LunchTalk: Netflix CEO Reed Hastings

At the 37th annual ENCORE Award event on September 23, 2014, Stanford Graduate School of Business honored Netflix, and Netflix Founder and CEO Reed Hastings, MS '88. Reed Hastings speaks on the history of the company, the challenges they faced, and how Netflix became the innovative leader it is today.



tags: internet, media, video, streamternet, source, content

Social Media vs TV: kill or be killed

Advertisement dominates business models deployed by social media companies, including Facebook, Google, Twitter, Yelp, and a host of others. Although we think of them as technology growth companies, historically advertising revenues have been flat relative to the GDP *.

Web-based ads — most famously Google AdWords — grew rapidly not because they somehow generated new economic growth in the country, but because they helped TV kill newspapers, Craigslist.com being the early hero.

Now that newspapers are effectively dead, the only way for the ad-supported internet business to grow is to kill TV-based ads. While the TV industry fights it off with YouTube, Facebook, and Twitter, we should expect more video ads on our mobile screens. In the meantime, the likes of HBO and Netflix have to put a strong bet on content quality. Such a bet would be independent of the distribution media and would have a good chance for translating video streams and downloads into real growth.

* also see http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1399613 
tags: internet, video, data, packaged payload, distribution, content, media,

Want to understand your own personality? Ask Facebook!

Stanford researchers have found that computers can judge personality traits more accurately than one's friends and colleagues.

The computer predictions were based on which articles, videos, artists and other items the person had liked on Facebook. The idea was to see how closely a computer prediction could match the subject's own scores on the five most basic personality dimensions: openness, conscientiousness, extraversion, agreeableness and neuroticism.

The researchers noted, "This is an emphatic demonstration of the ability of a person's psychological traits to be discovered by an analysis of data, not requiring any person-to-person interaction.

http://www.pnas.org/content/early/2015/01/07/1418680112

The original idea of using Thumbs UP and Thumbs DOWN buttons in the digital world belongs to TiVo. Facebook took this idea — knowingly or unknowingly — and scaled it across the entire range of digital content, making every piece of communication "likeable."

In System Model terms, Like helps solve Detection and Control problems. We discuss it briefly in Scalable Innovation, Chapter 22, Seeing the Invisible. "Like" represents the Aboutness of an element. Once the Aboutness detected, the Control sub-system uses it to compose and channel content streams according to its policies.

Facebook patents user tracking for advertisers and content providers

Today, August 19, 2014, USPTO awarded Facebook patent 8,812,591 titled Social networking system data exchange (Inventors: Kent Schoen and Gokul Rajaram)

The patent covers a technology that tracks users across multiple service providers by matching service provider ID and social network ID. The match results in an aggregated user profile that determines user eligibility for content and ad targeting. The system uses a tracking pixel instead of the web cookie, which makes it suitable for mobile applications.

The technology breaks the wall between different publishers with regard to what they know about the user. As the patent says:

...a publisher may know very limited information about a user visiting the publisher's web page or the publisher's application. Thus, a publisher is unable to effectively target content item and advertisements to the user based on the user's interests and characteristics. The exchange server aggregates a user's information from several sources, including a social networking system, publishers, retailers, content item providers, etc.
The exchange server matches advertisements to users based on whether users' characteristics as provided by the aggregated social graph match the advertisements' targeting criteria. Additionally, the exchange server selects one or more advertisements to display to the user based on expected revenue to be generated from displaying the advertisement to the user.

tags: patent, invention, innovation, facebook, social, networking, graph, content

Top 10 pirated movies of all time.

The Hollywood Reporter has an article about Hollywood's key mistakes in defending SOPA. One of the mistakes is that the content industry has positioned itself as the enemy of innovation. The conflict about copyright is now framed as a Hollywood vs Silicon Valley, which the industry cannot win.

