Futures-Diagnosis

Diagnosing the future of the Internet and innovation and their social impact

Why I don’t ‘Like’ this mauling of Zuckerberg

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(This is an article I published on Spiked)

There are two ugly strains to the post-IPO Facebook-bashing: naivety about how the market works and hostility to individual ambition.

We live in strange times indeed; you could say we’re living in some sort of twilight zone. How else can you account for the fact that a process that raised $16bn and launched Facebook as a new public company with a market value hovering around the $100bn mark is now universally described as a failure? Squabble over the real value of Facebook if you will – $90bn? $85bn? Who knows? What is for sure, however, is that this is a staggering number for a company that neither produces anything nor makes anything.

Yet in all the discussion about Facebook’s IPO two points really stand out: First, Facebook and its founder Mark Zuckerberg are now morally suspect for apparently misleading the world and reaping such large rewards at the expense of small ‘Mom and Pop’ investors; and second, just how naïve and fickle the post-occupy ‘anti-capitalist’ world has become about the laws that govern the capitalist market.

The post-IPO discussion has centred upon whether Facebook, its founders and early investors as well as the companies that underwrote the IPO, misled investors. Lots of column inches have appeared accusing them of criminal behaviour, greed and selfish arrogance for enriching themselves at the expense of others, particularly small investors. Yet most of the outcry (and the lawsuits that appear to be lining up faster than the large investors appeared to divest their Facebook stock) is more like an infantile hissy fit by those prevented from playing the game according to their rules.

When Facebook directed by its early investors, senior management and its underwriters, led by Morgan Stanley, whipped up enthusiasm for the offering and increased the price to $38 which would have valued Facebook at around $100bn – a valuation which is 103 times the profits it made in the 12 months through the end of March, very few stepped back. Even Harry Redknapp (the one who apparently can’t read, write or add and subtract), can work out that this is more than slightly unrealistic. Even Facebook’s earlier warning that they had a problem with monetising advertising on mobile platforms could not stir the scepticism of those fighting to get their noses in the trough. The warning bells still did not ring loud enough when General Motors, the third largest advertiser in the US, shut down its Facebook budget (about $10million) saying that those ads were simply not doing enough to sell automobiles. (To be fair on this point, however, counter signals were equally strong: Ford endorsed Facebook as an advertising destination while David Eastman, CEO of as agency JWT North America also gave it very strong backing for the same reason). Yet with all the signals, buyers continued to salivate. The buzz was deafening. The result was predictable – a relatively small number of people made a killing while many did not. Welcome to the capitalist market ladies and gentlemen!

The market still rules

What did people think was going to happen? Do they honestly believe Facebook’s PR that this was going to be the ‘People’s IPO’? What world are they living in? What happened to the Facebook IPO is precisely what ought to have happened (apart from the collapse of the Nasdaq at the start of trading which has given rise to some legitimate claims of misconduct and numerous lawsuits showing that once again, insiders and lawyers will do well out of Facebook’s IPO).

What appears to be driving the outcry against Facebook is that at the last minute, some big investors were reportedly given access to an analysis saying that Facebook’s earnings and prospects weren’t quite as rosy as the picture painted in its early disclosure documents. Although this is not illegal as long as these disclosures are made verbally and not in writing before an IPO, this knowledge enabled the big investors to cut back or even cancel their orders to buy shares in the offering. These activities may even have had something to do with the Nasdaq foul-up that halted trading temporarily the day the stock debuted.

The result was that the exit of the big investors, combined with an increase in the number of shares being offered, left more shares available for individual investors, who paid the full retail price of $38. Although Morgan Stanley initially buoyed the price, by the end of the day and subsequently, Facebook’s stock price fell dramatically. Those who cancelled their IPO orders could have bought stock in the low $30s rather than at $38. However, retail investors paid $38 Friday for stock they could have bought at less than $32 a few days later. The real losers were those who bought shares in the open market after trading started some for as high as $45 a share.

But for the early Facebook shareholders who cashed out in the offering, the IPO was a bonanza. They made a killing. Early Facebook investors ranging from Zuckerberg to Microsoft to various venture capital funds sold a total of 241.2 million shares in the offering, compared with only180 million shares sold by the company itself (which is unusual to see early investors selling this big a piece — 57 per cent — of the shares being peddled in an IPO). Given how popular this IPO was, Facebook had managed to obtain an ‘underwriting discount’ – the amount that the underwriter keeps for themselves in return for doing the deal – to only 1.1% of the $38 offering price which is extremely low for an IPO. The Facebook insiders who sold in the offering not only got a high price for their shares but they also got to keep a very large proportion of the proceeds. As unorthodox as this may seem, this was a huge success.

The IPO was about raising capital for Facebook (to allow it to grow in the future) and its founders and early and large institutional investors (euphemistically referred to as the ‘well-connected’) whose interests are to accumulate wealth and who see Facebook’s ‘people’ as nothing more than inventory and data points to be used to generate advertising revenues (more on this below). You may not like this fact, but the law of the market is driven by capital accumulation and profit-making not moral sentiment. The vehicle used or what it may produce is incidental to the overriding objective of increasing personal wealth and profit in the here and now. Yes, the market is a Hobbesian jungle. The markets never forget their true nature. People do.

The Facebook IPO has proven that the law of the market still rules supreme despite the post-occupy moral critique of capitalism.

It is naïve to think otherwise. The reason is simple: firms typically IPO when the owners think they’re getting the deal that best suits them, i.e., the stock will be valued at a premium. This will always be contradicted by the goal of investors who want to buy at a discount—when they think they know something others don’t that can make the stock’s market capitalization grow in the period ahead. In the IPO world, they want to buy low and sell high—which is why IPOs often underperform the market in their first few years. The Facebook IPO was both a classic case of how this worked to the advantage of Facebook’s founders, large institutional investors but at the expense of smaller investors, to ‘Mom and Pop’ investors. Get used to it. It will happen again.

