TheWayoftheWeb

Following on from my previous post on networked business strategy – which was itself a response to a post from Dave Cushman) – I thought it’s a topic worth expanding upon in light of the constant debate over online publishing revenue.

Flicking through Seth Godin’s ‘Tribes’ reminded me of the work of Ronald Coase, the Nobel laureate in Economics.

Back in 1937 he wrote the highly influential ‘The Nature of the Firm‘ which looks at the fact that “production could be carried on without any organization that is, firms at all”, he sets out the transaction costs ( which means the cost of obtaining something through the market is generally more than the actual price, plus search and information costs, bargaining costs, keeping trade secrets and policing and enforcement costs) which mean that ‘firms will arise when they can produce what they need internally and somehow avoid these costs’.

Or as Seth says, ‘we start formal organisations when it’s cheaper than leading a tribe instead’.

This is where the kernel of your business is located.

Or for the flipside:

As my former boss at Bauer Media, Carl Lyons, wrote today ‘people will pay for digital content – if it’s easy enough‘. (Now I’ve left, I can say his blog is well worth reading, without sucking up!)

The flipside is this:

‘Consumers (Customers/users/whatever terminology you like) will accept using a firm for their needs when it avoids the transactional costs of circumventing it.’

By that I mean that I’ll happily pay for a Pro account on Flickr simply because it was a lot easier and more convenient than finding an alternative when I needed it, despite the fact I know I could find a reasonable alternative. I’ll happily buy books from Amazon (My recommendations are all here) or sell via either Amazon or Ebay because although I could find alternative routes to the market, they involve a cost of time, effort, organisation etc I’m not happy about paying at the moment.

So the key seems to be:

1. Figure out what people want to achieve when they are in the area of the market you serve

2. Figure out what you might offer which allows them to achieve what they want in a way which reduces their transactional costs (Time, effort, cost, etc)

3. Figure out how you might offer that service in a way which allows your service to benefit from an internal reduction/removal of transaction costs over/above/with the network.

Does this seem to make sense?

Applying this to a content model:

If we accept that there will always be free content available from somewhere, the transactional cost for a consumer is finding it, judging reliability, going into more background, possibly acting upon it, sharing it, discussing it etc (Any I’ve missed?)

As a content producer, the cost of content creation in many circumstances has already been hugely disrupted by online publishing, digital audio, video etc. The cost of a live broadcast for a major television company over recording it on a mobile and broadcasting via Qik? And the difference in terms of the technology gap will only reduce in line with Moore’s Law.

But the content curation (rather than aggregation) aspect raises big transactional costs via the network – what relative percentage of trust do you place in Wikipedia? Digg? Reddit? Is it cheaper to organise a network, build a system, or use a specialist journalist? And they have contacts to relevant industries which could come under Trade Secrets in transactional costs etc.

And this is also why I despair when online publishers only talk about display advertising revenue (or now subscriptions), as if they’re the only possibilities for revenue. (If a blogger puts Google Ads on his site and then claims he can’t monetise he gets a lot of feedback very quickly!).

The transactional cost for me of finding a product to buy is either in terms of locating reviews and hoping a relevant display advert is close by. Googling it and finding what I’m looking for. Or posting a message on Twitter. And the subscription model has the flaw of inviting/inciting the network to either reproduce content outside, or finding ways to beat the pay wall.

Dave Cushman has written an interesting starting point for locating the differentiating value your business brings to a networked world (Build on what the networks can’t touch), but while I agree with the general sentiment, I wanted to post about the theoretical problems I’m having with some of the specifics.

Dave writes:

‘Ask yourself which element of your business can NOT be disrupted as the network touches it.

Which element cannot be made more efficient, done more cheaply – done better when integrated with and disrupted by the network?’

He suggests that this element is the kernel of your business (Or Community of Purpose)

The problem is that I’m not sure there’s any part of a business that can’t be touched, disrupted or improved by the network in some way – which Dave also believes (“pretty much any process, any value chain you can think of, is awaiting disruption”)

That doesn’t mean that I don’t think there is place for distinct businesses.

I think it’s a case of modifying Dave’s approach.

There are possibly two elements I can identify which would point towards the kernel of your business:

1. The element of your business which is difficult or almost inaccessible for the network to currently disrupt.

2. The element of your business which turns the crowd/network into a Tribe or Community of Purpose with definition and leadership.

1. For instance, the cost of building a manufacturing plant is currently prohibitively expensive. It’s feasible that a network could bring together the finances required, which would remove it from Dave’s theory. But the difficulty of doing it means that the disruptive effect of the networked world has been to allow smaller manufacturers the ability to co-operate globally and to pool smaller runs of specific components into one product. If you have the resources to combine everything into a doohickey, or the pat you create requires tools which aren’t cheap and widespread, then there’s a kernel.