On piracy itself, here's how illegal downloads data looks like:

I'm surprised that the numbers are so small. For example, Avatar grossed $2.2B in sales worldwide. Even at a very generous estimate of lost revenue of $5 per download, the damage is about $100M - less than 5% of the total revenue. The software industry would consider this level of piracy as non-existent.

tags: content, innovation, intellectual, property, information, distribution, control

Mobile ads: Apple vs Google

Using IDC data, WSJ shows (12/13/11) that Apple is losing to Google in the mobile ads market.

 

Last year, Apple shared the top spot in the mobile display ad market with Google, with each company capturing 19%, according to research firm IDC. This year, Apple fell to the No. 3 spot, behind Google and independent mobile ad firm Millennial Media, capturing 15%, or $95 million, of the $630 million market, IDC says.

Hordes of developers have activated iAd, but they say that Apple hasn't sold enough to make any meaningful revenue for them. David Barnard, founder of mobile app company App Cubby, says he earned $320 from iAd in the past 30 days and that the service is only filling roughly 13% of his apps requests.

As I wrote recently, Apple is not an ad company. In this market they are going to lose to Google  because, among other things, Google has a much better targeting and delivery platform. The ad-based business model fits Google setup like a glove. On the other hand, Steve Jobs always hated ads and as the result, in Apple's kingdom content is the king and ads are an afterthought.

Further, I would venture to say that when (not if) Google and Apple come out with their digital TV products, the overall business outcome will be the same: Apple = content; Google = ads.

tags: content, information, technology, business, model, apple, google, control, deontic

Zynga: sweet, cheap, frequent, and easy.

MIT Technology Review has an article that looks into Zynga's business model beyond "freemium."

...what makes Zynga stand out is its success in mining an aspect of behavioral psychology: playing in shorter bursts can be more addictive in the long run.

Unlike companies that spend years crafting elaborate, $60 video games whose stories rival or even exceed movies in their complexity, and which are designed to be played for hours on end, a Zynga game generally asks players to perform quick activities: click here to plow a field in FarmVille; click here to fight a rival in Mafia Wars.

The games are also meant to be conversation starters: you are encouraged to invite your Facebook friends to play with you and team up on various tasks, though you don't all have to be online at the same time for it to work. At nearly any given time, if you stop playing, it's easy to pick up where you left off. In fact, Zynga's games sometimes give you cues that it's fine to stop—for example, by telling you that some plot of farmland won't be ready to harvest for a few more hours.

By making it easy for its games to be consumed in sociable, nugget-sized increments, Zynga hopes to get you so accustomed to popping them into your days that eventually, you'll have no problem spending real money to enhance the experience.

 It's addictive because it creates an illusion of achievement. With Zynga, it is easy to get started and get something done in a very short period of time. Unlike the real life, playing Zynga frees people from the need for planning. Activities are chunked in sweet easy bites. Just like sugar drinks and candy snacks that help proliferate the obesity epidemic.

tags: control, psychology, business, model, content, behavior, games, 10x

Comparing apples to amazons.

Comparing Apple's and Amazon's hardware/content strategies, people tend to forget that Kindle Fire is a general purpose shopping device, not just e-book reader. Content purchases, though not to be ignored, is one of many categories of products sold through Amazon's superstore. On top of that, Amazon provides cloud services, which means developers will have an end-to-end solution for all their smartphone/tablet application needs.

(11/10/11. VBeat) Amazon CEO Jeff Bezos has made the bet that getting low-cost hardware into hands of consumers will pay off immensely when they buy more digital content to make up for hardware losses. That’s the exact opposite approach of Apple, which makes its money on hardware sales and not as nearly much on content.

(11/10/11. VBeat) - E-book sales as a whole for book publishing are still minuscule compared to print, but e-books are becoming more popular. In 2009, e-book sales accounted for 3.2% of the industry’s sales, but in 2010, they accounted for a much larger 8.3% percent. Forrester Research thinks e-books could reach $3 billion by 2015, compared to $441 million in 2010.

tags: 10X, content, information, strategy, business, tool, source, commerce

e-mail must die - 2

Distribution of information in the form of document files is bound to create content security problems because every computer where the information is stored becomes a hacking target.