It is one thing to talk about empowering average people in the Facebook world, but empowering them in the financial world is a whole different game. Wall Street’s mission, contrary to Facebook and its users, is to empower and enrich the ‘well-connected’ – not those with hundreds of Facebook friends. Whatever the outcome, it was never going to be about ‘Facebook’s people’ (their customers) other than as fodder for advertisers from which Facebook can generate the types of revenues that would merit its ridiculous valuation.

It is not clear whether Mark Zuckerberg’s stated mission to connect and empower people around the world which he hoped could launch a ‘people’s IPO’ was naïve or a brilliant and calculated ploy. It’s impossible to read the mind of someone so young. No doubt Zuckerberg sincerely believes that what he is doing at Facebook is connecting and empowering the 900m users of Facebook. His stance appears only to have increased the desire of Wall Street to muscle in on the action. The fact that Zuckerberg refused to dispense with his hoody during the stock offering ‘road show’ in New York fuelled the illusion that Zuckerberg not the law of the market would drive this IPO. Whether this was deliberate of simply naïve is impossible to tell. But one thing is certain: if you sup with the devil you will play by the devil’s rules. And this is where the Facebook story begins to unravel.

In defence of Zuckerberg

As readers of this blog may know, I am not a great fan of Facebook as an expression of technological innovation. Yet the vitriol and criticism of Mark Zuckerberg that has emerged since the IPO forces me to come to his defence. Because of how the IPO worked out, there is now a palpable yet understated jealousy and envy about Zuckerberg’s success, that is questioning the legitimacy of ambition, the aspiration for wealth, success and the pursuit of big ideas. The main form this is now taking is the assertion that part of Facebook’s post-IPO problem is that its brand is too closely aligned with Zuckerberg with his boyish face, brilliant brain and billions of dollars. The fact that Zuckerberg refused to dispense with his hoody during the stock offering ‘road show’ in New York (mentioned above) left many to speculate about him as a CEO. There is, according to this view, the need for Facebook to distance itself from the Zuckerberg story. Zuckerberg’s unfortunate portrayal in the Hollywood blockbuster The Social Network with its glorified tale of dumb luck, cutthroat cunning and fast fame certainly doesn’t help.

But Facebook is about Zuckerberg; it is about the boyish computer geek who has created a multi-billion dollar company and hundreds of millionaires at the same time. Whatever you may think of Mark Zuckerberg his story is a brilliant example of individual achievement, the single pursuit of an ideal and a self-belief in changing the world. This should be celebrated and ought to be defended by anyone who believes in the human will and human-centred change.

But what we have seen as Facebook’s IPO has gone south, is the miserablists hardly able to disguise their joy as they line up and fantasise about knocking him off the pedestal they had placed him on.

There is something deeply distasteful about the attacks on Zuckerberg. While it is true that all successful technology-related CEOs or company founders have had their share of criticism, the ire against Zuckerberg is disproportionate and new. Other smart-guys-with-a-start-up-idea roots, like Larry Page and Sergey Brin never became the story of Google in the same way. Yes, Google stock has paid off for shareholders, but Facebook’s IPO is one week old! (No doubt if and when Facebook solve their mobile advertising problem and generate billions in revenue, we will hear a different story). Even Steve Jobs at Apple despite his ego and remarkable story, never had the same ire as that directed at Zuckerberg. Yes, and again, people accepted that Job’s was ‘the prick in the room’ but they loved Apple products and services (after some considerable time eventually making Apple the most highly valued company in the world). Even Bill Gates who was loathed and his company Microsoft universally mistrusted rode this storm with some ease. But in the post-occupy world, success itself, the pursuit of success, ambition and self-belief is now a legitimate target for ire, envy and downright criticism.

Defending Zuckerberg for the right reasons does not mean being uncritical of him either. Whether Zuckerberg played the game consciously or not, he has supped with the devil and now must follow the rules set by Wall Street. This poses one fundamental issue which I have discussed in earlier articles but which will define Facebook’s future. As a pubic company Facebook now has to grow its advertising revenues very rapidly putting itself under considerable pressure to collect more and more user data to help it target its advertising services. The question then for Facebook is who are its real customers? Is it its 900m + users who have flocked to the platform as it has helped fulfil their social needs? Or is it the advertisers looking to sell more consumer goods and who’ll pay for Facebook’s business model? Can the latter’s interests be reconciled with the former’s?

Facebook’s real dilemma

The scale of this problem cannot be underestimated. Some see this as the challenge of how Facebook can become more mobile. Essentially this actually means can Facebook extend its desktop advertising model to mobile devices in a way that does not destroy its users’ experience. The issue is not mobile or not (although mobile is a critical area for Facebook for the future). The issue is, can Facebook generate advertising revenue in whatever medium without destroying the reason why people have been attracted to its platform in the first place. This goes beyond the issues of privacy, which is already posing a considerable challenge. Indeed, before the IPO Facebook was served with a $15bn lawsuit around privacy breaches. People flocked to Facebook not because of its potential IPO but because it helped solved their social needs. (See my previous articles on this point). Can Facebook continue doing this whilst under pressure to deliver revenues?

This remains an open question. The one thing that has kept Facebook going is its reputation. While it has certainly shifted the debate about privacy it will find that the negativity surrounding the IPO and the attack on Zuckerberg has begun to raise uncomfortable questions about Facebook as a public company. The experience of MySpace, which declined dramatically when it tried to unsuccessfully square the advertising versus user experience circle, is apposite here. Whichever way this goes, you can be sure that the pressure from Wall Street will not let up.

