First rule of first principle thinking, do not use first principle thinking when a mental model is available

Category: Economics

Is India ready for Media 2.0 ?

          I had been chewing this thought for a few weeks now in my head, there is so much discussion about the rise of the new media all over the developed parts of the world but is this new baby been given birth to in India.

          A question that is been nagging me since long is that are these talked abou changes relevant to India. I have been trying to find data or pointers which could be supporting evidence to this.  By the way what do people mean when they say 2.0 ?  How much of any of web 2.0 , media 2.0, publishing 2.0 etc is applicable to India.? Before I delve into India and Media 2.0 let me explain a little about what is meant by media 2.0. 

Loosely this term refers to an economic change (I like the word inflection :)) affecting how media is being produced & consumed. These is brought out by changes in technology of how people produce and consume media and also how preferences of consumers are changed.

 
           Let me explain a little bit further there was not a time too far ago when our only way of consuming media was through channels which were TV/Radio/Theatres etc. In this world the most powerful person in the media value chain was the one who controlled the distribution as that was the most expensive (exhorbitant license fees, huge setup costs etc) asset. It turned out that in such a dynamics that those who market the best could get the best returns. So in this world there was clamour for amassing the best marketing armor.  Also in this dynamic it became evident that irrespective of how good media content is produced, if you had big marketing muscle power you could get away with highest returns. Also producing good media  was naturally expensive and risky ( there are so many big production budgets which have bombed). This more or less explains why some of the current big media players are so big  what triggers the reasons for the M&A happening in this space.

      What is happening  now is due to change in technologies distribution & production dynamics are changing in a big way.  Players in the market who find that they are better off doing more marketing than making better films they do not have incentive to do good production. This leaves a bad taste with the consumers on this and drives them away from the mass media (shift in consumer preferences)

       What this causes is a drop in the equilibirium price of media industry because of the change in supply & demand. ( To be a little bit more technical  , supply & demand curve are both pushed outwards leading to drop in equilibirium price).  Now this is happening in the developed world and there is a lot of data supporting the above arguments. What I am trying to do is to gather data for India on which I could do this analysis. (Does anyone have any pointer, it would greatly appreciatd). I saw this but it was of not much help

     On the contrary what I find is that there is data supporting that the Indian media industry is still deep rooted in Media 1.0 world. Not single media company has got even a  whiff of media 2.0. Still the most of these companies are buying TV , Billboard media space, rights from Barbie/Chitrakatha/Dhoni blah blah and are happily singing the ‘content is the king’ tune.

      Thus while Murdoch buys Myspace and BBC opens up its content for people to do anything that they want mauj buys righs from sachin ( & interestingly sequoia funds it too ).   This is what has been puzzling me for a while now, are these changes(economic) to happen slowly to India or is it that it is already hit us with its force and it is that we (industry) are not reacting/adapting to the changes. 

       In all this what I find very hard to believe is that no one seems to be even remotely talking about it (even in the blogosphere -? ).  Even desipundit.com does not impress me here, which I think is a fairly good Indian media 2.0 example.

        In the rest of the world there is fair share of visionaries, smart bunch of people who recognize this changes and pushing the boundary of think in the 2.0 space notably Stowe boyd, John Hagel, Clay Shirky, Scott Karp, Umair Haque, Jeff Jarvis.  Where are the Indian counterparts ?

Openness and Attention Economy

Goldhaber’s article on “attention economy” when I read a few years ago was an absolute aha moment for me. It was a seminal article which attempted to articulate in a nice manner the nature governing our lives after the advent of the net. The keypoint put forward was that with the net becoming an important part of our lives we are moving from a “money based” economy to “attention based economy”. Attention here refers to the individual choice made by person to decide what he will do with his time. It is important because it is scarce or rather it is becoming more & more scarce in a relative sense. Check out the article here for more details.

 

He has published yet another brilliant article in June edition of firstmonday. In it he essentially outlines the value of openness in building attention.

 

Most of the conversation/discussion(economic/strategic) today on attention and its economics revolve around the utility/preference curve for attention, rarely does anyone question the why behind the utility/preference curve. Goldhaber attempts to give a definition to attention and illustrates what attention paying means and how scarcity of attention occurs. He also argues that attention is an insatiable urge Then he moves on to define various degrees of openness and does an analysis with examples of open source and open access journal stem to show the various type of attention seeking needs that are sought with these open measures.

Some of the salient points of the article include

 

· Motivation for all openness is rooted at attention scarcity.