CNet reports on an ongoing industrial espionage investigation of another attack from China:

For years, companies in the oil and energy industry have been the victims of attempts to steal e-mail and other sensitive information from hackers believed to be in China, according to a new report from McAfee.

And the attack was at least partially successful, McAfee said: "Files of interest focused on operational oil and gas field production systems and financial documents related to field exploration and bidding that were later copied from the compromised hosts or via extranet servers. In some cases, the files were copied to and downloaded from company Web servers by the attackers.

tags: information, control, security, s-curve, payload, content, industry, system

3D content and equipment for you

CNet reports on Nvidia's 3D website:

A quick glance at the site reveals some imagery that one might expect to appeal to the stereotypical gaming nerd who pays for premium graphics technology--photos of scantily clad women and stills from various video games. There also are plenty of landscape and other subjects with potentially broader appeal.

Also of interest:

Samsung and 3D specialist RealD announced a plan today to jointly develop a technology called RDZ that they say will mean brighter 3D TVs that work with 3D glasses used in RealD-equipped movie theaters.

Darn! I just threw away a pair of 3D glasses I got at the theater.

tags: content, information, entertainment, video, movie, source, tool, games

Cloud computing: the gossip of virtual crops

Each day, Facebook game developer and FarmVille creator Zynga delivers about a petabyte of data — that’s 1 million gigabytes, or more than six Libraries of Congress — for its array of social games, chief technology officer Cadir Lee said.

The challenge for Zynga is unique compared to other large sites that are “read-only” or “input-only,” such as photo-sharing sites like Flickr or e-commerce sites like Amazon.com, Lee said. Zynga instead faces an environment that is constantly updating, with each new crop planted or fertilized and each message left on a friend’s farm.

In many ways today's gaming environments create a ubiquitous communications fabric reminiscent of the planet Pandora from James Cameron's movie Avatar; environments where virtual plants and animals communicate to real people, generating enormous streams of information, connecting experiences bordering on magic, giving players a feeling of being a part of a growing social organism.
It would be an interesting experiment to use these messages to drive Leo Villareal's LED art mentioned in my previous post. Some incredible light patterns may emerge from the gossip of virtual crops.

tags: games, cloud, information, communications, environment, virtual, art, 10x, content, synthesis

Paper books will last another 39 years.

An unbiased opinion on the future of digital books from a 3-year old:

For Mr. de Halleux...and his wife both read to their 3-year-old son, Tristan. He reads Winnie the Pooh to the child on a screen. She reads it in old-fashioned paperback form.

Mr. de Halleux said he was confident the boy would eventually favor the digitized version. “He really likes it because you can zoom in on things,” he said.

Zooming in on things is a must have feature for an e-book. Children know it better than adults.

tags: content, information, payload, dilemma, problem, solution, packaging

a 10X change in mobile app revenue model

About a month ago, I cited a study showing that on average revenues from iPod/iPad applications don't cover development expenses. But it appears that a certain type of applications emerged to solve this problem. The key to revenue seems to be in-application purchases:

Apple turned on the in-app purchase feature for the iPhone last fall. That enabled game developers to embrace the same “free to play” business model that has made companies such as Zynga so successful on Facebook. In that model, companies offer their games for free, but they charge real money for virtual goods such as better weapons or online multiplayer play. The in-app purchase feature allows gamers to purchase their goods without leaving their games at all.

The results are surprisingly good. In January, Flurry said that the games that it tracked generated revenue of $9 per user per year, on average. In June, that number had risen to $14.66 per user per year. Previously, these games were generating around 99 cents to $1.99 per user per year.

I think this approach can work for all kinds of digital content, including books. Essentially, we need to create a new product placement technology where the product is sold, rather than advertised, within the context of the story.