Facebook’s IPO has brought to the surface just how far the scepticism about the market has gone in the US and abroad. Even while defending Zuckerberg, we should loudly point out that he remains part of the problem. That the world’s largest technology IPO has been reduced, in the end, down to the short-term future of advertising and how to get people to consume more through self-obsessed communication channels, expresses how low society’s expectations of this technology have become. This fact has been totally lost sight of. And it is this, not Facebook’s IPO that will shape the future. 

Filed under: Innovation, , , ,

INSTAGRAM CEO REVEALS ALL!

This is the best and most incisive insight into Facebook’s purchase of Instagram for $1bn. Enjoy!

Filed under: Innovation, ,

Instagram, Kodak and the end of innovation

  (This is an article I wrote for Spiked)

The contrasting fates of two photo companies shows there’s more money in navel-gazing than transformative tech.

The acquisition of the social mobile photo-sharing application Instagram for $1bn by Facebook, reveals two fundamental realities: first, that despite being the darling child of the media who keep trumpeting its youthful uniqueness, Facebook is simply another large enterprise which is slow to innovate and is driven by the inexorable logic of age-old capitalist economics; and second, that it truly marks the end of the age of innovation symbolically contrasted to the fact that Kodak, the company that pioneered photography from the end of the Nineteenth Century, went into receivership earlier this year. The contrasting fates of two photographic-based companies speak volumes about the world we now live in.

It is a remarkable phenomenon and an expression of the ahistorial, ego-centric media world we now occupy, but whenever any of today’s digital or Internet-related companies in Silicon Valley make a headline grabbing acquisition or announcement, the world’s media, closely followed by the blogosphere and twitterati, go into speculative meltdown. What will this mean for the users of Instagram who have not signed up to Facebook?  What about their privacy? Will Facebook destroy Instagram’s unique application? (More on this below). What is Facebook’s founder Mark Zuckerberg really thinking? Etc etc. In other words, a lot of hot air, emotion and a proliferation of tweets, blog posts and comments, but little analysis.

Its economics stupid

There are two fundamental reasons why Facebook paid $1bn to a start up with 13 employees and 30m customers and both centre upon the inexorable logic of their business model and the laws of competition.

First, the acquisition is less about better integrating Instagram’s services into the world’s biggest social network (which Facebook already does quite nicely) and more about becoming a publicly traded behemoth. Facebook’s pending Initial Public Offering means that it needs to grow to keep investors happy and if they can’t do so by adding new users or boosting revenue streams, they will do it by eating their rivals. The youthful Mark Zuckerberg, yes the one that couldn’t get laid at Harvard and started Facebook, has revealed that in reality he has a very old head on his shoulders and is acting according to the laws of market economics identified by Adam Smith and later exposed by Karl Marx in his seminal Das Kapital. Facebook, like any publicly traded company will have to accumulate through the concentration and centralisation of capital. Digital media like hardware, steel or coal, follows the same laws as the rest of the economy. This acquisition reveals that Facebook has already changed into what everyone is speculating it might become – a giant that needs to grow revenues driven by its quarterly results and making moves that feed the ever ravenous monkey.

This brings us to the second reason for the acquisition which also reveals how Facebook itself has lost any innovating momentum it once boasted of. Photo-sharing has always been a core part of Facebook. Remember, the site was founded to rank the attractiveness of Harvard students. Last summer, Facebook reported that its site held 100 billion photos. Facebook users upload 6 billion photos every two months. This is remarkable. So how did a service like Instagram ever come into existence? This should have been Facebook’s photo-application all along. Facebook has more than 400 million mobile users. But their mobile photo application is subpar. Once Instagram was fully integrated with Facebook, it became even more obvious that Facebook was way behind.

The fact that Facebook could not develop an ‘Instagram’ internally despite the centrality of photo-sharing to their service, speaks volumes about Facebook’s capacity to innovate. They have ‘failed’ where others have succeeded. The proliferation of new applications centred around images, like Pinterest, Tumblr and Instagram shows how important self-expression through images has become. Acquiring Instagram was a smart strategic move. While customer acquisition is a motivating force for Facebook (Instagram attracted 30m users with its iOS apps alone while a million joined on the day of their Android application launch), it is the deeper functionality and data acquisition of Instagram that feeds Facebook’s business model, which is the key.

Instagram adds some important new pieces of data to Facebook that will help to drive its increasingly targeted advertising revenues. Instagram will allow Facebook to see who its customers like seeing photos from. That gets Facebook a dramatically better photo ‘graph’ and keeps it ahead of Google+, which wooed photographers strongly in its first seven months on the market. Facebook will also know where you are when you shoot the photo. It shows a range of passions that you have. People who post photos reveal their real likes and dislikes. Facebook’s databases need this information to optimise the media it will bring to customers. This data is gold dust which companies wishing to sell their products will pay handsomely for. More fundamental, Instagram will let Facebook develop a new kind of Open Graph advertising which will enable them to offer mobile developers a lot of money in return for opening their apps up to Open Graph. Venture capitalists in Silicon Valley are salivating over this new potential revenue stream. This could result in huge revenues for Facebook and member companies.

It should be clear then that Facebook’s acquisition of Instagram has been a remarkable strategic move. It shows that it has already begun to act like a trading behemoth despite being the darling child of the ‘digirati’. But is also reveals how Facebook has been flattered rather than subject to any real critical scrutiny. The acquisition reveals that they have failed to innovate in a core area of their business. You may argue that given their large reserves this is not a real problem because they can buy in the innovation they need. But this raises a more fundamental issue of the content of innovation today.

