Overview of network economics and business model design for web services & media companies. Survery of Umair Haque, Yochai Benkler, VC-scape, Web 2.0 Presented at BarCamp LA 5 by Ethan Bauley, principal @ SpimeCo. ethan /at/ spimeco

1. Bubblegeneration &
Benkler:
Business Model Design for Web Services (& MediaCo's)
Ethan Bauley // BarCampLA 5
ethanbauley.com
SpimeCo.com
ethan@spimeco.com

2. What's the plan?
• Fundamentals
• Explore writing/analysis of 2 leading
thinkers on network econ
• Brainstorm business ideas/models
• Technology innovation v. biz model
innovation:
http://avc.blogs.com/a_vc/2006/04/
technical_innov.html
ethanbauley.com

3. quot;Sometimes…these nonmarket collaborations can be
better at motivating effort and can allow creative
people to work on information projects more
efficiently than would traditional market
mechanisms and corporations. The result is a
flourishing nonmarket sector of information,
knowledge, and cultural production, based in the
networked environment, and applied to anything
that the many individuals connected to it can
imagine. Its outputs, in turn, are not treated as
exclusive property. They are instead subject to an
increasingly robust ethic of open sharing, open for all
others to build on, extend, and make their own.quot;

4. What is Bubblegeneration?
• Bubblegeneration.com
• Umair Haque
• Forthcoming book via Harvard Press
• Bubblegen: Rethinking institutions of
Hypercapitalism...how can quot;2.0quot; tech
solve serious 3rd world issues
• HBS blog: who will redefine brands?
• http://discussionleader.hbsp.com/haque/
ethanbauley.com

5. Typical Umair-ism:
quot;I think there's a simpler way to put it. Most ad-
supported startups will fail simply because 1) ads
suck, and destroy value, and 2) they're not creating
new value by making said ads any better.
quot;In fact, the less they all focus on making ads better,
the worse each of these players is, because the
mediascape just gets more polluted.
quot;It's a classic example of a negative equilibrium.quot;
(just try Goog'ing quot;negative equilibriumquot;)

6. Markets, Networks,
Communities
• 3 modes of organizing that create value
more efficiently than traditional org:
FIRMS
• AdWords, eBay=markets // Wikipedia,
Drupal, craigslist=communities //
MySpace, PageRank=network
• Basic strategy: have a firm that makes
and/or services an M/N/C (scales with
higher & faster returns than doing it all
within a firm) ethanbauley.com

7. “Edge Competency”
(vs. “Core…”)
• Usually takes form of web-based service
(or network-distributed software
generally)
• Nerdness: cheap information dis-
integrates value chains into highly
specialized segments
• Shift to the edge a reaction against
hyperfragmentation; too many players for
a firm to coordinate
ethanbauley.com

8. Why are M/N/C’s so
efficient?
• Fundamental economic innovation
derived from new techs: cheap
coordination (i.e. communication)
• Allocate resources better than meetings,
memos, etc
• Build & access social capital easier than
firms
ethanbauley.com

9. This is different for most
business peeps
• Building and sustaining M/N/C’s requires
a completely different DNA.
• Not about “selling out”, making cash at
any expense
• We want to create value without taking
value from somewhere else
• Good beats evil; open beats closed;
a.k.a.“user focus”
ethanbauley.com

10. Example: Music Licensing
Agency
• “Core” competency: taste/ear,
relationships with licensors and record
labels
• “Edge” competency: online market that
enables licensees/licensors to self-
coordinate
ethanbauley.com

11. More on the Edge
• John Hagel:
EdgePerspectives.TypePad.com
ethanbauley.com

12. M/N/C’s: “Peer Production”
• “2.0 technologies allow production to be
‘atomized’ -- subdivided into arbitrarily
fine microchunks of value activities.
Prosumers can self-select and manage
their own interactions with these
microchunks, rather than incurring costs
of managers, red tape, etc”
• Newspapers atomized = classifieds (i.e.
craig), blogs, rss readers, ad networks
ethanbauley.com

13. Granular/Modular
microchunk example: Music
Service
• iTunes: repository of recorded music…
• Can sort of be remixed (playlists)
• What if there was no DRM and every
song’s individual multi-track recordings
were available to be remixed and reused
within iTunes?
ethanbauley.com

14. Biz Model implications
• Leverage multiple network effects
• 1: simple network effect (you joining the community
increases my value b/c it is more likely we can produce
something valuable) e.g. fax machines
• 2: IF the service is designed so that lots of tiny contributions
are equally valuable to one big contribution, and so that the
constituent parts of the project can be remixed and reused,
the total value of the network of microchunks is greater than
the additive value.
ethanbauley.com

15. How do you figure out your
Biz Model?
- People pay to have problems solved
- What is the problem you're solving?
Who's problem is it?
- In M/N/C, often many different parties
you're solving a problem for...who's more
desperate?
- Scarce v. non-scarce resources
ethanbauley.com

16. Resource for Biz Model Dev:
VC BLOGS
- VC pitches: standardized 15 slide deck:
http://whohastimeforthis.blogspot.com/2005/11/how-to-not-write-business-plan.html
http://blog.guykawasaki.com/2006/12/the_entrepreneu.html
- blog.pmarca.com
- venturehacks.com
- avc.blogs.com
- askthewizard.com
...frame your service in these terms...these
resources are all you need... ethanbauley.com

17. What are some operational
Biz Models?
Subscription, advertising, a la carte
payment, micro payment, auction/open
pricing…
?
List of business models:
http://usv.jot.com/WikiHome/USV%20Wiki/Peer%20Produced%20Web%20Business%20Model
%20List
ethanbauley.com

18. More Umair-isms
• Context (quot;connected consumersquot;)
• Attention economy (v. abundant info)
ethanbauley.com

19. Interesting M/C/N
businesses
craigslist, Y Combinator, GOOG, Wesabe/
Mint, GetSatisfaction, Kiva.org, Kaltura,
DonorsChoose, MeetUp, Magento,
Threadless, MyFootballClub, TipJoy
ethanbauley.com

20. • Non-market social production is creating
a increasing share of economic value
• Lessig: quot;This is by far the most important
and powerful book written in the fields
that matter most to me in the last 10
yearsquot; ethanbauley.com

21. Yochai Benkler
• Bruce Sterling SXSW 2007 rant
• quot;Commons-based peer productionquot;
• SETI@home, NASA project, Apache,
Wikipedia...PAGERANK
• Only barrier to communication: desire to
communicate
• Political implications: everyone views
through the lens of someone who can
interject into the discussion ethanbauley.com

22. What are some businesses/
biz models/web apps for...
a quot;blog guildquot;, credentialed journalists,
musicians, auto mechanics, people with
dogs, local bars, grocery stores, Hype
Machine, skin care product manufacturer,
investment advisory, Twitter…
?
ethanbauley.com

23. Main lesson I’ve gotten…
(It's still not obvious to many)
Everyone (esp media) should be a software
company
ethanbauley.com