its boots. Much of Google’s strategic message is that it is more collaboration friendly than Office and, by leaving one’s documents on Google’s servers, one doesn’t have to worry so much about revisions and versioning. With Office 2010, Microsoft is fixing these problems and telling corporations that while Google’s message is nice, your proprietary information will be sitting on Google’s server. How about getting the same type of functionality but keep the documents on your own servers. Because most corporate IT department tend to be paranoid when it comes to their corporate data, the Microsoft message will resonate better.

So Google is not starting to position itself in the consumer market, hoping that applications which can run in the consumer world will eventually help tear down the corporate walls (to date, few corporations have adopted Google Apps and, if Microsoft offers a competitive product, I suspect it could remain that way for at least a decade). Having to do something, they have now decided to attack a core tenet of the Microsoft empire: its windows OS division.

The battle lines are now drawing:

• Google is asserting that the world runs solely within a browser and all application logic is in the cloud; Microsoft will assert that substantial amounts of complex tasks require the power of the desktop and the cloud is there primarily as a tool for collaboration and synchronization.
• Google is asserting that desktop PCs are merely thin clients; Microsoft is asserting that desktops are still the center of the computing experience.
• Google is asserting that the net is safe enough a place to leave all your information; Microsoft is asserting its not.
• Google is asserting that developers don’t want to run applications natively on a machine; Microsoft is asserting that the tightest integration happens at the OS level.

Each company is presenting a different vision of the cloud. I can’t say which is right as both offering compelling advantages and substantial flaws but I can highlight one important feature: in the future the software you are running will be connected to the internet most of the time and still be able to work when offline. And in that future, I suspect that the notion of software as a product you buy will probably disappear, with software as a rental model becoming the emerging approach. And I also believe that this is the beginning of the cloud OS wars.

Update: As expected, Microsoft sends out its reply.

Traditionally, the model or rent vs. own has been one that most consumers and companies have mostly considered when it came to real estate (and traditionally, people have looked at renting real estate as more normal than owning, with the possible exception of the last couple of decades, during which real estate ownership appeared more attractive). But today, that concept seems to be increasingly extending to other arenas.

Netflix

For example, Netflix has build a very solid model around renting movies over the Internet. True enough, many people will mention that rental of media dates back to the early days of the video store and were a substantial component in the rise of companies like Blockbuster (born Blockbuster Video). True also that said companies have been falling on hard times lately. But the substantial difference between what Netflix offers and the traditional rental model is focused on convenience: one could argue that Netflix’s original business model was largely centered around the distribution of physical media (the DVDs themselves) but I would argue that the true success of Netflix will be due largely to its digital distribution model, allowing for instant distribution of movies and TV shows with the click of a few buttons. The instant (and the emphasis here needs to be put on instant) access to a large media collection can easily call into question the concept of owning similar content in a physical form: What is the advantage of having a physical copy of a movie sitting on your shelf, collecting dust most of the time, when the same movie is available at the touch of a remote control button from the Internet?

However, the challenge in such concept is that once someone stops paying Netflix, the access to said collection disappears. An owned movie is paid for upfront and can be watched time and time again by a consumer but a rented one can only be watched as long as one keeps paying the owner renting party.

Apple

With Apple’s recent move to sell music tracks without any digital rights management features on it, one could safely assume that Apple is not in the rental business. Apple’s move was largely a response to Amazon’s own marketing around selling DRM-Free music but it is interesting to note that, while the restrictions on music went away, the same was not true of similar restrictions around music videos, movies, and TV shows. The lock-in that appears here is similar to that which exist with Netflix in that if you decide to end your relationship with Apple, the media you bought will stop working. Under such restricted mode, can one really assume that he/she owns the media he/she purchased?

Similarly, Apple is renting out, in partnership with telecommunication vendors like AT&T, an ingenious device called the iPhone. The reason I would call it a rental model is that use of the device is limited by the partners to people who have paid the initial fee and continue to pay a fee to the telecommunication provider on a regular basis. It is a model that exists for most phone providers, as devices tend to be tied to a specific vendor. Once again, people will highlight that it is possible to get rid of that lock-in with software but I will counter that doing so is a violation of the contract terms of the device, voiding warranty and your agreement with Apple. To claim otherwise would be similar to saying that everyone has access to as much money as they want, as long as they are willing to rob banks. (In the interest of disclosure, I should highlight here that I own an iPhone which is not connected to the “authorized provider”.)

Going a little further, Apple gets to lock-in who can and cannot play on an iPhone, only allowing developers who submit themselves to Apple’s whim and offering what is sometimes only temporary access to the userbase as release of every update to a product still has to go through Apple’s review. In other words, Apple gives developers temporary access to the iPhone user base, an access it can choose to revoke at any time.

