January 29th, 2006

Bubble 2.0 Is a Bubble in Media


There is a bubble in the tech industry, but it has nothing to do with the behavior of venture capital, as so many people are discussing. There’s a bubble because the tech industry is trying to be the new media industry, and very few people in the tech industry understand what’s really happening to the economics of media.

There is a bubble in media, and if it pops before we can get our arms around it, any hope for finding profitable business models may be lost.

To be fair, their are some seeds of understanding in all the talk about VCs:

Chris Anderson kicked this off by pointing out that technology adoption is still increasing rapidly and that, with expensive networks already built, it’s much cheaper to build software to capitalize on them — this is precisely why there is a bubble.

Dave Winer thinks that users should control the investment capital, and he’s right that the users are the only ones right now who understand what they need.

Scoble thinks that people should be chasing “Venture Users why it’s turning into a bubble.

Fred Wilson predicted a “Looming Attention Crisis” several months ago, and it’s no surprise that he referenced Umair Haque.

If you really want to understand why there’s a bubble, you have to invest the time in reading Umair Haque’s theory of media economics — Umair is possibly the most brilliant mind looking at what’s going in media, and thus in technology. I invested a few hours in wading through Umair’s slide deck on media economics and I was stunned — it’s all right there. Because Umair understands all the nuances, he’s hard to read and hard to digest, but, man, does he get it.

I’m going to attempt now a high-risk endeavor — I’m going to recast Umair’s argument and add a few nuances:

When there were only a handful of content choices, there was plenty of attention to go around — and attention could be bought through marketing.

When there were only a handful of distribution channels, and the cost of entry was high, a handful of players could profitably compete for a slice of the attention pie.

Digital and network technology has lead to an explosion of content and distribution channels, i.e. a proliferation of media.

The proliferation of media is destoying the economics of Old Media, which depended on a finite media universe.

The proliferation of media is a bubble because it’s being driven by speculation — the 20 million bloggers and dozens of Web 2.0 sites popping up everyday are speculating on the unbundling of content and distribution.

As a result of the speculation in media, there is now too much media competing for too little attention.

The negative economic consequence is that attention is not being allocated efficiently — it’s becoming increasing difficult for people to figure out which of the infinite number of content choices at their fingertips are most worth their time.

The economics of media — which are the new economics of technology — depend on the efficient allocation of attention.

When the cognitive dissonance of too much media choice becomes too great, individual media behavior, i.e. the allocation of attention, will become chaotic and haphazard. When this happens (and it already has), no one is going to be able to build a profitable business model because the two types of media dollars — advertising and content fees — won’t be able to flow efficiently.

The speculation in media that is being driven by the technology industry and blogging is still based on old media economics — it assumes that each site can gather a sufficiently large slice of the attention pie to finance its existence. But if media attention becomes completely fragmented and chaotic, no one will have sufficient scale or a sufficiently coherent audience to capitalize on their investment in media creation — even if the only real cost is time.

If all of the advertising dollars pass through Google, the only one who will be left with a meaningful share of those dollars will be Google. Same with content fees.

The idea that we’re living in an “attention economy” is nothing new. But unless the media/technology industry starts listening to Umair and focuses on creating new ways to help people efficiently allocate their attention in a world of infinite options, the bubble will pop. And it won’t be pretty.

So let’s focus on the user. What the user needs is help allocating a finite amount of attention. And the solution needs to be personal — perfectly tailored to each user’s needs. The user needs a personal killer app.

It will be a huge challenge to realize Umair’s vision of “snowball economics” through the creation of “reconstructors” that thrive off of “microplatforms” and “smart aggregators.” (If you’re not familiar with Umair’s lexicon, I suggest you invest the time to learn it.)

Good thing we’ve got a open network and an infinite supply of cheap development bandwidth.

UPDATE: When the Edge Becomes the Center

Skepticism of the media bubble argument rightly focuses on the question of whether the average person is (or soon will be) suffering from the ill effects of information overload. Paul Kedrosky’s response to this post highlighted the key issue — are those of us who complain of media overload really just “edge cases,” i.e. most people have better things to do than subscribe to 1,000 RSS feeds?

Paul Montgomery captures this view in his comment below:

the majority of people WANT blockbusters. It may seem to media economists that everyone should have a highly sophisticated strategy for consuming media in reconstituted microchunks through smart aggregators, just as they do, but a significant portion of the populace may not want to invest a lot of their precious time figuring out this Media 2.0 environment and will instead stick to a few trusted sources.

Alex Barnett, pushes back on this counterargument, using his wife as an example:

My wife is not a geek. She doesn’t blog and she doesn’t use an RSS reader. I don’t know if that makes her ‘average’, but hey. Anyway, she is interested in things. She does use the internet to find news stories of interest to her – celebrity news (oh well ;-) and info related to her profession. When I asked where she goes to get her news, she mentioned six or seven sites she visits for about an hour in total throughout the day, each day. And she has to ‘find’ the stories each time. So I’d say she is the perfect example of someone who would benefit from having a service that would bring her the news that matches her interests, regardless of who generated it.