The end of innovation

Part of Instagram’s real appeal, apart from ease of use, which should not be underestimated, is the fact that the application makes a virtue out of nostalgia. The filters at the heart of Instagram’s application allow the user to create pictures that look like early Polaroid pictures, or even older. I have nothing against old pictures. But using digital imaging to create pictures that look like they were taken with your grandfather’s 1930s camera, while technically remarkable, is somewhat worrying. That this is what is driving usage speaks volumes about the current cultural moment – self-obsession and self expression through images that hark back to the technological past.

That a mobile application that allows users to create pictures that look like they were taken in the 1930s, has just received $1bn in investment while Kodak, the pioneering and innovative c0mpany that brought imaging to consumers, businesses, medicine, space exploration and the advancement of human knowledge has gone into receivership sums up the dire innovation state we are really in.

In 1888 George Eastman the creator of Kodak with the slogan ‘you press the button, we do the rest’, put the first simple camera into the hands of a world of consumers. In so doing, he made a cumbersome and complicated process easy to use and accessible to nearly everyone. Since that time, the Eastman Kodak Company has led the way with an abundance of new products and processes to make photography simpler, more useful and more enjoyable. Kodak was much more than photography for consumers though. It pioneered the use of images in a variety of leisure pursuits, commercial, entertainment and scientific applications. Its reach increasingly involved the use of technology to combine images and information–creating the potential to profoundly change how people and businesses communicate.

As early as 1896, Kodak introduced the first capture medium — a photographic paper — designed specifically for x-ray image capture. Further innovative processes improved both the quality and accessibility of x-ray images or radiographs. In 1956, Kodak’s X-Omat processor was able to produce finished radiographs in only six minutes; less than a decade later, that time had been cut to a mere 90 seconds. Through acquisition of Imation’s medical imaging business in 1998, Kodak incorporated dry-processed films into its portfolio. Such dry systems print film images from digital medical imaging sources such as computed tomography (CT) and magnetic resonance imagers (MRI). Microfilm developed in the 1920s transformed the banking industry, insurance records, libraries and government agencies and transportation. Kodak was also a pioneer in printing, scanning and offset media. Kodak teamed with NASA on space science and remote sensing missions for more than 40 years. When John Glenn became the first American to orbit the earth, Kodak film recorded his reactions to travelling through space at 17,400 miles per hour. In the mid-sixties, NASA launched a series of five Lunar Orbiter spacecraft that collectively photographed 99% of the moon’s surface in preparation for an Apollo moon landing. Each carried an ingenious photographic system, designed and built by Kodak. The system took photographs, processed and scanned the film, and converted imagery into a continuous video signal for pickup by Kodak-built receivers on Earth. Kodak technology also went along on Apollo 11, with the first astronauts to walk on the moon. A special stereoscopic colour camera built by Kodak enabled astronauts to photograph extreme close-ups of rocks, dust, and minute features of the Moon’s surface. Photos of the lunar soil taken by Neil Armstrong enabled scientists to see soil particles smaller than two one-thousandths of an inch.

Kodak is now history. Its technology and innovation have played a critical role in making the world more productive, in advancing human knowledge and making daily life more enjoyable. Instagram, on the other hand, can only boast of the latter. That a company with no revenues and that looks to the past and plays upon nostalgia and self-absorbed consumption can attract £1bn while Kodak goes down the pan, is nothing to celebrate.

Facebook’s acquisition of Instagram reveals how conventional Facebook actually is and that it intends to take self-absorbed consumption into new realms. For those concerned about the future of innovation and society, it is Kodak’s demise, not Instagram’s rise that should be toasted and remembered. In this case some nostalgia would be a good thing. Not in terms of trying to create pictures that remind us of our youth, but in trying to remember what an age of innovation was really all about. Kodak was about personal joy. But it was much more than that. It stood for progress and the capturing of images that would help progress society beyond the pictures it could capture. Instagram is about looking backwards, about the present as captured in the past, not the future.

Take a picture using Instagram if you like as you toast Kodak, and post it on Facebook. Who knows, it might spark a comment or two.

Filed under: Economics of Innovation, Innovation, , , ,

Facebook valuation: $100 billion for what?

Yes, if FB were a country it would be the third largest. It would also be the most unproductive country ever.

Below is my take on Facebook’s IPO published on spiked-online.com

When Facebook filed its initial public offering, the world’s media, led by the Wall Street Journal, speculated the social network could be valued between $75 billion and $100 billion, putting the company on track for one of the biggest US stock market debuts of all time. While some suggested this would make it the largest technology initial public offering (IPO) ever, others have questioned the valuation, saying that $50-$75 billion is more realistic. Yet amid all this monetary speculation, no one has raised the obvious question: why has a social network with no productive capacity whatsoever attracted such media attention and an investment frenzy?

It is really important to ask what Facebook actually does in order to grasp the significance of all this interest in its IPO. Google, Amazon or, indeed, Apple, all provide services, or facilitate access to a service or product. Facebook does none of that. As an interesting article on Slate put it, ‘What’s different about Facebook is its product: Facebook is us. You go to Google for web pages, you go to Apple for computers, and you go to Amazon for stuff. What does Facebook give you? Me and you and everyone we know.’ But this is only the start of the conundrum. Connecting ‘us’ and providing a platform for collaboration could be the foundation for remarkable progress and productivity. But Facebook does the opposite. It is both a product of, and now has become a major contributor to, the contemporary culture of self-absorption and consumptive indulgence.