The Amazon Kindle

All this conversation bring us to Amazon and a couple of its products, starting with the Kindle, which serves as the incentive for writing this lenghthy post. The Kindle, much like the iPhone is a pretty impressive device, bringing several technologies (always on device, e-ink) out of the labs and into more mainstream consumption. And like the iPhone, it has both fans and detractors. And once again, the Kindle offers an interesting kind of lock-in, allowing you to read titles purchased on the kindle (or through the iPhone kindle software) but allowing you access for only as long as you keep a relationship with Amazon. Where the model moves to rental is around magazines and newspapers: you may purchase subscriptions but, should your Kindle be completely full as a result of your subscription, you may loose access to the back issues you “own”.

But Amazon’s move to a rental model is not just around the kindle device. On the consumer end, Amazon now play in the same spaces as Apple and Netflix, renting out or selling digital versions of movies, TV shows, and music.

Renting at the Enterprise Level

In other example of the evolving trend moving from the consumer to the enterprise space, Amazon is now renting itself, or rather portions of its own operating capacity, to anyone willing to pay a fee. Its infrastructure (storage, computing, and databases ) are all available to organizations who are willing to put their application on top of Amazon’s own servers. Amazon offers similar solutions for payment services, and goes as far as providing space in their warehouses along with complete pick, pack and ship capabilities.

The infrastructure component is part of a trend in which enterprise vendors are now providing data center capabilities on a per data transaction costing model. For many Chief Technical or Chief Information Officer, it changes the basic questions around data center from a “Build vs. Buy” to “Build vs. Buy vs. Rent”.

In the process, it also changes the dynamics of how a business can be built as a substantial portion of a company’s activities can now be outsourced to outside players (I’ll go into more details around the enterprise related issues in my next post)

Is it all bad?

If you read this far, you might assume that, by this point, I’m going to claim that this is all about the over-reach of DRM and that it is all a horrible thing.

I’m not.

What I am trying to highlight here is that the experience around internet driven goods is changing. As connectivity speeds increase, the ability to access any movie/TV show/video/ music clip/ books / magazines / etc is going to have a substantial impact on our relationship to said goods (in a fashion similar to the type of relationship kids now have to music, assuming that music on the Internet ought to be free of restrictions, while at the same time assuming that mobile phone ringtones are something one ought to pay for).

The change in our relationship to media forces us to reassess the value of the physical good. In the case of our household, we have made a leap of faith, assuming that the content of certain DVDs will always be available online from one rental provider or another. The reason for that approach is that the experience of watching such thing on our TV using an internet connected video player is not diminished by the lack of a physical medium. Living in a more constrained space (in Manhattan, space is always at a premium), the physicality of a DVD box is actually an impediment to the experience of the medium. As a result, the internet connectivity, and the rental model, appears to make much more sense than the physical ownership of DVD boxes.

In the same way, the value of a CD collection is in what’s on the CD rather than the plastic container it’s in. Much of the value of the physical container of music has decreased: in the past, LPs were designed and the wraping of the LP was almost has important to the experience as the music itself. However, as CDs reduced the size of the cases, and music production companies spend less time on designing custom boxes, physical CDs became more of a commodity, with the music on them being the only thing that truly distinguished one CD from another.

But what about books, magazines, and newspapers?

To a large extent, I would venture that the relationship we have with magazines or newspapers is different from that of a book. When I first saw the Kindle, I was not attracted to it because I could read books on it but rather because I might be able to subscribe to newspapers or magazines. The clear line falls in the arena of experience: with a few exceptions, magazines and newspapers are read and then discarded. The ephemeral nature of that experience archetype seems to make such relationship a prime candidate for digitization: Once again, the convenience of something like a Kindle seems to trump the experience of having to fold a newspaper in a crowded subway or the guilt associated with recycling large amount of newsprint or magazines on a regular basis: because the intrisic value of newspapers or magazines is as conveyors of temporal information that now appears to be archivable and retrieveable online, the need for ownership of that data appears to be lowered.

Books, on the other hand, are a different issue. Reference books may lend themselves to a good digitizable model (O’Reilly, for example, has had success with its Safari offering, as have encyclopedias like Brittanica and the OED) but fiction books may be in a different class. The book as object may be falling into the same class as those ancient LPs, being designed as a full object rather than just its content and rental of such good (though people will mention that books have been something you can borrow from a library for a long time) may take longer to break through as the advantage of reading such a book on a Kindle is not necessarily higher than that of a physical good. I may be romantic in my thinking, attaching to books not only the content and the packaging but its experience in a greater space, as each book I own has, in itself, a number of memories attached, in the form of sand from a beach where it was read, or wrinkles from being carried on a trip or fold marking and writings from a particular era. In those rare cases, the books serve as containers for more than the stories they held when first presented on a bookshelf or through the online presentation they had: they are containers of a full experience and that, at this point, is not yet something that any digital device (whether it is a kindle or other) has yet been able to reproduce.

