Wisdom of Crowds Reliability

Something that's been bugging me lately is why we distrust the so called Wisdom of Crowds effect. To recap the wisdom of crowds effect (coined by James Surowiecki the author of the book with the same name), is that the crowd in aggregate is smarter than any one individual. He tells anecdotes of guessing the number of jellybeans in a jar and the fact that the average will be closer to the actual number than any one guess. Another example is from the popular game show Who Wants to Be a Millionaire? Ask the audience is the wisdom of the crowd, while Phone a friend (which fails more time than not) is the individual. We can also point to the success of Wikipedia which is self policed. Are people spammers? Not when it takes them a while to build their reputation. eBay members, Amazon members, and other such members value their reputations more than anything. Is it a few bad apples that ruin it for everyone else?
Can the Wikipedia model work for everything?

The self correcting nature of the wiki allows for people to police and to ban certain IPs and usernames. Further, the general consensus of the crowd is to create something that is useful for everyone. It is the few bad apples that do ruin it for all. The spammers, the Nigerian princes, the Viagra hawkers. Will the crowd out the spammers, I think so, comments anyone?

Infinite Information - Narrow Minds?

We live in today's age of infinite information. Never before have we had the world at our fingertips. Google provides us with a portal into the World Wide Web. It's truly an amazing time. With all of this information, don't you think that we'd be more open to ideas?

Here's a reverse point of view on things though, that I'd like to throw out and see what you guys think. Do you think that with so much information and so many tools to wade through this information that we are actually providing ourselves with a more narrow mindset? After all, in college, weren't we encouraged to do everything? With our new Internet tools are we limiting ourselves? An example: Let's say that you were interested in news on the Yahoo - Microsoft merger. You input this into your Google Reader and now Google comes up with other news articles that fit the meta data with Yahoo and Microsoft. So other news items that come up deal with Google, Cisco, Oracle, and other such tech companies. Another example: Netflix and Amazon. You like tech books/movies and AMZN/NFLX provides you with these recommendations. Are you missing out on Shakespeare/Art house films that you might never come across because you've weeded them out with your preferences?

We can even look at a tool like Digg where the Digg community determines what is news. This news is then "dugg" to the top. What if this was the way that we determine what is important? (Note: some Europeans already think that American media is like this). So for example, the latest features on the newest iPhone is more important than the latest updates on the war in Iraq. The results of yesterday's Yankee game is more important than ..... To some yes, this is important.

This fragmentation of information is creating imperfect information. Are we missing out on some things? Do we still need portals to ensure that we have a shared experience? That we all know who won the Super Bowl, that we all know who won World War II, that we all know who the 32nd president of the US is.... (which by the way leads to another post about how we don't need to "store" information in our heads anymore).

Yes the long tail is a phenomenon that will not go away and the Internet will magnify this effect. But is the head of the tail dead? Will there truly be no more blockbusters? Ironically, the day the Long Tail was published Pirates of the Caribbean set all types of box office records. Are we living in a world where we all live in our own worlds? Is there value anymore in the front page of the New York Times, when we can all create our own?

Who Wins from the Long Tail?

We've talked a lot about Chris Anderson's concept of the Long Tail and the democratization of content. Journalism, film, music and other such "artistic" endeavors are things that anyone can do. The crowd determines who has "talent" and then rewards them with mainstream publicity. And with mainstream publicity comes the ability to reap riches beyond your imaginable belief.

Fast forward to two years from now when the Long Tail is more prevalent than ever. Box office will remain flat, but less people will go see movies (it'll be $20 a ticket after all). CD sales will go the way of the cassette and iTunes will rule but only at 99 cents a track. Amazon will claim that 75% of their sales come from Long Tail books and blockbusters will gravitate more toward the body of the tail. TV...What's that? Everyone will watch "TV" on their laptops when and where they want.

So who wins? There's a glut of video content coming online with the latest being "GodTube" receiving $30 million. Let's assume that there is an effective monetization strategy whether that is pay per view (like JumpTV), pre roll, plinking, or some other strategy to turn this content into cash. Even then, are we giving up control to the power broker (i.e. Google)? That would be as if everytime TV Guide sent NBC a viewer they would get a cut. Hmmm. Are content owners slowly losing control?

With the long tail of content is there an effective monetization strategy that can allow the niche creator to make a living? We've seen with YouTube's monetization that the BreakALeg.TV received an 80 cent CPM. So who wins? Unfortunately (please don't deindex me, Google), it seems to be the broker which is shaping up to be more and more Google/YouTube.

Can Video Ever be Pay Per Click?

Can video ever be pay per click? Video is a strange beast online. Its not exactly free as YouTube quickly learned after they received their first Limelight bill. Google AdSense works because the cost to deliver these ads to the blogs that host them are so negligible as compared to bandwidth. However, when we begin to talk about video, the economics completely change. Let's take ABC.com as an example. It costs about 11-12 cents for an episode of Lost. ABC charges their advertiser about 25 cents to sponsor the entire episode (this equates to an astronomically high CPM of $250; although they do get to sponsor the whole 42 minute show). This nets ABC 12-13 cents per show. Guaranteed. At this high cost, ABC HAS to guarantee this revenue. Or do they?