Digital children and social media

Facebook and its predecessors, particularly MySpace, rose to prominence not because they were the product of lone entrepreneurial geniuses or compelling technologies. They emerged, rather, because they fulfilled a social need that they barely understood. This need belonged to ‘digital children’, the generation whose childhood had been transformed by risk culture and who embraced digital media as a means of gaining some autonomy from the pervasive gaze of their parents. Because this generation could not escape the physical presence of adults, digital media became attractive because it provided them with the space in which to experiment, entertain and express themselves free from supervision. The need for self-expression, acknowledgement and the accumulation of ‘friends’ as a marker of social status drove the demand for technologies like Instant Messaging, blogging and eventually social networking. These tools gave the ‘digital children’ control, and freedom to do what all younger generations need to do: namely, create the spaces within which to indulge their self-absorbed nature, to experiment with identity and to attain peer-driven support and discovery. This is what gave rise to a host of social-networking sites of which Facebook emerged as the pre-eminent one.

The fact that social networks like Facebook are now intergenerational should not be confused with the impulse behind their emergence. ‘Digital children’ were a product of their time. Like previous generations, they used, adapted and shaped the technologies they found around them. The culture they spawned, which was driven by introspection and self-expression, was a natural outcome. The fact that today this same cultural impulse affects all generations, particularly adults, should not be blamed on the digital kids. Rather, it expresses how contemporary society has become infantilised. Facebook is now a cultural institution, which is driven by, and nurtures, a culture of self-reflective, self-absorbed individuated entertainment and therapeutic communications. The sad truth is that the frenzy and excitement generated by Facebook’s pending IPO reflects little more than its cultural significance. And this is a million miles away from where investment ought to be focused.

Consumption versus productivity

The importance of this cannot be underestimated. The problem is not simply a short-term one, where investors see the possibility of making a quick killing on the stock market. There is every possibility that Facebook’s IPO will generate a valuation of $100billion. What’s at stake here is more than the staggeringly large figures of money. If Facebook were to realise this investment, it would become even more of a material force, increasingly able to shape this very unproductive egosphere of individuated consumption. If you think this is an exaggeration then examine Facebook’s S1 – the document the company filed to kick off its initial public offering – which lists several risks to its future success. Keep in mind this is a document it has to produce by law to be transparent to potential investors. Facebook argues, for example, that if it fails to retain existing users or add new users, or if its users decrease their level of engagement, then its revenues, financial results and business may be significantly harmed. In other words, what Facebook understands, and what it wants its prospective investors to understand as well, is that its future success relies upon more of the same: more people playing games, sharing photos and sending each other messages upon which Facebook can generate revenues through targeted advertising.

The largest technology IPO in history, in other words, is not about a technology that can transform nature, provide new sources of energy, or new cures for illnesses or cancer, for example; it is about a platform that encourages ever more of the same unproductive, self-absorbed communications between users.

And if you imagine this to be an exaggeration, be mindful of the fact that there are now serious studies showing that social media networks are becoming more addictive than nicotine and other drugs. In this view, we appear to be powerless against the power of Facebook, which suggests that Facebook’s valuation of $100billion might indeed be an underestimation.

It is a sad reflection on our society that so much excitement can be generated over what is nothing more than a means for self-absorbed consumption. It reveals just how far our expectations about what technology can do have been lowered. It is rather tragic. On the one hand, connecting 845million people together has so much potential it is staggering. The role Facebook has played in the Arab Spring, although greatly exaggerated, at least points to the potential power of this connectivity. But as Facebook’s S1 reveals, this is not going to be part of Facebook’s focus in the future. Instead we will see more gossip, self-absorption, targeted advertising aimed at and driving more consumption. The productive potential is incredible. Yet what is being celebrated are connections as ends in themselves, spawning a culture of self-obsession where we can all let the world know we merely exist.

There is a statistic that social media gurus and others uncritically roll out when they evangelise about social networks and how they are changing our society: ‘If Facebook were a country it would be the third largest in the world.’ What they fail to add, however, is that it would be the most unproductive country in the history of mankind.

The Facebook IPO does show how unambitious contemporary society’s expectations are about technology. That Facebook could become the largest technology IPO in history is an alarming prospect. It is simply not possible to compare the IPOs of past technology giants like IBM, Microsoft or even Apple, which has itself made a great success out of the creation of devices and applications that elevate the self above all else. $100 billion could fund the further quest of space, or research into nanotechnology and new drugs. There is nothing inevitable about the fact that updating your status on a beautifully designed device or social network website is now regarded as important, if not more important than updating our understanding of how the world works. It is more necessary than ever for those who still believe in society’s capacity to create productive investments that can solve the problems facing humanity to come together, raising a collective voice of opposition to this narrow self-indulgence. Anyone like to create a Productive Investment Group on Facebook?

Filed under: Innovation, , ,

GOOGLE PATENTS AND THE DEATH OF INNOVATION

“Motorola has a strong patent portfolio which will help protect Android from anti-competitive threats from Microsoft, Apple and other companies,” Larry Page, CEO of Google told reporters and analysts during a conference call the day Google announced its $12.5bn acquisition of Motorola Mobility.

While Google executives played down the argument that patents were the primary motivation, the cat was out of the bag. Google, like Apple, Microsoft and Research in Motion has fuelled a technology Bull market as the pursuit of patents as a defensive end in themselves has really taken off in recent months – in July a consortium fo these players paid $4.5bn for 6,000 patents from the now liquidated Nortel Networks.

This latest patent hoarding – substantially added to by Google’s acquisition of Motorola’s 17,000 patents – has reaffirmed a point I made in one of the first posts I wrote to this blog in September 2009 titled ‘Patent Pragmatism: A Threat to R&D and Innovation’  which argued that patents had become ends in themselves, rather than as part of the realisation of innovation. Now Google, one of the few companies innovation adherents have pointed to as a beacon of innovation, has joined the bandwagon of accumulating patents as a defensive strategy.