The same is also true online – plenty of people have ideas which will never exist because they don’t have access to developers or funding. These types of resources are essential to your business.

2. The networked world disrupts, innovates, improves on a daily basis. But there’s a big difference between crowds, Smart Mobs, and Tribes. In the comments, Dave writes that if using the network is all you have, perhaps you don’t have a business – but I don’t believe it’s about using the network at all – it’s about providing the means for the network and your business to co-create something which provides a return.

It’s the bit that turns the information within 5000 individual brains into the core of Wikipedia, or £35 donations into ownership of a football club.

I think essentially it comes down to the fact that any business is a network of people. The difference between a business and a network, is in the resources and strategy the business has, rather than seeing itself as holding a Holy Grail which will never be disrupted.

I’m not claiming for a second that you shouldn’t try for first mover advantage or use patents etc. I’m just not sure the anti-disruption field holds the answer quite yet.

I’d love to have some conversations about this, as I definitely think it’s a hugely valuable discussion – either here, or on Dave’s original post.

There’s a great article by Umair Haque on ‘Why the war against file-sharing is unwinnable‘, which was collected in a post on Music Industry Manifesto.

And one quote particularly stood out for me as being an essential element of business:

‘No business has a right to profit, sell, or even to produce. All are privileges that society grants businesses.’

That’s why I feel discussions about newspapers, music, advertising etc sometimes miss the point. It doesn’t matter how strongly a publisher might feel newspapers are entitled to survive, or whether a prominent musician feels file sharing and digital music is hurting his future income.

It’s down to whether society, in a viable number, feel a business model has the right to profit.

In closing, Umair notes:

’21st century economics are radically decentralized. Wars against networks are unwinnable — when orthodox organizations are the ones fighting them. Only networks (or markets and communities, if you’re a long-time reader) can fight other networks.

Want a better music/media/etc. “business model”? The understanding that hierarchies are dominated by networks is the key — and the failure to understand it is exactly why the media industry is so deeply in decay.’

A bit of a half-formed thought I needed to share whilst spending some time removing a shockingly large amount of unused applications from my PC and trying to rationalise my ever-increasing collection of email addresses and online identities.

When it comes to introducing social media marketing and building content and community at Bauer Media, it isn’t a simple case of just deciding every brand should be on Facebook, for example, and it magically happening. A large part of the work is deciding and clarifying the objectives of using a new channel, and also looking at the benefits in terms of allocating resources, whether financial or human.

Hence why I spend a reasonable amount of time looking at work flows, and working out how we can most effectively work across various channels, and which elements of content work best when shared across various places.

In plain English, it means working out which content we should import into Facebook, or whether we should automate updates to Twitter for certain things, and which location makes most sense for teams to manually update etc.

The irony being that my own profiles and workflows for my two blogs, Twitter profile etc etc have been done on such an ad hoc basis, I really need to sit down and work out a workflow for my personal online world.

And I don’t think I’m the only one.

Which started me thinking about which specialist skills in content, marketing, strategy and management are going to increasingly become things that most people will be using:

• For instance, when it comes to attention-grabbing headlines, how many people are learing how to craft effective content in their Facebook status or tweets on a daily basis, without even consciously thinking about it.
• How many people are starting to think about which sites they want to use, and how to effectively update them efficiently?
• How many people are starting to learn about sharing content and marketing it via social networks and social bookmarking sites simply because they want to be more popular, without ever realising they’re marketing themselves?
• Are people doing their own personal PR, emailing and following people who might repeat their content?

I don’t mean this in terms of people using buzzwords like ‘personal brands‘ – that’s for marketing and aspiring marketing people to make it sound more glamourous and exciting.

I mean this in terms of someone who could come from any walk of life, using the internet, and almost subconsciously incorporating various skills because they want people to see their Youtube video, or to get more friends on Facebook or Myspace.

There’s an understandable backlash from experienced digital marketing people against the growing number of ’social media experts’ who have a personal Twitter account but haven’t demonstrated their work for their own company or anyone elses. And I’m certainly not saying that this means anyone could run a marketing campaign without any experience or training.

But I just wonder, in addition to the rise of amateurs who are uploading great photography or editing videos etc, whether there is the same blurring of lines between professional management skillsets and what everyone is starting to do as a normal part of their internet life.

So help me out: What traditional management, marketing, publishing, strategy type skills do you see becoming used by everyone, even on a basic level – and what implications do you think it has for the future? Will everyone be more aware of what goes on within a company? And is that a good thing?