Media 2.Uh-Oh Part 4: Go Wide

Here is Part 4, the final piece in the series, the others are here:
Intro
Part 1: Pipe
Part 2: Layer Cake
Part 3: Virtual Pipes

So what is a Media Mogul to do? They control pipes in a world of zero margin costs. It costs virtually zero to sell one more digital song, or run one more digital ad or post one more digital classified. As chips and bandwidth get cheap, digital distribution crumbles the quaint old days.

• Craigslist took the classified ad business away from newspapers by doing it better for zero marginal cost. They charge for job listings in San Francisco and NY because, well because they have some bills that need to be paid. So classifieds were are huge profit center and are now,... , are worth almost nothing.

• Music is must cheaper to distribute in digital form than truck deliveries to record stores. Copyright issues be damned, listeners preferred digital music to be carried around in devices the size of a deck of playing cards or a pack of Wrigleys Chewing gum. Morpheus, Kazaa, BearShare, LimeWire gave customers what they wanted. iTunes barely makes up for the record labels missing the beat. Music may not want to be free, but it sure wants to be distributed for free.

• Voice calls via Skype, PC to PC, are free. They singlehandedly yanked down the price umbrella of overseas calls to 7 cents a minute. The telcos had to respond to free.

• Newspaper and TV journalists had a long run as the trust voice of news. Now distributed bloggers can take turns scooping professionals. It's not only that distributed news gathering is cheaper, its the zero marginal cost of distribution. Post it to a blog, get picked up by other blogs and search engines. Bask in glory. Rinse. Repeat.

In each of these examples, because of marginal costs approaching zero, it is increasingly a better business to provide technology to millions, even billions of folks rather than try to protect the control of a pipe to a few. The right answer is to GO WIDE. It's time to get horizontal. Newspapers should have licensed Craigslist's (or eBay's) technology years ago. Telcos should have embraced or emulated Skype. Drop CDs and distribute all your music (and everyone else's) online at a price that doesn't protect retail, but destroys it (which is happening anyway!).

The time and the tools are ripe for this GO WIDE approach. Especially on the Web, which is nothing but layers and layers of functionality.

Let's go back to the days of so-called Web 1.0. There were a few online services, Compuserve, AOL and lots of dialup bulletin boards. The Netscape browser came along and was basically a container - a bucket. You sent out a request and packets which found their way from a server and "filled" your browser container with text and images. It set off a battle between Netscape and Microsoft but in the end, roasted the non-Web online services to a crisp.

AJAX: But then the browser changed from a container to be filled to a space to be programmed - you could execute code inside the browser. Scripting has been around for a while, heck, javascript (a badly named language) was invented way back in 1995 so Netscape could support little java applets that didn't do all that much. In 1998, Microsoft introduced Remote Scripting so displays could be updated without hitting the Refresh icon. But it wasn't until February 2005 when Jesse James Garrett defined AJAX or asynchronous javascript that a real Web 2.0 was born.

It was a real time link between client and server. You could run and control programs running inside the web browser, again without hitting Refresh. Google Maps is the best example - it paints the screen with a map and then when you scroll north, the server fills in the pieces of the map you are missing.

But more importantly, via an API, you could do mashups - put hotel or restaurant locations into maps. Play music in your blog. Or very easily put video from another website into yours (YouTube uses a Flash Player). You could seamlessly link applications into each other in, dare I say, layers!

AJAX allows for the "layerification" of the Web - not just transport and routers and cable modems, but applications and content too. So as the Web starts to emulate, emolliate and eventually circumnavigate today's media, its power will come from a stack of individual layers, each a mile wide.

Let me say that again. It's the ability to both run programs inside the browser window AND allow for applications to pass information to each other that allows media on the Web to organize into horizontal layers instead of the fat and mogul owned pipes we are used to.