I’m with Alex on this — Paul and Paul are right that most of us having this conversation are operating at the vanguard, but I think there is a wave (even a tsunami) following us. To understand why, we need to look beyond blogs vs. newspapers (i.e. text media) at the most mainstream media of all: video.

Google, Apple, BitTorrent, and others on the technology vanguard are doing to video media, i.e. TV and movies, what blogs are doing to newspapers. The day is not far off when you can watch any TV show or movie, both studio-created and consumer-created, at the touch of button (and in the palm of your hand). This will make digital video recorders and 1,000 cable channels look like minor issues

When you can watch any video content ever created any time you want, what are you going to do when you plop down on the couch to veg? What happens to the economics of media when there are 100 million Americans “watching TV” in the evening, but they’re each watching different shows?

When we reach this point, the center will suffer the same cognitive overload malady as those of us at the edge. It may be true that most people want blockbusters, but what if Umair is right and it will soon be economically impossible to produce blockbusters in the traditional sense?

In a world of infinite choice, who will be the new “trusted sources” that Paul refers to? Can the notion of trusted media brands survive the chaos?

That (I’ve said it before and I’ll say it again) is the “next Google” question.

  • this post and umairs original presentation make little sense.

    i reveiwed some of the curves umair did. looks like he is an economics undergrad and learned about a few curves without really having the intellectual capacity to apply them righ at other spaces.

    further, he leaves a few things out like ads being performace driven (CPO or CPA) and trackable.

    there is/ will be a bubble, when people who dont get it, invest in shit. the shit will still attrackt eyballs, but not enough to finance venture capital inflated fix cost structures and mba sallaries. but there will still be enough fragmentations to create a lot of proffitabble mid-size players. there surely will be one or two new big players eveloving out of this place, too (facebook could make it, in my view, when the people there continue it to get it right... + they have to globalize faster).

    this is not intended to be a flame, just mere facts.

  • David Wineberg

    Plus ca change... A little historical perspective is definitely required before this goes over the edge... It was only 80 years ago that shared experience came into existence... with radio... It is the shared experience and the blockbuster that are the novelty, the anomaly and the exception. It reached its peak in the 1950s with television, when toilets all over the country flushed at the same time - when the commercial break came in I Love Lucy. Since then the media have proliferated, exploded and expanded, with FM radio, cable TV, pay per view, on demand, internet, file sharing... ad infinitum, if not ad nauseam.

    What we are witnessing is simply the pendulum swinging. It is a continuum, not a bubble. Everyone is continually adapting to the times, and so it will always be. The next big thing might still be something that further democratizes the media. Or it might be something that starts the pendulum back on the way towards the mean. We just don't know until we see it, and all the microspeculation on the network effects of blogging, podcasting, and file sharing is simply a forest vs. trees issue. The bigger picture is this: we adapt. We will deal with it. And some entrepreneur will capitalize on it it, whatever it is.

    If anyone told me 20 years ago that I would have a personal start page with 100 live headlines and quotes on 90 stocks, I would have rightly told them they were crazy. Who could keep up with that amount of data all day long? Well, it turns out I can. And I'm looking for more.

  • joakim

    Umair certainly has a pedagogical point in separating between blockbusters and snowballs, but of course in reality the line isn't clear. The big corporations will continue selling big hits for big money, even though competition grows tougher. What they loose by reduced prizes they will win back by smaller costs in production and distribution.

    What they do need is to adopt more snowball-like strategies. Such as influencing high status people so that the product gets popular among the rest, or being really good at making predictions of when is the right time for a subculture trend to "gentrificate" and meet the masses.

  • I agree with all this (below) except the claim that "no one is going to be able to build a profitable business model." There will be profit, just less of it, and that's certainly what scares--or should scare--the larger media outlets.

    When the cognitive dissonance of too much media choice becomes too great, individual media behavior, i.e. the allocation of attention, will become chaotic and haphazard. When this happens (and it already has), no one is going to be able to build a profitable business model because the two types of media dollars — advertising and content fees — won’t be able to flow efficiently.
  • Bartley Forsythe

    Our 'attention' will be guided more and more from 'trusted sources'. With choices for media consumption increasing daily, "director" sites like slashdot and digg will keep creating the "herd effect" which will drive most end users to content that appeals to them - whether that content be text, audio, video or PowerPoints. In today's parlance, imagine a TV channel that features review-references to current shows and people are driven to channel 137 to view what is recommended. Now throw it into IP: highly recommended videos from unknowns (and previous knowns) get heavy paid-per-show traffic based on herd-recommendation AND user appetite. Trusted "Director" sites may have 100 recommendations but I may choose only 2 or 3. The cream will always rise to the top in time.

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