There is a spirited debate going on over at Mark Cuban's blog about the risks of a "free" strategy, a topic that's been in the news lately thanks to Chris Anderson's new book (which you can read for free at Scribd.)
Cuban's argument is not really just about free. It's about the dangers of becoming so successful and bloated that a company becomes vulnerable to a competitor who offers an even better product for free. Cuban points out that "free" is often about amassing a large audience, which leads to big egos and an (erroneous) feeling of invulnerability. The situation is even more perilous when such scale is financed by seemingly endless piles of capital - capital that can dry up when an even more exciting company shows up with an even larger budget.
There are a lot of interesting comments in the article, but the one I agreed with most pointed out that "free" is a tool, not a strategy. It can be an excellent tool for disrupting the market and acquiring an audience, but if it can't be the sum total of your strategy. After all, a competitor can underprice "free" by paying people to use his product.
As MIT's Technology Review completes its transformation from a sleepy alumni magazine to "The Authority on the Future of Technology" it devotes the entire June/July Issue to the topic to "The Next Bubble? - The Future of Web 2.0." The cover photo (at right) shows Leah Culver, co-founder of Pounce, blowing up a bubble. You need to turn to page 35 to see the result.
Editor-in-chief and Publisher Jason Pontin recalls his experience as editor of Red Herring which in the first six months 0f 2000 had 500,000 readers and $100 million in revenues and was out of business the following year He sees a similar enthusiasm today for companies with unproven business models, but more than the potential loss of capital he fears for the future disappointment of the entrepreneurs who put their hearts, souls, and considerable time into the ventures which will not survive the inevitable correction. Still, he recognizes that speculative manias are an inescapable feature of entrepreneurial capitalism and in fact were responsible for the investments in many businesses, such as transportation and the Internet, that influence us today.
This issue of the magazine takes a close look at social networking which Pontin notes is a "nice return to the Web's foundations." In fact the last page writes about how Robert Fano (right, with Marvin Minsky), who was my graduate adviser at MIT, organized Project MAC on the theory that "general-purpose,
independent, on-line use of computers by a large number of people" appeared feasible as far back as 1963. That probably explains why he was so tolerant of my doing my thesis work with the group that became the Media Laboratory even though they espoused the idea, thought irresponsible at the time, that ordinary people could have personal computers and that an entire bit of memory could be devoted to lighting up a single pixel on a screen.
Freelancer Bryant Urstadt delves into the details in an article Social Networking Is Not a Business* (*But It Might Be Soon) in which he describes the large user bases and equally large amount of venture capital that have been attracted to KickApps, Ning, and Bebo, not to mention Facebook, MySpace, and LinkedIn. He also points out how revenues and, especially earnings have lagged behind those numbers. More tellingly, CPMs vary wildly, from $70.00 at sites that have desirable demographics, such as Technology Review, to $0.13 at Facebook where no one has figured out how to get the social networkers to click through and buy anything. Jason Calacanis is quoted as saying social networking sites are "a really bad place to advertise." The reason is that while 2% of Google users click on a given ad, in Facebook the number is less than 0.04%, a disparity explained by the difficulty of targeting users who come to the site to socialize rather than do research on purchases. As the article explains, attempts to get around the problem by gleaning users intentions from their transactions and demographics embroil the sites in privacy problems, as happened with Facebook's ill-starred Beacon program - "an advertiser's dream - and like many things that are good for advertisers, very annoying to ordinary folks." The are also issues of "content adjacency" - advertiser's concern at having their ad placed next to user-generated content of uncertain taste. The consensus of the pundits quoted (Andrew Braccia, Chamath Palihapitiya, Paul Kedrosky, Roger McNamee, Marc Canter, Ron Conway) is that the advertisers will eventually get over their squeamishness and follow the users to where they are spending their time, and that revenue can be generated from a long list of transactions such as commerce.
While I agree with the authors in this issue that the high tech industry does have cycles of irrational exuberance followed by painful crashes, I prefer to take the longer view and see those cycles as the tide moving in and out of the beach. When it comes in it brings lots of interesting stuff ashore, and even though the tide goes out, most of the stuff stays behind. If the investment of money and human capital was completely rational, we probably wouldn't have railroads or the Internet. Each expansion brings in waves of new people, but the ones who stay understand the cyclical nature of things and learn to enjoy the bubbles as they expand and remain philosophical when they contract.
In summary, this issue of Technology Review offers a good summary of the issues facing the tech world these days.