The layers are endless. Someone does search better than anyone else. Or classifieds, or music sales, or telephone calls, or video, or real time highway traffic, or comedy, or news or social networking, gaming, recipes, or WHATEVER anyone wants that can be delivered with zero marginal costs and provides it anywhere and everywhere.

Think about how different this is from media today. The technology of sticking a microphone in front of someone, or turning on a camera or switching a phone call has been perfected years ago. It's not about technology anymore, it's about programming to attract viewers (which with a few decent exceptions, has been a race to the bottom, thank you Mr. Murdoch!). Animation and special effects movies are increasingly commoditized too.

But now getting packets through that bumper car of an internet to create a virtual pipe, actually  takes someon writing code and designing easy to use services, so much so that a Chad Hurley becomes a rock star. But who wants to write code? It takes forever - Jolt, all nighter, nerf guns, the brightness up on the monitor and dark sunglasses to get all the bugs out. Better to let coders write code, and programmers (as in network TV) develop 30 minute sitcoms. Layer this sucker out.

The Moguls of Media 2.0 (sorry, I hate all 2.0 terms, but you get the idea) will be about creating virtual pipes out of a stack of these separate layers. Facebook for Senior Citizens, with friends to call in the event of a Clapper emergency, discussion groups on how to make your children feel guilty for not calling, and videos of how to properly wear Depends adult diapers. This thing will be a lock. Want to be a Mogul? Think out all the free services never thought possible without lots of broadband and pieces you can pick and choose from to build it and you are on the right track.

Unfortunately, the architecture of today's infrastructure, huge datacenters near cheap electricity with racks of PCs and disk drives and uninterruptible power supplies and lots of fiber, is an artifact of our still narrowband world. It's faster to query to distant lands on fiber optic than to look something up on our own PC, or our next door neighbors PC. It's why video still sucks on the Web - 10 minute scratchy videos. It's not zero margin costs. The more video you stream or allow users to download, the more your bandwidth and storage costs rise and the more money you lose.

P2P: But that's about to change as well. Peer to Peer or P2P is another game changer. It allows for true zero margin cost distribution. It will be what starts today's media into its death flush spiral.

Post Napster music stealing sites use Peer to Peer. You download songs from your virtual neighbor. It's uploaded from their disk drive and downloaded to yours. With P2P, video is not so much streamed as shared, you get what you need one and preferably more than one source. BitTorrent is former underground, now being productized version of P2P video. Lots of first run movies and an occasional TV show before it is broadcast. You download the ".torrent" file and then have the option of being a "seed" and allowing others to download it. Not quite mainstream.

Skype founders Zinstrom and Friis are working on "The Venice Project" to do easy to use P2P video distribution. There are at least three P2P video networks in China. Here's a cool example. This is coming on fast. Think about a world with zero marginal cost video distribution - not even much in data centers and servers required. Pipes be gone. It becomes another horizontal layer in this Media 2.0 stack.

As an aside, Peer to Peer cellphone service is an obvious next step as well. Why blast signals all the way to towers when cellphones can just pass packets along until someone is close enough to an internet connection to dump the packets into the backbone. A wireless Skype is not that far fetched, wrestling control from the Cingulars and Verizons. It's not just Hollywood.

User generated content? It's all the rage, Mentos and all. Is that the future of media? I'm not so sure. I never even liked America's Funniest Home Videos. UGC will have a place. If you want to call it the Long Tail, feel free. It's not as long as you think. Or if it's long, it's as skinny as a fiber optic strand. It's the head and the fat belly where the money will be made to drive Media. Someone has to pay for quality output.

So, how do you get paid when you don't control a pipe and the payments from advertisers or customers for access to that pipe. And it's unclear that video ads fit the direct marketing model of click and buy beyond Home Shopping Network. It is similarly unclear at what price new networks might get to emulate that mass audience branded advertising, especially when you know exactly how many people watch, how many click away, etc.

