Archive: The Value of Attention

OpenBusiness talked to Esther Dyson about how business models are adapting to an internet environment that champions openness. Esther’s upcoming PC Forum focuses on how users are transforming the internet and placing new demands on businesses. From Open Source to Open Content, new forms of organization, production and distribution are emerging. But how can these ventures produce a revenue and sustain themselves? For how long can we give content away for free? OpenBusiness discussed these and other questions with Esther Dyson, as part of an interview series which has already featured some of the key thinkers on the topic, including Eric von Hippel and Lawrence Lessig.

OB: OpenBusiness is about investigating an apparent trend on the internet. More and more businesses are throwing themselves ‘open’ in many different ways – for instance, offering free services and content. At times, however, they seem to have no real business models. Yet the social bookmarking service deli.cio.us, which requires no payment at all, has been bought by Yahoo! It creates value through the sharing of bookmarks – in a sense an exchange for information – but it’s entirely free of charge and there are no advertisements. It’s all very open, but where is the business model?

Esther: Well, it’s true more and more businesses are being built around openness. I think you need to pay attention to timing. You can use one strategy to get into the market, and then you adopt another once you are established. Few of these strategies are actually new, many of them rely on quite well established business strategies.

For example, I was one of the angel investors in del.icio.us. We certainly planned to change our financial strategy over time. First we would build a useful resource or service,. offering it for free and gathering a community around it. Then, with luck, we would reach a point where we would have a platform to which we could add revenue-generating services. That may be ads, or it may be various premium functions you can charge for. Of course, you have to take care not to promise something for free if you plan to charge for it later!

When Yahoo! bought del.icio.us it was clear they were buying into expertise, creativity and a technology with the ability to create a community. By Yahoo! standards the actual numbers were small, but they could see the prospects. I have no particular inside information, but I’m sure Yahoo! will change del.icio.us’ strategy over time, adding a premium service, or trying it in with other Yahoo! services.

OB: So it’s about building a community around a shared service?

Esther: That’s certainly one business model – though you still need to figure out the where the revenue is coming from!

You could think of it like your favourite bar. The social function is similar. You don’t go there because the beer tastes different than from in the bar next door, but because of the people who are there. The value of any bar is in its clientele – usually dependent on the owner/manager and the bartenders, whose job is it to care for his guests. Then you can charge for the beer, or if you sell coffee, the coffee…. Some retailers sell clothes, for example, and give free coffee. Both are good business models and can work… or they can be done badly, and fail.

Del.icio.us hadn’t yet gotten to the point of charging for coffee. That’s Yahoo!’s challenge now. This is in many ways basically what good internet services need to do and what del.icio.us has done…

OB: Though the internet environment is very different to phsyical retail or entertainment space. It’s global, virtual and without physical presence….

Esther: Yes, that’s true, and it creates different opportunities versus the physical space. Communities and individuals have more choices. And within these choices lie opportunities for businesses to create attention….

OB: Isn’t that what seems to puzzle so many people out there? There are businesses being created with not much else besides the hope to create attention. Attention seems to be the basic currency and the game seems to be to give ever more away for free to get this attention.

Esther: Well, true, right now, a lot of companies seem to be using the ‘get attention from the blogosphere, and then sell out to Yahoo! or Google’ strategy. That’s another attention strategy, but it’s not a sustainable one for most of the market.

Attention is a concept I have used in this context for a long time. Yes, it is basically the kind of currency we usually talk about, but it comes in many different forms, and the strategies to create it and texploit it are consequently very diverse. Some times it’s about preference, or getting people to spend their time at a space you offer. Once you get attention – which may be a brand preference, a community people want to join and stay in, a recognition for your expertise, a software platform people want to use – then you need to figure out how to charge for something related – storage of photos, for example, or programming or training services, or personal appearances, or membership in the community.

OB: This brings me to perhaps the two most prominent internet businesses at present – Google and Yahoo!. They both seem very open. They offer excellent services for free, from email, to search, to maps, to community services. They both seem not interested in owning content, but still pose a significant challenge to established content industries. Would you call these “Open Businesses”?

Esther: Yes, they both offer tremendous services for free – though they certainly charge advertisers to share the attention they have earned! They have found ingenious ways to turn access to content into a business. Yahoo! is actually more interested in providing high quality content – such as services information, news and entertainment – and building communities than Google. In many ways, Yahoo! believes in smart, “intelligent design” and careful strategies, while Google follows blind evolution and operates a Darwinian fitness landscape within its development organization. They create services, put them out there and let people figure out how useful they are. GoogleMaps for example is a basic service – it gives access to maps – but it lets people build not just on top of it but next to it. In this sense Google provides a platform and then lets creativity blossom without too much direction. (Although I suspect they do a little more internal strategic thinking than they get credit for!)