1. Access (aka Subscriptions)
2. Hosting (aka Real Estate)
3. Platform (aka Client/Server)
4. Collaboration
5. Event Planning
6. Education
7. Building/Designing
8. Professional Services
9. Integration
10. Trade platforms

I will now go an and elaborate on each of those points. They are divided into three broad categories: opportunities for virtual world vendors, for users, and what I would call secondary markets.

Opportunities For Virtual World Vendors

I would generally group the opportunities for virtual world vendors into three broad category: access, hosting, and tools.

Access (aka subscriptions)

At the current time, this is the opportunity that most of the existing players have been mining the most. The basic model is simple: sell monthly or hourly subscription services to users. This is really no different than the business that AOL, Compuserve, and early ISPs were into, charging a fee to access an environment. Much like those early players in the Internet space were providing easy to use tools to access the net, the subscription model is charging an entry fee into a virtual world. This is the predominant source of revenue for virtual worlds but, as trade is becoming more common, some of the virtual worlds are starting to drop the subscription requirement. For example, There.com and SecondLife now offer free accounts, which come with a more limited set of capabilities.

Hosting (aka Real Estate)

Some worlds have also started going into the hosting business, allowing users to essentially buy a portion of a server, through real-estate transactions. SecondLife is the world with the most developed type of economics around that model, charging a Land Use Fee, which can be equated to a hosting plan charge on the web. The model is based on access to a shared server, scaling up all the way to having a dedicated server (or sim, as they call it.)

Platform (aka Client/Server)

I would argue that the model for virtual world is basically similar to the model of web-browser and web-server or application server. I would not be surprised to see a virtual world provider unbundling the service from their own server and starting to provide corporations or other entities with the ability to customize their own client and host their own server. In this model, the virtual world provider would essentially repeat the strategy initially take by Netscape in the early 90s, selling both client and servers.

As the space grows, I also foresee some need for consolidation relating to this space, in order to ensure that the underlying code becomes the industry standard. Because of how close their approach is in looking at that space, I’d foresee SecondLife and There.com to be the first to entertain such thoughts. SecondLife already provides a rich syntactic language for programming purpose. There.com provides tools for creating virtual goods. Both of them could benefit from such a merger and their combined effort could become the dominant provider in the space.

Opportunities for users

There also exists a number of opportunities for denizens of virtual worlds. Most of those opportunities seem to center around the fact that there are places for people to meet and interact in an environment that is much richer than other electronic collaboration platforms.

Collaboration

As such, the initial opportunity for individuals and companies in virtual worlds is around the area of collaboration. Business Week recently reported that Rivers Run Red saved $175,000 last year by holding meetings in SecondLife. This is no small amount of money for a small business and, in this age of increasing security checklines at airports adding to the length of travel, virtual worlds may be the best collaboration platform yet. At the current time, no company has focused on that angle but there is an opportunity for a company that would focus virtual worlds away from the gaming aspect and start offering a corporate virtual world where companies could hold virtual offices.

Event Planning

Increasingly music stars are moving in that space. Suzanne Vega and Duran Duran recently made announcements relating to their entry in the space. The BBC, MTV, and Fox have already held events in virtual spaces. Technical conferences have had virtual world components. Major League Baseball has dipped its toe in the field. Organizing events, preparing the space, publicizing, booking and training speakers are all jobs that require some level of expertise and there are dollars associated with providing that expertise.

Education

Educational organization, from Harvard to the New Media Campus, have created virtual training grounds to explore development in those spaces. There are also opportunities around teaching classes in building virtual assets. In SecondLife, on most night, you can find people teaching how to create and program the basic building blocks available in the space. One can envision people getting paid for this type of work further down the line.

Professional Services

SecondLife has created an eco-system where professional journalists, DJs, ad agencies, and other types of services (some of the more risque ones involving the sex trade) are interacting on a daily basis. Once again, economies are being created around this space, mirroring traditional world equivalents in the virtual realm.

Building/Designing

Another interesting area, in terms of opportunities is in the realm of creating new digital goods and selling them in the virtual space. There are already a number of people (claims of 3,000 entrepreneurs each making at least $20,000 a year in SecondLife have been widespread) who are making a living at this. Most goods from the real world can have a digital equivalent and companies like American Apparel have noticed the space, offering virtual equivalent of their goods, having sub-contracted the development of those goods to a third party.

Secondary Markets creating new opportunities

Another set of opportunities exist outside of the virtual worlds themselves, which should prove that the space is developing but here to stay.