As far as subscriptions or pay per view, DRM or Digital Rights Management is only so good. Plus, it's broken once the first person pays for it and it leaks out of the DRM virtual pipe into the P2P networks. Copyrights are tough to enforce in the Internet cloud. $100 million budget movies? Tough call. Hard to recoup. $1 million per actor per episode TV shows. Hmm. Tougher to imagine in a world without syndication.

Is there an economic model to these virtual pipes? Early TV was radio shows with cameras turned on, much as early movies were Broadway shows with film running (I still laugh at the Marx Brothers The Cocoanuts and Animal Crackers, hurray for Captain Spaulding...). It took awhile, but eventually, production values increased to $2.6 million per TV episode (for Friday Night Lights) and $100+ million movie budgets. This became the barrier to entry. Viewers demanded better quality, better than the cheap stuff they were initially fed. Animal Crackers is a classic, but now quaint.

The Web is still back in the pioneer days. Beyond the pirated stuff that leaks out of the mogul's traditional media pipes, early Web media is mainly that user generated content: MySpace pages, You Tube videos, podcasts, all disgustingly cheap to produce (and armchair critics like me go sniff, sniff and mutter "lame"). But lots of it is made and there are lots of people to view it.

I traded a bunch of emails with Mark Cuban (who knows a thing or two about both Internet video and owning media franchises) about the loss of control of moguls. This one paragraph by Mark nails it - the eventual economic model of this whole thing as production values inevitably go up:

Mashups, hyperlinks? We have seen it all before in the music business. Anyone can produce and distribute any song they want. We have seen some artists and songs emerge, but very, very few. And that is in an environment where there truly are no digital barriers to entry. Yet the moguls are still the moguls. Not as strong, but still in control. I don't see them going away. Why? Because in a long tail universe, the cost to crawl up the tail to the rat's ass is more expensive than the production. Which means only the people with the money can make the investment, which brings you back to the moguls.

The Yogi Berra problem - no one goes there anymore, it's too crowded. You gotta spend as much on promotion as you do on production to attract folks to your pipe, virtual or otherwise.

Mark might be right. Moguls will still roam the earth even after the asteroid hits. But they won't be like the moguls of today. It will be a different landscape. The view from here suggests it won't be possible to control pipes anymore. Not like today anyway.

Programmers (javascript and AJAX variety) will create these virtual pipes. Value will be created, but I think there will be more value in the layers of technology that are needed than in the end product. New companies will emerge to leverage this architecture of layers, of P2P, of mesh networks for wireless last miles and on and on. It will be constantly changing unlike the copper wires and coax cable run to our homes that create the Media of today.

How soon do we get there on the Web? Probably sooner than we all think. The Diet Coke and Mentos days will seem quaint. Go wide, young man.

Comments

[Michael]

so.... basically, Media 2.0 will destroy the media market for the current owners of pipes (moguls) and leave a bunch of new moguls offering a bunch of free services.

Somehow I can't believe that there is no money to be made in media in the future. I suppose the Media 2.0 mogul will be selling ads that tie in with the niche community. Doesn't sound like anybody becoming rich to me...

[Robert Young]

Great series, Andy! I don't often sit at the edge of my seat reading blog posts... but you did not disappoint.

I'm very much in agreement with your overall thesis, and I'd like to expand on it... so please expect some follow-up from yours truly over at GigaOM. And thanks for pointing out my "fat belly" ;-)

[iain]

* great series of posts.
* The move from vertical to horizontal is a big change. Will be interesting to see how it unfolds.
* I really like your point that it is "what you can do with the technology that makes it all interesting."
- it is so cool that so much R&D is spent on the applications these days. Much more interesting than fiber-optics.
- the sub-point to that is that this is usually when you don't want the technology to change that fast.
* Cisco spent sooooo many years evengelizing this horizontal network design. Now that it has happened ... all they have is the "stupid network" ... it is the stuff on top that is really interesting.
* telcos are in same boat -- they've got the "network" ...

[Michael Brooke]

Andy,

really cool stuff you are writing...my take is as follows..

going wide is good if you are a mogul or aiming to be a mogul...my thoughts are to go deep...