THREATENING THE FOUNDATIONS OF INNOVATION

Although some of the recent patent hoarding activity can be put down to some high-profile court battles (Apple versus Samsung, Oracle versus Google over Android royalties, Microsoft suing Motorola) the secular trend is to treat patents as a short-term defensive hedge against countersuits. Patents are increasingly being seen as a way the legal system can be used to threaten competitive rivals and extract concessions.

The focus on the present is bad enough. But what is worse is that many of these patents include ‘foundational’ technologies – basic innovations that all subsequent similar devices would have to rely upon – which are used to secure market positions. In fact, for the past ten years the large technology vendors have been pursuing this strategy by securing the most patents.

Intellectual property is being used as a legal weapon in the battle to maintain market share and the real loser is the innovation pool. The ease with which patents are being granted has only fuelled this zero-sum game. Patents have truly become an end in themselves rather than a means to innovation.

There has been some recognition of the danger of this. On 8 September, the US Congress passed the America Invents Act which aims to make the patent application process more efficient as well as providing increased funds to the overstretched US Patent and Trademark Office (USPTO). The act which President Obama is expected to sign into law means the US will use a ‘first to file’ system rather than ‘first to invent’ system for registering patent applications.

While this will bring the US into line with other developed countries, the overall defensive pursuits of patents could incentivise an even greater rush to accumulate foundational patent portfolios. David Hsu, a management professor at Wharton asks a key question: ‘Will people have the incentive to innovate if they aren’t given patent protection?’  Kevin Werbach, a legal studies and business ethics professor also at Wharton, building on Hsu’s concerns makes the following key points:

‘If you tweak any complex system, it becomes a design exercise in incentives. You have to start with the question of what incentives the system is designed to create. Obviously you want to promote innovation…the reality is patents operate differently in various contexts…’  (Ref)

The context is precisely the problem: short-term pragmatism where patent hoarding is being used to defend market positions means the incentive is to accumulate foundational patents as an end rather than as the basis of promoting innovation. The new law will only increase the number of patents being applied for while the legal strictures these embody will inevitably narrow the field for innovation even further. As Google’s behaviour already confirms, we are witnessing the institutionalisation of patent instrumentalism and the de-incetivisation of innovation.

Filed under: Economics of Innovation, Innovation, ,

STEVE JOBS: DON’T MOURN, MOBILIZE!

The passing of Steve Jobs is indeed a sad day for those of us who remain passionate about technology, innovation and changing society. But the global mourn-fest that we have seen on the web so far, from President Obama downwards, diminishes rather than edifies the memory of Steve Jobs.

In an age where a culture of low-expectations, short-termism, risk aversion and the abrogation of responsibility is rife, the passing of Steve Jobs is certainly something to mark. Where others followed convention, bowing to known outcomes often driven by focus-groups, Jobs followed his instincts and self-belief and was willing to risk all to get where he believed he needed to go. In all of these respects, especially today, he was a man out of his times. Above all he was a leader in an age where leaderlessness is all too prevalent, from Obama to the EU and through almost every corporate boardroom in the Western hemisphere.

But to honour these qualities we should not elevate him onto a pedestal or create a cult around him, but rather redouble our efforts of emulating his enduring innovative spirit. And that means taking on the barriers to innovation that beset Western society today.

Don’t praise Ceaser, bury the myths

Of course people are shocked and sad by the news and the first reaction was to share their emotional responses on Facebook and twitter. But the tenor and content of many of the obituaries are problematic.

Steve Jobs did not cure cancer, nor did he cure the common cold which is not what you might expect to hear had you been reading many of the obituaries published today. Pure genius? In some respects perhaps, in many others, definitely not.

Let me be clear: I am a decades-old Mac evangelist. I certainly praise Apple for having made great strides in changing humanity’s conception of computing. But let’s not get carried away considering that Microsoft’s windows was the starting point from which we measure this. Apple certainly came a long way but to suggest that we’re at the end of the journey, or that because Steve Jobs is gone, we can go no further, is to trash the very spirit of Steve Jobs.

Again, I love my iPhone, my iPad and iPods.

There remain an enormous number of problems that need solving that will mean transcending existing Apple devices.

  • The iPhone, for example, remains tethered to yesterday’s voice paradigm which has not fundamentally changed in over 100 years;
  • All the devices suffer from poor battery performance, the iPhone in particular;
  • While user generated content has been made easier by Apple software, content remains tied to business models and IP structures that prefigure the digital age;
  • Touchscreen interfaces are certainly an advance, but serious usability issues remain tied as we are to yesterday’s data structures and models.

There are many more issues I can list. My purpose is to suggest that there remains a lot of work to be done.

Instead of burying ‘Ceaser’, we should be pledging and plotting how we can take up the mantle Jobs has left us.

What will you do if today was your last day?

The salience of Job’s pledge to himself, to maximise his time, should be our starting point:

  • What are you going to do to challenge today’s culture of low expectations?
  • How are you going to win the argument for technological advancement in an age of environment-correctness that is increasingly hostile to technological progress?
  • What are you going to do to challenge corporate short-termism and risk-aversion in your quest for innovation?
If anything, the death of Steve Jobs should be a rallying cry, not for looking backwards and revering the past, but for confronting the contemporary barriers to innovation in order to create Steve Jobs2.0, Steve Jobs3.0 and so on.
As Jobs himself remarked, ‘you can only join up the dots by looking back’. The point, however, is to create new opportunities for tomorrow’s dots. That’s the legacy we need to uphold and affirm in the light of Steve Job’s passing.