Integration

Virtual Worlds are generally closed spaces. Some, like SecondLife, have started opening up to the wider net. For example, users can now visit Amazon.com in SecondLife, thanks to the Amazon API and SecondLife’s ability to call on it from inside its virtual world. Those opportunities represent a new space and integration houses with expertise in both the virtual world and the wider web will be well positioned to take advantage of those opportunities. If my belief that a next generation browser will arise out of the virtual world space is correct, those integration houses could be well positioned to be the next big powerhouses in online marketing.

Trade platforms

Another portion of the secondary market is surrounding the thin link between the trade that happens in those virtual worlds and real dollars. Companies or individuals who manage to create a platform that offers a way to trade from one of the virtual worlds into another might find themselves as the new middle-men in a space that is bound to grow economically and profit from making a small percentage on every inter-virtual world transaction.

Overall Numbers

The overall population, according to MMOG Charts, is currently about 12 million people strong. What is interesting, however, is the growth rate: looking at the linked chart, one can see the population doubling at an increasing rate: it took 24 months to get from 6 million to 12 but it took 48 months to go from 3 to 6. This accelerating rate of growth is an interesting one. Assuming that few other factors change, one could envision a 24 million people strong population within the next 12 months or, on a more conservative basis, within the next 18 months. Considering the upsurge in stories about the phenomenon in the mainstream press, growth will, at least, continue at the same pace over the next year. A recent estimate shows that SecondLife is growing at a rate of 22 percent a month though a more conservative estimate shows a growth rate of 15 percent. Any which way you play it, this is a fairly high growth rate.

Age

The videogame industry has evolved and every year, the average age of videogame consumer is increasing. At the current time, the entertainment software association estimates the average videogamer age to be 31. They also say that the average gamer has played for about 12 years, which would mean that they started at 18-19 year old.

Based on that data point, one could assume that the virtual world phenomenon would slant young. However, research by Nick Yee of Stanford University points to an average age of 26 years old for those users, with only 25 percent of the overall population being teenagers. While Yee’s numbers are for the category of virtual worlds as a whole, more granular data is available for certain worlds. In September 2005, IGN entertainment reported that the average age of players in their survey was 27, which seems to be echoed by 2004 research at the University of Nottingham Trent (UK) which puts the average age of players at 27.9 years old. Also of interest, a recent post on Nature’s weblog points out that the average age for people in SecondLife at 33, which slants older than even the general gaming category. This seems to bolster the claims that those environments are not games but real virtual environments.

Education

In “Virtual Worlds: A First-Hand Account of Market and Society on the Cyberian Frontier“, Edward Castranova, of the University of Indiana at Bloomington, points out that 35.6 percent of the people he surveyed in those environments had a 4-year college degree or more. Yee’s study showed that 33 percent of the people he surveyed were students. However, he also showed that, for the non-student population, 44.8 percent of the population had at least a college degree. This number in and off themselves are meaningless but, when compared to the US Census data, they are amazing: according to the 2004 census, 28 percent of the overall US population had graduated from college. What this shows is that this phenomenon is primarily driven by more educated people than the average.

Employment and salaries

Of course, this higher level of education has some effect on the employment profile of denizens of those worlds. Castranova’s paper highlighted that 53.4 percent of his respondents were employed, with hourly salary averaging $20.74. Assuming 2,000 work hours a year, this translates into a $41,480 yearly salary. By comparison, for 2002, the last reported year, the US Bureau of Labor and Statistics reported an average US yearly salary of $36,214. Assuming a similar 2.5 percent yearly increase over the next two years, this would translate into $38,047.34. What this means is that virtual worlds denizens tend to be more affluent than the average American citizen.

Engagement

While the demographic data is interesting, the engagement metric is the one I’m most excited about. Nick Yee estimated that Everquest players spent 22.9 hours per week in that world and that people spend 21.9 hours per week across the category as a whole. Similarly, Ed Castranova found that Denizens in Norrath, a World a Warcraft server, spent an average of 29 hours there a week. When taken together, those statistics point to a level of engagement that is on par with television in the United States, which presents new opportunities for marketers.

Conclusion

The demographics profile of virtual worlds shows users who are young but more educated and more affluent than the general public. The trends in user numbers show a hockey-stick growth pattern that will look familiar to any early adopter of technology, highlighting that this is a nascent industry about to go mainstream. Because the levels of engagements for those users are very high, I expect stories in the mainstream media to soon come out talking about addiction to those worlds (in a fashion similar to the stories that came out about internet addiction, blogging addiction, etc…) which will validate the staying power of those worlds.

From a business standpoint, I’d recommend to my readers that they take a serious look at how they can expand their business in this arena. In my view, what we are seeing here is the emergence of a new way to engage with the Internet.