A 10X diagram note for my students: by increasing the frequency of transactions, we are moving to the left along the time axis of the diagram.

tags: 10x, content, commerce, money, business, games, mobile, apple, market, book, virtual, problem, solution, course

More 3D news

The market for 3D content continues to grow. Bloomberg reports that a US factory making 3D cinema equipment is working around the clock.

The three largest U.S. chains are outfitting 14,000 screens for digital projection after raising $660 million.

There are about 2,000 digital screens in China, including 800 that are equipped to show movies in 3-D, Li said in an interview. Even small cities in China are installing 3-D equipment, he said.

In addition to that, in September 2010 Sharp will introduce small 3D displays that don't require special glasses. The company bets that eventually all portable devices will be 3D-capable.

As a result of this expansion, demand for 3D content will increase dramatically, which in turn will put pressure on storage and bandwidth. From a system analysis point of view, we are witnessing a change in payload packaging (from 2D/analog to 3D/digital) - a clear sign that the whole system, including production (source), control, and distribution infrastructure, will have to change.

tags: tool, system, content, source, payload, system, information, entertainment, games

and the pursuit of fantasy

Games and movies are becoming a self-reinforcing platform for the new media:

...the $46 billion worldwide video game market in upheaval--budgets are soaring for console titles even as free online games sharply cannibalize sales--agents are suddenly awfully useful: finding the right talent to complete increasingly complex titles, structuring deals across media, bringing in third-party financiers.

Add to it social networking, better graphics, faster processors, ubiquitous mobile computers and you get a market revolution in the making.

tags: information, entertainment, content, source, process, innovation, payload, mobile, social

Content as Software - 2

This is a follow-up to my yesterday's post about Content as Software (CAS).

Recently, Steve Jobs said that, despite abundance of Flash-compatible content, Apple is not going to support Adobe Flash on iPod or iPad. In his words, Flash is a CPU hog. Google expressed a similar view. Why is it so? Is one of the most popular web platforms going to die in the mobile space due to turf battles, or there's something else going on here? Is CPU hogging the only problem with Flash, or are there other reasons why it is going nowhere? To find answers to these questions, I looked up Flash timeline and compared it side-by-side with browser technology developments.

Remarkably, evolution of Flash looks like a continuous effort to overcome web browser deficiencies. First, it was a simple animation engine that allowed developers to embed dynamic content into static HTML pages. Then, media play-out and limited, but certain, scripting capabilities followed. At the time, web authors could not rely on consistent browser behavior beyond the very basics. In terms of browser as an application platform, Microsoft supported ActiveX in Internet Explorer (Windows-only), while Mozilla pushed JavaScript in Netscape and its open source descendants. MP3 audio was handled by a separate browser plugin, so it was difficult, if not impossible, to use most popular media to create a coherent browser-based web experience. On top of that, session management had to rely on cookies and annoying pop-ups, which could be easily disabled by the user. If you as a developer wanted to have a live page or stream content, you had to rely on Flash to provide a stable platform for your application.

Later, more video codecs, a full-blown object-oriented scripting engine (ActionScript), and web services integration layer were added to Flash. In 2007, after the acquisition by Adobe, new versions, Flash CS3 and beyond, could run whole applications inside its own application, had integrated support for Photoshop and other Adobe graphics manipulation products, 3D animation, and etc. The software has become a software platform that itself runs within a browser application that runs on top of a sophisticated windowing operating system, either Windows, Mac OS, or Linux.

A PC with plenty of electric power, processing power, memory, and storage space can easily afford this behemoth. A smartphone (or an e-book) cannot. And it doesn't need to, because its operating system, rather than a web browser, runs user applications. The OS, be it iPhone OS or Google Android, provides a consistent set of APIs that developers can rely upon when they write their code. Since browser on a mobile phone is no longer "The Web Application", but rather one of many web apps, there's no need for Flash to be a media presentation intermediary. The hog can be slaughtered.