Filed under: Innovation, Risk and Innovation, ,

ENTER THE SOCIAL BUSINESS FORUM 2011 INNOVATION COMPETITION AND WIN AN IPAD2

As part of the Social Business Forum 2011 organised by Open-Knowledge srl, taking place on 8 June in Milan, there is an innovation competition on Facebook with an iPad2 as the main prize.

SOCIAL BUSINESS TRANSFORMATION

Without question, we are living in a hyper-connected, networked age with immense potential to change they way we live and do business in the 21st Century. We are also facing an unprecedented global economic crisis, which demands new thinking and solutions. But as Albert Einstein observed many years ago, ‘We can’t solve problems by using the same kind of thinking we used when we created them’. The challenge today is how to use this hyper connected networked world to innovate our way to new economic growth and prosperity.

What ideas to do you have about how we can use the power of social networks within our companies as well as the ties we have outside with partners, suppliers and customers, to develop new products and services that can generate new growth and wealth?

Enter the competition by sharing your ideas for transforming how we do business in the 21st Century. The winning idea will not only win an iPad2 but will be invited to work with Open-Knowledge’s Innovation Team to develop their idea into a fully-fledged business and implementation plan.

How do you win?

  • ‘Like’ the Social Business Forum Transformation Competition page!
  • Submit your best idea on how we can use the power of social networks within our companies as well as the ties we have outside with partners, suppliers and customers, to develop new products and services that can generate new growth and wealth?
  • The 10 highest ranked ideas will be taken into consideration and evaluated by a committee and narrowed down to a final winner.
  • The winner will be announced at the final plenary of the Social Business Forum 2011 on 8 June in Milan and on Facebook.
  • The participant with the winning idea will receive an iPad2 and will be invited to work with Open-Knowledge’s Innovation Team to develop their idea into a fully-fledged business and implementation plan.

HELPFUL HINTS:

Interact thoughtfully on the platform. Your reputation score will be important in determining the winning idea. The Spigit platform factors in the meaningful contributions you make throughout the idea site. Everything you do will be reflected in your reputation and idea rank.

The higher the quality ideas, comments and votes you add will improve your reputation score.

ENTER THE COMPETITION

Click here.

Filed under: Innovation, , ,

SOCIAL BUSINESS FORUM 2011

Next month on June 8, the Social Business Forum 2011 organised by Open-Knowledge srl, will take place in Milan. This is Open-Knowledge’s fourth European-wide Forum examining the impact of social media on the enterprise. This year’s event looks set to be one of the most interesting and important event of its kind globally.

The business impact of ‘social’

At first glance the term ‘Social Business’ appears trendily tautological. After all, what business is not social in the sense of being part of the social relations of modern society? The fact that the discussion about social media remains so pathetically superficial and impressionistic should not, however, blind us to the fact that there is something new about social media. And that newness is the potential it has for transforming business practices and processes.

The impact and potential of social media on the enterprise (what is described in more techie-speak as the impact of Web2.0 technologies) lies in the increased ability these afford to easily reveal, capture, analyse and visualise the social networks underpinning practices  and processes inside and outside the enterprise.

In one sense there is nothing new in this. Since the Depression of the 1930s sociologists and economists have stressed the importance of social networks in business motivated as they were by the need to explain why some companies succeeded while others failed. But what is new in this debate is the emergence of social behaviours and technologies (a closely interrelated phenomenon) that have brought social networks to the fore in everyday life. The systematic application of this new environment remains poorly explored in the business world. And this is what the Social Business Forum 2011 (SBF2011) aims to address.

Socialising inside out

The three tracks of the SBF2011 all focus on the impact and potential of social networks for business transformation.

  • The first track aims to examine how uncovering the informal networks underpinning how enterprises actually function day-to-day (as opposed to how the org chart would have us believe they function) reveals where and how collaboration and efficiencies could be improved or fostered. Revealing social networks can be the key to improving productivity, fostering innovation or culture change programmes as well as a device for more targeted reward and incentive schemes.
  • The second stream looks at this from the perspective of the networks outside the enterprise – the connections with suppliers, partners, and most critically, customers. This stress upon external engagement explores how linking internal and external networks has the potential to fundamentally transform internal process; what is now being referred to in some literature as the socialisation of business processes.
  • The third stream focuses on innovation and the evolving open innovation paradigm. With the insight that ideas are in reality a network of other ideas, this track looks at the networks underpinning innovation within and without the enterprise. The radical insight to be explored is that like many other processes now being increasingly influenced by social networks, the innovation process itself needs rethinking in these terms. What for example, is the relationship between the explorers inside the enterprise (those who bring new ideas into, or who might even be outside, the organisation) with those who engage with these ideas (those who have connections or resources to influence innovation decision-making) and with finally, the exploiters – those who implement innovation. Like the other processes mentioned above, a networked approach to innovation represents the socialisation of innovation which has enormous potential for the future.

In each track numerous case studies will be presented to demonstrate that this is not wishful thinking or academic. Real life examples will be presented and explored that demonstrate both the potential of these insights but also that we are only at the very start of realising this potential.

If you are thinking about these issues or are engaging with these changes, then SBF2011 is where you need to be!

Register now! Join the debate. Meet hundreds of people struggling with the same problems and potential. Participate in what promises to be the premier social business event of 2011 in Europe.

You’ll also be able to eat and drink some great Italian food and wine. Always good for social networking!