Let's look at some other statistics. The average commission from an affiliate is let's say $10. This takes into account big purchases (laptops and ipods) and small purchases (books, CDs) and everything in between as well as the average split of anywhere from 5% to 10%. For a 42 minute episodic, ONE person out of 80 has to buy something in order to break even. 80*$0.12=$10. Add in some type of pay per click revenue at an average of let's say 50 cents per click (everything from a mortgage to a newsletter sign up) and there's a possibility to even pay for video production.

The economics look promising if the model works. Are people ready to purchase items within video? We don't know. But we do know this. YouTube is making $0 on all of those dog on a skateboard videos that we watch. And with HD coming out, the only one that will be laughing to the bank is Akamai and Limelight.

Long Tail Gets Longer

Is there a way to monetize UGC? The YouTube reports came in and it seems that a popular show on YouTube Break a Leg, received a check for $1600 after 2 million views for an 80 cent CPM. What does this mean? It means that collectively all of our UGC might let someone eat lunch, but its not going to be the creator of that content. Just like Amazon who claims that the long tail exceeds the head of the tail in terms of revenue, the long tail of content probably does as well. But who wins there? Amazon does. By aggregating all of these pennies they are able to make a business. YouTube wins (sort of) by aggregating all of these videos. Is crossing over into traditional media the only way to earn a real living? Bloggers appear to have figured it out: Gawker, TMZ, Perez Hilton, although the latter two have crossed over into mainstream. Further, these are well trafficked blogs. The stars of Internet video (LonelyGirl guys) just got $5 million to continue to make shows. Well if you're an economist this could be a good trend. The monetization for content is creeping down the long tail toward the tail but its stalled in the middle.

Will the long tail ever become profitable for the content creator? Well by definition it means that its content serves a small niche. (sometimes a niche of one). The medical / scientific / engineering communities found a way to monetize this by charging more money for each research paper that you might want to read online. Trade journals are very expensive - $100 an issue. Not because they print on glossy paper but because they (like you) need to eat! And given this high price, most likely they have a highly targeted audience and thus, advertising will be most effective for niche products.

So going back to the long tail, will there be an effective way to monetize? I think so. But right now the Internet is all about scale. If we can cut through that and think about relevancy than I'll be able to continue to watch BreakALeg.tv....

What Do You Really Watch Online?

PluggedIn launched today with most of the major music labels joining in. As TechCrunch puts it, its the Hulu for music video. The site is a great looking site as its powered by Move Networks - the same company that powers ABC.com and other high quality video sites. Investors include Will Smith and they hope to monetize through ancillary product sales (i.e. affiliate revenue).

I think that PluggedIn could possibly work but here's the catch: You need to take traffic from YouTube. And being that YouTube has a stronghold on the video community it will be hard to do. But what's even harder is the same problem that is plaguing Hulu. The content is NOT EXCLUSIVE! There's a major disconnect between Hulu, NBC.com, MySpaceTV, and the folks that place content on YouTube. Content creators have simply said that they'd like to spread their content in as many places as possible on the web even at the cost of a start up that they co-own. Simply put, if Hulu (or PluggedIn, for that matter) had exclusive access to the NBC/FOX library or to music video they would be hugely successful. Yet they don't. And further, if the content creators really want to have their content all over the place, why do they disable the embeds on YouTube...(yes this is right, see for yourself on Avril Lavigne's GirlFriends video).

What is the reason for this? I think folks are still trying to find an effective way to monetize video. Bandwidth now is a huge consideration and if YouTube is giving it away ... for free.... then that's a tough proposition. Broadcast TV had no marginal cost to deliver programming to every incremental household. Internet does. And when that's the case, you have to go with what you know: free delivery - i.e. YouTube. So until we can come up with a way to monetize more effectively, the answer to 'What do you really watch online?' is simple. We watch YouTube.

The Free World

Chris Anderson's Wired Article about Free has really sparked many debates and discussions. This weekend I heard more than one viewpoint about free. It's time for a few quick points about it and my view:
[Right now the argument really surrounds music and the proliferation of music piracy.]

• With so many iPods sold and only 3 billion songs sold on iTunes - there must be another way that 20 GB hard drives are being filled.
  
• I've learned that a long time ago there was a "tape tax" that helped to subsidize the music industry everytime you recorded a song off the radio (will that translate into an iPod tax?)
  
• The Internet / Bit Torrent / even email has made it easier to "share" files.
  
• Most kids/users don't believe its stealing. (The analogy of sneaking into a movie theater versus getting caught shoplifting.) If you're not taking something physical you're just sharing information, and that's free right?
  
• Ad supported music? Look at what's happening with radio.
  

You get the picture as to the gloom that is happening with music.