Sales of smarphones are predicted to outnumber PCs by 2012. Unless a dramatic change in Flash architecture for mobile devices happens, the product is going to die a slow death. It's not about Steve Job's ego or his design preferences. Rather, it's about the process of creative destruction of obsolete technologies and business models.

tags: 10x, payload, information, mobile, content, software, cloud, system, evolution, niche construction, social, network

Content as Software (CAS)

An increasing number of providers are discovering that packaging their web content as a mobile application is a very attractive business proposition. The same content that is free on the net can be sold for real money when delivered through an iPhone app. NYT has a story about two such apps: Zillow (real estate) and Yelp (business recommendations). Both of them have a location-based component, which makes a lot of sense for people who have a purpose while on the go.

It's easy to predict that delivering content as software (CAS) will grow in popularity among users and providers. First, people are willing to pay for mobile apps; second, content providers have greater control over presentation (browser-independent implementation); third, CAS screens have a greater focus than PC, both time- and space-wise, which enables insertion of highly-relevant ads, including video. All signs point to a new stage in the development of internet commerce. For example, in the nearest future travel guides will stop being books and become integrated mobile apps.

tags: 10x, payload, information, mobile, content, software, cloud, system, evolution, niche construction, social, network

An improved deal for authors from Amazon:

Starting on June 30, Amazon says that for each Kindle book sold, authors and publishers who select the new 70 percent royalty option will receive 70 percent of the list price, minus delivery costs. This new option will be in addition to and will not replace the existing DTP standard royalty option, which is set at a 65-35 split, with 65 percent going to Amazon.

Will authors make more money from now on? Maybe, initially. But over time, the most likely outcome will be a steep drop in price for electronic books. Trade "paperbacks" will probably go down to the $3-5 range. Even at this level authors will make more money than with traditional publishers. We should also expect new formats that allow embedded media: video, audio, animations, and etc. One obvious choice would be a portable $1 application that feeds content, e.g. one episode at a time. Apple is already doing it with iTunes, and publishers, like New York Times or cable networks, will follow the model.


In 5-element analysis terms, this is a change in payload packaging, which usually precedes an expansion and drastic changes in other system elements.

tags: system, five element analysis, content, apple, information, computers, payload, evolution

Looking beyond the 3D hype

More news about 3D:

ESPN and Discovery Communications announced plans Tuesday[1/5/10] to launch the industry's first 3D television networks.

The sports programmer will introduce a 3D network this summer, while Discovery is joining forces with Sony and Imax for a 3D network to launch in 2011.

I predict that in three years BluRay+3D will be a standard feature on high- and even medium-end PCs. All it takes is a slightly better graphics card, some clever software, and availability of content. Also, I wouldn't be surprised if the porn industry jumps onto the 3D bandwagon.
Strategically, the entertainment industry has a chance to pull away from youtube amateurs and initiate the next round of video arms race. The price of equipment and skill required to produce 3D is still beyond what most of the people used to flip cameras can afford money and time-wise.
Nevertheless, fairly soon prosumers will be able to take still 3D pictures. After Avatar, the visual art is no longer about flat images. Rather its about the real or virtual world as we would it with our own eyes.

tags: content, entertainment, information, computers, evolution, system, payload, tool

The 3D light in the end of the tunnel.

Director Jeffrey Katzenberg on 3D technology (Bloomberg video):

When I look at it and I see what the qualitative enhancement is to film making, story telling, and presentation, I cannot imagine it is not our future.

I believe the entertainment industry will be one of the main drivers that will pull us out of the current recession. Over the next several years it will create demand for 3D-enabled PCs, TVs, high capacity storage and playout devices, special 3D(sun)glasses, communication services, software,  games, virtual environments, and etc.
For now, the 3D movie experience cannot be counterfeited, therefore the traditional (P2P) "free" content distribution networks are not competitive yet. Remarkably, in Russia, a country where pirated content still rules, Avatar attracted the largest theater audience ever.

tags: video, content, payload, distribution, system, innovation, technology, information