Filed under: Innovation, , , ,

REDISCOVERING AMBITION IN INNOVATION

In recent weeks there have been a number of articles mainly in the US media which chart the decline of Silicon Valley and the broader decline in US innovation. See for example, Tyler Cowan’s very useful piece in the New York Times published on Friday 29 January titled ‘Innovation Is Doing Little for Incomes‘ or Tony D’Altorio’s ‘Has Silicon Valley Lost Its Edge?

The themes of these articles will be familiar to any regular readers of this Blog. Tyler Cowan really backs the Big Potatoes Manifesto’s point that we are not living in an era of unprecedented innovation but a relative decline. He argues that this is best seen and understood in the slowdown in economic growth and its impact on incomes:

  • From 1947 to 1973 — a period of just 26 years — inflation-adjusted median income in the United States more than doubled. But in the 31 years from 1973 to 2004, it rose only 22 percent;
  • Over the last decade, it actually declined.

Cowan argues further that most well-off countries have experienced income growth slowdowns since the early 1970s which suggests these societies have reached a ‘technological plateau’:

The numbers suggest that for almost 40 years, we’ve had near-universal dissemination of the major innovations stemming from the Industrial Revolution, many of which combined efficient machines with potent fossil fuels. Today, no huge improvement for the automobile or airplane is in sight, and the major struggle is to limit their pollution, not to vastly improve their capabilities.

Instead of incomes broadly being raised across the board, what little innovation there has been in the past 50 years or so, have benefitted relatively few people. The technological innovations at the turn of the Century, which raised living standards throughout the Century, belong to a bygone age: the broad-based advances of earlier decades, when the modern world was put into place are now elusive. As Cowan he puts it:

  • If pre-1973 growth rates had continued, for example, median family income in the United States would now be more than $90,000, as opposed to its current range of around $50,000.

Short-termism and limits

Tony D’Altorio’s ‘Has Silicon Valley Lost Its Edge?‘ picks up on this theme too. He argues, as have others that Facebook’s $50 billion valuation in private financing in January, while suggesting that it ‘looked like business as usual for the Silicon Valley’ actually masked a decline in US technological competitiveness and ‘a deeper malaise that threatens America’s system of innovation’. He quotes John Seely Brown, who used to head up the Xerox Palo Alto Research Center – one of the Valley’s most renowned corporate research and development laboratories – who argues that U.S. technology investors no longer care about the serious work needed to keep a lead in many advanced industries. He says, “we’ve lost the will for patient investment,” thanks to quick profits from high-flying internet and social networking firms.

In other words, as we have argued in Big Potatoes, short-term speculation has increasingly replaced longer term investment in basic research where outcomes cannot be specified in advance but which have led in the past to the creation of new industries.

The point, however, is not simply a problem of short-termism. Looking to invest in quick-wins like Facebook (which are unlikely to be remembered for their contribution to human progress) is a symptom of a much deeper malaise: the loss of confidence in technology itself and our ability to do the hard work of finding new solutions to the problems we confront. Short-termism expresses a loss of faith in the future and in the human capacity to change the world around us. As  Tyler Cowan put it above

Today, no huge improvement for the automobile or airplane is in sight, and the major struggle is to limit their pollution, not to vastly improve their capabilities

The problem is the limits we now place upon the scope for innovation. The problem is not where the money might or might not be going – to China or  Silicon Valley – but the assumptions that underpin its movement. While incremental innovation can certainly happen within a culture of limits, limiting the ambition behind the innovation impulse reduces the scope for breakthroughs. Indeed, it factors them out of the equation at the outset. It boxes innovation into smaller and smaller fields of endeavour which ultimately will reduce incomes for the mass of humanity even further.

It’s not capital that’s in short supply but ambition.

Filed under: Innovation, , , ,

CHINA TO LEAD WORLD INNOVATION BY 2020…APPARENTLY

According to Reuters News Service, published on the ABC News channel China is now set to become the leader of world innovation by 2020…according to a public opinion poll of 6,000 people in six countries done by drug maker AstraZeneca.

Public perceptions of course are always impressionistic. But the sentiments expressed in the survey are very revealing.

It is still the case today, for example, that the USA remains the world’s most innovative nation followed by Japan. China, which is now third, has reached this place very rapidly and looks set to go further. While there are indications of a significant shift China has some way to go to overtake the USA. For example, the ABC article mentions the study last month from Thomson Reuters which revealed that China was now the second-largest producer of scientific papers, after the United States. But the same study showed that R&D spending by Asian nations as a group in 2008 was $387 billion, compared with $384 billion in the United States and $280 billion in Europe. But this does not equate to being more innovative.

However, the significance of this survey lies in the subjective insight it reveals about perceptions in the West and the East.

R&D spending does not equal innovation – but belief ensures it

As we have discussed in previous posts, the amount spent on R&D is never, in itself, a guarantee of innovation. It is the culture that informs that spending, the context within which that innovation emerges that remains critical. The survey which was taken across Britain, the United States, Sweden, Japan, India and China, found

‘…a strong sense of optimism amongst people living in China and India, in contrast to relative pessimism in the developed Western economies’.

People in the East believe China will become the world’s leading innovator by 2020. But so too do people in the West. The same perception is informed by starkly different moods: optimism and pessimism.

Subjectivity does greatly influence the culture of innovation. Pessimism, will influence an innovation culture that places emphasis upon incremental changes. It will foster a conservative and cautious approach which can only lower expectations about the goals and objectives of innovation and its outcomes. Optimism, on the other hand, underpins an innovation culture that is more at ease with uncertainty and thus encourages a willingness to experiment and to take risks. This raises expectations about what innovation can achieve. It was not pessimism that drove America to put a man on the moon.

As a co-author of Big Potatoes, you can guess where I’d put my money.

Filed under: R&D and Innovation, ,

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