OB: In the context of OB, we’re looking into how people use for example Creative Commons licenses to create an online record label, or publishing business, which goes against the orthodoxy or established tradition of how to run a content- driven business. The value chain in the traditional sense consists of content producer – author, filmmaker or musician – and then a huge intermediary who manages everything from finance, to recording, or editing to marketing, distribution and sales. In this world copyright is essential, or so it’s claimed, to manage revenue streams through controlling access to content. But we are finding quite a number of businesses who are challenging this orthodoxy successfully. Do you have an idea where this will leave the established creative industries?

Esther: This is an excellent question and nobody has found the perfect answer yet. But I expect that business models will change further and it seems likely that the traditional music and book publishing industry, for example, will have to change radically, or die. They have huge investments in marketing and distribution, but that value is eroding rapidly, leaving them with costs that are increasingly hard to cover. The new digital and networked online environment simply does not support big intermediaries; the revenues, moreover, can flow more directly to the artists rather than to the intermediaries. That’s not to say that they can’t perform useful functions in career management, production, editing, marketing and the like – but they can no longer get much of a return on the distribution function that was their mainstay.

OB: This leads us to perhaps the most pressing question in the IP debate, which basically goes like this: If everything is available for free who will produce blockbusters, who will invest in them and how can authors make a living? Some point to examples such as authors putting their whole book online as a PDF and making more money through the printed book than they otherwise would. Yet, I look at it and think: well, that’s a smart author. He envisages that this will be good marketing and that more people will be aware of his work, and access it, but not print it themselves because it’s inconvenient and expensive. In that sense I can see there are individual business models, which make sense for individual authors, but not how a whole industry can be supported… how, for example, quality journalism can survive in such a world.

Esther: I think nobody has found an answer so far. There are two questions here: What’s good for authors is not necessarily good for (traditional) publishers. End of story. They have to figure out non-traditional value to add.

Quality journalism has certainly become more difficult to finance, but it seems there are lots of incremental answers. For individuals, depending on what area you look at, you find new ways that content creation is being supported. In some areas we basically see a revival of medieval patronage: You can find a rich guy who likes your work and he supports it. Or you can earn in other areas you create supplemental income based on the attention your content creates. Public reading or performances are such a strategy. Or if you’re on the business side, you can sell consulting services or advice.

One of the key questions, however, is sustainability. If some content creation depends on patronage or philanthropy how can sustainability be achieved? Many of the models we see are such short-term focused and this is what needs to be tackled. In particular philanthropic giving in this area needs to think harder about sustainability.

Concerning quality journalism – that’s a tough one. It has certainly become more difficult to finance, but it seems there are lots of incremental answers. There’s no perfect business model: If people demand quality journalism, one way or another the market will support it, whether through philanthropy, public services such as the BBC, or advertising.

OB: This is exactly what we are interested in. Our South African partner can only find open educational models which are either being funded by foundations, or commissioned by the state. Nobody seems to think about how these resources will be sustained after the initial funding has run out, which seems to create wasted funds on projects which will produce nothing more than a quick burst and then disappear into the digital nirvana.

Esther: Yes, I agree, but this might point to an old fashioned concept: state funding. In particular in areas of such strategic and social importance as education in a country like South Africa. I don’t think the Internet is a good medium for education, though it is a good tool. Education is a process; it’s not content. Even though involving the internet to produce and disseminate content sharply reduces costs, there is still the need for quality assurance and costs of maintaining such a service. And in many regards state funding might the most appropriate way for achieving that such a service can be maintained at low costs.

OB: This leads me to another angle of this question. In Europe we live with a tradition of public broadcasting and the main motivation is that a tax on citizens is the best way to ensure plurality, diversity and independent news and journalism. Would you extend this then to the online world? Should Europe team up to create a European Google as the French demand?

Esther: The French interest in their own Google is misguided. It’s not about a free service; it’s about a censored, filtered service. If they want to tax their citizens to provide it, so be it. But you can reach all the French content you want on the internet anyhow, you don’t need the French government for that.

OB: Well, that might be true, but it still leaves the question open whether or not we want a world in which only private companies provide access to information, or if actually, the BBC – as a public broadcaster – should be a major provider of information online.

Esther: The BBC has a great website and does great journalism. There is nothing much in that example to disagree with. And, yes, it seems undesirable that all information would be available only through commercial services such as Google. There is a wide variety of content out there and in some of it the state might play a role as an investor, but state run content rating search engines will fail. Google is doing well in France and why would French citizen go only to a state run one? In that sense, no: the state does not need to offer state financed news services on the Internet.