Opponents argue that the music industry has been "ripping us off" for years with $20 CD's (will this happen to software? some argue that it has already).
Do 360 deals make sense to record labels? [this is when the label acts as manager and takes a cut of all entertainment related deals, including when the musician becomes an actor, sells t-shirts, etc] Look at P. Diddy and his Bad Boy outfit. I think only 20-30% of Bad Boy's revenues came from music. The rest was from Sean John, his vodka line, his TV show, etc. P. Diddy is selling a lifestyle and the music is his entree into showcasing it.
Label executives would argue that this works for the Radioheads of the world but what about unknowns? Would an Amie Street model work? Probably not for the labels (at least not now since whether you are a hit or not, you still have to eat). I've heard of the argument that the free period has conditioned us to see the computer as an entertainment center.

So these are the positions and the arguments from proponents on both sides. Will all digital media become free? There's no way. Hank Williams from Why Does Everything Suck blog made a good point. If you take MSFTs revenue and get rid of that, then figure out how to support all of that software with ads, you'll never be able to make up the difference. Never. Ever. Yet, we are conditioning ourselves to believe that digital media should be free. Why? Supply and demand. There's more supply than ever. Look at the hundreds of millions of posts on YouTube. The hundreds of cable channels out there.

To me, I think that this is more a question of psychology rather than economics. I remember what Strauss Zelnick once said about his consumption habits. To paraphrase: If I did it when I was 17 years old, I'm probably doing it now. College kids are ripping music off now, and when they're in that prime spending age, they'll still be doing it. Hank has a further point that companies like Google and VC's are helping to perpetrate this trend right now for land grab. Sure, some sites like Facebook should be free ....

Take a look at the current operating situation for cable. HBO charges you for content. But many people are happy to pay. Sure, you can probably get a bootleg version of Entourage off of Bit Torrent or something, but you've been getting a cable bill for x number of years. And that's a habit. Paid for email? Never!

Media as a broker of other goods and services? If this is the case, is media only good to try to sell you something physical? Do you watch "Lost" only to buy the Toyota that they'll sell you in the fourth ad block? Do you listen to Jay Z only to buy the Roc A Wear shirt he's wearing in the music video? Is that what its come to?
If so, we are in deep trouble.

Has radio and television conditioned us as the consumer to be "cheap?" Take an average feature film. $12 bucks to see it when it first comes out. Wait 2 months and get it on Netflix. Wait another 18 months and see it on pay cable. Another 18 months and get it on network for .... FREE!

Again its conditioning. This is how we grew up and this is what we are used to. Contrast this to things that people will pay for online.

• A digital teddy bear on Facebook - $1
  
• The right to customize your penguin on Club Penguin - $5.95 / month
  
• Organize a meetup through Meetup.com - $18
  
• Meet your soulmate through a number of dating sites - ~$25/month
  
• Sell one of a kind items that you probably don't want on eBay - $0.01 - $100's
  

And the list goes on and on. Why is this relevant? Look at all of these things. They are all new forms of consumption. Why is this smart? Because this is the beginning of conditioning. If we're conditioned to pay for something, we're happy to do so. And if not, then we won't. (the whole, I got it for free before, why would i pay now?)

So, traditional media, unless you can change the mass psychology of millions, we're kind of - let's put in nicely - in a very bad place.

I'm Back But I'm Not Live

Yes, after a long hiatus from writing this blog, I'm back. What I've been doing? We can talk about that later.....

One of the trends that I've noticed that is catching on like wildfire in the videospace is lifecasting. Made popular by Justin TV, YouTube, UStream and others are getting into it. Why? I don't know. We all know that YouTube's biggest expense (and the other video sharing sites that host their own content) is bandwidth and if you have very fickle users the cost of CDN's and such. (Although I learned last night, admittedly, that YouTube's new API really wants you to use their bandwidth). Now imagine live streaming. Costs for Flash media server. Cost for 24/7 live bandwidth. The number would be staggering. BUT from a business perspective...if you can make more money than that it would make sense.

Now let's look at that angle: Currently videos monetize by a few ways. Pre Rolls, Post rolls, interstitials and banners. Pre and Post rolls are hitting about $20 CPM on YouTube. OK. Let's give banners $10. So at these rates its all about the eyeballs. If we do some quick and dirty math (really dirty math from my last Amazon AWS bill) we can make an assumption that a GB of data costs about 18 cents and that each minute of video is about 10MB. SO... 100 minutes of video data is about 1GB (obviously depending on quality). But to keep it simple let's say that's the cost. So let's say you have a banner and an interstitial (its live so you can't have pre and or post rolls). $30 CPM (on a good day).
Some math:
($30/$0.18)*100minutes/60=~277 hours or 11.5 days.
To break even you need 1000 viewers every 11.5 days.

Doable? Maybe. But the thing that we all have to realize is that no matter how exciting Paris Hilton's lifestyle might be, we all sleep at least 6 hours a day (well some of us get 4!). Are we really going to put all of the video editors out of business? After all these are the folks that are getting us to the juicy parts of the content faster than ever. And what about those bookmarking tools like MotionBox and VeoTag? Do you really want to sit through and watch Justin sleeping (by himself, of course)?

In my mind the economics of live streaming don't make sense, but on a more base level, the entertainment aspect of live life casting is just plain boring. Some events are great live but with more and more life casters out there - its just going to make our Internet slower when we need to sit and watch more important things (like Round 1 NCAA games on Thursday and Friday!)