Trevor Baca summed up the spirit of the Emerging Telephony (ETel) conference when he said "Web developers have all the fun. Why can’t the phone be as easy?" Indeed, the conference was all about employing Web 2.0 concepts such as Web services, mashups, and open source in order to enable new ways to use the telephone. ETel brought together more than 250 practitioners, mostly from small companies, for three days of presentations, discussions, and exhibits at the San Francisco Airport Marriott last week. The big legacy carriers were conspicuously absent, with the exception of British Telecom and France Telecom. The handset manufacturers were represented by Nokia and Motorola, and the big Web properties by Yahoo and Microsoft.
If Telephony 1.0 was The Phone Company providing a monolithic experience encompassing everything from directories, to handsets and the network connecting them, Telephony 2.0 is a more diverse set of applications and the underlying services. These applications encompass the traditional phone call, but calls are more likely to start with a name or a web link rather than a phone number, can be routed in any number of innovative ways over a variety of networks, and can be delivered to a wide range of devices.
A taxonomy of Phone 2.0 features:
Addressing. In the 1.0 world, you dialed a number you knew from memory or looked it up in a directory. Mobile phones popularized the shortcut of dialing straight from the directory listing, whether in the handset itself or through an extra-cost directory assistance service. In the 2.0 world, the phone number is just a low-level address and may even be hidden to preserve the privacy of the called party. The caller can start with an identifier such as an iname (e.g. =cherot) or from a web site such as a social network or discussion forum. An application can enable the caller to go directly from a request such as "find someone who can answer my question" to ringing a phone of an expert without requiring the intervening steps of looking up a list of recipients, finding the associated phone number, and dialing the phone.
Call Initiation can take place by "dialing" a number at a traditional handset, but it can also be performed by an application that may reside in that same handset (e.g. TalkPlus), in a web page (Jaduka), in a personal computer (Skype), or anywhere in the phone network.
Filtering. In the old days, everyone had a secretary, or wished they had one, to decide which calls to put through and which ones for which to take a message. Then came answering machines, voice mail, and caller-ID as primitive filtering mechanisms. Now applications such as GrandCentral can filter calls based on calling number, called number, time of day, and the schedule of the recipient. Calls can be put through to the intended caller, deflected to voice mail, or even connected to a fake "out of order" tone - the latter reputed to be a means to get removed from automated telemarketing calls.
Routing. The same parameters that can be used for filtering can also be used to select one or more addresses (phone numbers) to which the call should be delivered. Some services allow the call to be extended to several numbers at once, with the call connected to the first one that answers.
Call presentation. Just ringing the phone is so last millennium. Near the end of the 20th century ringing bells were replaced by computerized beeps, ringtones of popular songs, and in a retro moment, the digitized sound of a mechanical bell. Those sounds are still with us, but the call may delivered to a PC before or in lieu of being delivered to a phone next to it on the desk. In addition to making noise, the PC can display a pop-up window or toast containing any number of relevant facts, such as the caller ID, caller's name and (in the case of calls initiated from a web application) what web page the caller is looking at. While the call is being set up, the caller can be informed of the progress of the call by ringback tones, recorded messages, and (in the case of web-initiated calls) visual displays.
In-call services. The basic phone call is still a voice connection between two parties, but that call can include any number of callers, be recorded, and be carried over channels with considerably higher fidelity and/or lower cost than the traditional phone network. The call may also include other collaborative activities such as showing a presentation or sharing a screen, e.g. Convoq's ASAP.
Post-call services. Phone companies have long generated billing records which can be used to generate reports and databases, but these databases can also be used to enable follow-up activities such as returning the phone call.
Making all of this possible is a dramatic change in the way phone applications are developed and deployed. What formerly required a substantial investment in specialized telephony equipment and circuits can now be performed with standard servers connected over the public Internet. Companies such as Global Crossing and Level 3 will accept calls over the Internet in SIP and deliver them for pennies to any phone in the world. They will also provision local or toll-free numbers anywhere and deliver them to you the same way. You can process these calls with any number of commercially available software packages or go open-source with Asterisk. If you don't want to operate your own servers, you can send VoiceXML and CCXML to Voxeo or SOAP to Jaduka. The last bastion of this revolution is the mobile phone network, especially in the USA where the handset business is tightly controlled by the mobile operators. While Apple is trying to upend that model with the iPhone, it has yet to embrace any commitment to openness of the platform. Meanwhile there are efforts to product an open-source, Linux-based mobile phone: the Qtopia Greenphone and OpenMoko.
As the motto of the ETel conference states:
Opportunity doesn't always knock. Sometimes it calls.