I publish a magazine on skateboarding...it's a niche skate mag in that it is vastly different from the other skate mags out there (ie Transworld Skateboarding owned by TimeWarner)

I am doing a lot of webstuff (and have been for years)...I also do books, tv shows and DVD's. Over the years I have built up an army of customers. The items I produce, no matter what the media, are about moving my agenda forward.

Not everyone is interested in my take on skateboarding...but the deeper I go, the more fans I get. I will never compete with 250,000 circulation mags like Transworld...and frankly, I don't want to.

Smaller media guys like me will see our business flourish if we build something that is truly exceptional (which I believe I am doing). I sleep well knowing I've got no debt and I have paid my printer.

Going wide would kill me...it's too expensive. Going deep means that I add folks the cult - these folks are truly worth their weight in gold.

I guess what I am trying to say is that less is more.

[ZF]

This is so laughably wrong it's hard to know where to begin. I think the biggest single howler is "Newspapers should have licensed Craigslist's (or eBay's) technology years ago".

Imagining that Craigslist has any technology which has any value just shows how lost you are. The only valuable technology Craigslist has was the decision not to use fantastically expensive general purpose solutions, opting instead to produce a 'home brew' assembly of open source parts which is awesomely productive for their specific application. The ability and guts to do this are still rare but becoming more widespread (see for example Google, PlentyofFish and Bloglines), but there is almost nothing proprietary about it.

Craigslist's valuable engineering is all social engineering, principally:

(a) understanding how to make what is essentially a proprietary Yellow Pages site sticky as hell, and

(b) understanding that a really good way to stop competition from corporates in its tracks is to ensure that the cost structure of the business, at least for several years, leaves no room whatsoever for their executives, secretaries, perks, underlings, HR departments and whatnot. The best competitors to have are people who are deadly afraid of even the possibility that they might have to compete with you!

Cheap computers and free software are giving individuals access to this sort of strategy, but the strategy is not in essence a technological one; that's not where the value lies.

This particular phase won't last forever, but for the moment the advantage lies with creative iconoclasts bent on disintermediation and willing to supply it very, very cheaply.

[Mert Topcu]

I really enjoyed reading this series of posts.

[Jez]

I think that to some extent Ajay just proved your point - the collection and aggregation of mini bits of verticle and horizontal released information compliled into a single, readable and coherent set of articles :)
The unifying of any channel of media into a format that people can both understand and access easily and quickly is the future - the exact media in question is largely irrelavent, it's the singular presentation and access that matter. More importantly, the worth (not value as such) is decided by the consumer and that will dictate the level of "stickiness" that the channel achieves.
To adapt your final line: Go wide young man but go sticky too.

[Tim]

Andy, I've been enjoying the series. It's good stuff to chew on for sure.

I question however how much Ajax really has to do with Web2.0. While it certainly proved a popular rallying cry, Ajax is used in very specific circumstances (often wrongly). There are also other analogous techniques that allow you the same flexibility without the cool moniker.

I think history will probably concede that RSS was the true defining moment of Web2.0. RSS for blogs was the "a-ha" moment for XML, suddenly and easily showing the power of millions of voices, loosely joined.

Since developers were driving the boat once again (in the post bubble years), RSS provided a model for what you could do with simple APIs and data sharing. Plus, let's face it, there were a lot more developers available with time on their hands willing to hack up fun little apps.

In the P2P/infrastructure sphere, I think what Amazon offers today in Web Services -- grid storage and computing -- is simply amazing. They are radically lowering the cost of processing and storage for data-intensive applications (like photo storage or video), which decreases the barriers to entry (no more massive hardware investments). That may be the final nail in democratizing the mogul club.

In any case, it'll be interesting to see how it all plays out.

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The part with the pipe was very appreciated by everyone.

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I really enjoyed reading this series of posts. really well organised post to have one....:)