· We are now living in world which are raging a “war for attention” whereas once we used to live a wold raging a “war for productive territory”

· Paying attention could be modeled as neuron mirroring. Neuron mirroring refers to excitation of mirror neuron and mirror neuron is a neuron in the brain which fires both when someone performs an action and also when observes the same action performed by another same biological species. Thus, the neuron "mirrors" the behavior of another animal, as though the observer were himself performing the action. With that in mind attention scarcity could be explained very well because if paying attention involves activating the precursors of muscular motion, we also cannot pay attention to two dissimilar motions at once, if they would use any of the same muscles/neurons

 

· Attention is an insatiable urge , to some degree an audience full of people paying attention to you will want whatever it is you want. It is perhaps the closest humans can come to life after death, as well as to an expanded life while still living.

· Attention that is desirable comes from other beings who are themselves capable of receiving attention, that is they have minds and are social beings; in practice this means we want attention from other humans.

· Attention wealth is in the minds of the beholders

· Maximizing attention means removing the price barrier, so within the fast–developing world of open access, money has become peripheral.

· Money tracks attention. There seems to exist a causal relation between attention and money and by & large money would be of no significance over a period of time

· The role of various instituations would change in this new economy as most of these institutions(firms, universities etc) have their relevance defined in terms of their exsistence with relation to money.

In the not too distant future there would be a world where openness is a norm and not a thing to be scorned off.

Bourgeois in arms

      Madhu, Raji  & myself used to discuss and debate over coffee & lunch breaks at my previous organization on whether IT workers should form unions. I used to argue that IT workers incentives are way too differently aligned for them to form a collective body to address their common issues [One big issue that used to discussed in those context was over ergonomics & general health issues: un-ergonomical chairs, sedantary habits, Repetitive strain injury etc]. I used to sum up in the end that it was not a topic I thought that made a lot of sense for discussion in IT professionals context. [ Please don't bring in  to the argument Open Source community, they don't need unions anyway]

   Today morning when I read Peter Rip scream UNIONIZE, I literally fell of my chair :D. A VC wanting to form a union to protest/protect in a socialist way the way they used to make money in the free market economy. Is'nt this the last set of people on earth that one would want to see form unions :D. Are'nt the VC's the epitome of the success of what we call the capitalist economy.  

 Oh Boy this blowing of conches makes one thing pretty clear. There is an inflection looming/upon (albeit a huge one) the VC landscape. Btw don't make the classic mistake of thinking that this is event is causal in nature , it is rather a symptom. So what is the cause then, web 2.0 is ofcourse of one of them. This is classic schumpter at work and that is what makes technology sooo interesting. IMHO it is better the bridge the newly created gaps in the VC industry and embrace the change than to rise up in arms ūüėÄ 

    Fred, Feld, Cowan, Ed, Burnham, Brad, Anand, Alok, Sanjay,    … and all other VC's out there would like to know what you guys think. 

Ideas do matter

I have met many VC’s, listened to many more them in conferences, read even more of VC blogs, one theme that I have seen recurr without fail is the talk of “Ideas do not matter, execution does”.¬† While I don’t deny that execution matters, it matters a hell a lot but Ideas do matter as well, I find that those that undermine ideas may not have a complete understanding of the economics of an idea :). Atanu dey has a brilliant post in which he discusses the economics of ideas. He explains the economics to drive a different point altogether but nonetheless the argumen are the same everywhere.
Here is also what umair thinks about idea vs execution.

Invention is a flower, innovation is a weed

John Hagel and Seely Brown have an excellent article in Businessweek on the difference between invention and innovation. The article though written for a general reader is more accessible to people with managerial background. But nonetheless the arguments made in the article are quite excellent.The difference between the two is very favourite subject of mine, though me being a technically inclined I am very clearly focussed on the latter. Put simply invention is discovery of new things,creation of new knowledge. Innovation on the other is about economic value creation (exchange value)
The article reminded me of the famous quote made by Bob Metcalfe. “Invention is a flower, innovation is a weed”

How not to analyze ?

Mobile pundit critiques an article on Number Portability, the article suggests that number portability implementation in India should be delayed as it is not the right time now.

While it is true that number portability is not the holy grail solution to competition problems in the telecom industry but nonetheless the arguments in the article have been arrived at erroneously. It illustrates a lack of proper understanding of the economics of number portability.

It is pretty evident fact that a mobile phone number is very sticky to a person from any walk of life not just to business users. Having to change numbers when changing carriers incurs a switching cost which is not a welfare activity. Now if this switching cost could be reduced or eliminated then the resources could be allocate elsewhere and thus society could be better off. Also (high)switching costs reduce the market share gains from price cuts and raise the cost of market entry which dilutes price competition. Now that’s the fundamental reason behind the mandating of number portability by policy makers in many countries.
At a broad level the above statements are true but on going further one has to take a deeper analysis of the effects of number portability and analyze if it is going to gaurantee welfare. A detailed cost benefit analysis has to be performed taking into account the modality of technology implemented as different technologies have different porting costs.

Check out this journal paper titled “The Economics of Number Portability:
Switching Costs and Two-Part Tariff
” which argues that number portability may not gaurantee a welfare policy in a developed country but it makes a ton of sense to have it in a developing country.

PS: One of the authors from IBM in the article is a very close friend of mine and apparently none of his views has gone into the article, since he just happens to works in number portability domain in his company his name got plastered which itself speaks for the veracity of the article.

Thoughts from Atanu

I have been an admirer and have been highly impressed by Atanu Dey‘s thoughts and ideas. Atanu is a development ecnomist and also works as VP(strategy) at Netcore. I had the chance to meet him in person on last weekend. He was in hyderabad to give seminar talks at IIIT’s festival felicity. He is I could say a transitive reason that I took up an interest in Economics. I got introduced to this subject when Rajesh Jain was talking about economics and he was referring to Atanu and his book suggestion (Developmental Economics by Debraj Rai)

Atanu had some very interesting and radical viewpoints that he presented to the audience, many of them are already present as blog posts. I don’t to concur with all his arguments but nonetheless much of his analysis is right on target. I must though say that the radicalness in it left many in the audience speechless. He spoke about the information age and also some thoughts on his work as a development economist. The salient points in his talk were

  • Information is a public good as it’s consumption is non-rival.
  • Information explosion has lead to a state of superfluos information and relevant information is decreasing.
  • There is a subtle but a fundamental difference between knowledge and information which being that knowledge is a private good and information a public good.
  • Two lessons in economics that should be included in every primary school and it is a pity that it is not included at all.
  • Don’t belong to any school of thought but rather have a few set of core beliefs and everything else stems from that me.
    • Markets work
    • Incentives matter
    • The reason for Indian economy to be so poor can be attributed primarily to Jawaharlal Nehru
    • If instead gandhian priniciples were followed we would have been much worser

    [ The above two arguments literally shook the audience ]

    • Poverty is a choice and we as a country chose to be poor. The most important thing to start with to solve the problems is to increase the literacy in the country. Devise incentives in a way that people get educated.
    • ICT based solutions/approach are not the right way to solve social problems, oppurtunity cost is way too high especially in developing countries.
    • Entreprenuer’s innovate , they create new value, if in your endeavour as an entreprenuer something new is not being created then start thinking of some other thing.

    Use value vs Exchange Value

    ¬†¬† I was interested in economics but I never gave much attention to it while I was studying. I got interested in exploring it only after college mostly after reading from Rajesh Jain’s posts about economics. Infact I even bought a copy of “Developmental economics” by Debraj¬†¬†that he suggested as a must read. My suggestion would be not to pick it if one is trying to get basics of the subject , a better book would be get freakonomics or use this open source¬† economics book. ¬†

       But after having studying economics I no doubt realized that understanding economics is a must for a technologist. And infact a technologist should understand the economics a lot more than an MBA to whom economics is about supply & demand equations/curves. 
     A technologist has to go a step more basic than supply & demand curves. This revolves around the economic concept of Value. It is a very vague concept and in fact there are very many economist working on trying to come up with a good definition for it.
      
    ¬† In its broadest sense ‘value’ is what human being beings need or desire in an object or a service. To put in another way it is “usefulness” of that object/service.

       Two important categories of value is what are known as use-value & exchange-value.

    Use value refers to the direct usefulness of an object or service.It can also be called as the functional value and is inextricably tied to the physical property/object. A use-value can be both subjective or objective.

      Now there is an indirect usefulness, i.e the capacity of one object or service to be exchanged for another which is called its exchange value.

      Any object/service can have a use value but no exchange value but the reverse cannot be true. Anything has to a have a use value for it to have an exchange value. It is only objective.

      Exchange value is also called as the economic value.(Neo Classical theory) And the measure we use for it in our modern day society is what we call as money. 
     

      The point that I would like to  conclude from here is that it is a job of a researcher to create use-value. And it is a technologist who creates exchange value.   I will also like to put it in another way , creation of use-value( knowledge in this case)  is invention and creation of exchange-value(or economic value) is innovation.  

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