Anthony J. Pennings, PhD was on the NYU faculty since 2001 teaching digital media, information systems management, and global economics. © ALL RIGHTS RESERVED

Online Media Business Models: The Intercontinental Interview

Posted on | June 25, 2011 | No Comments

Recently I was contacted by Stanislav Serdyukov, a second year Master’s program “Media Management” student in Moscow, Russia at the School of Business and Political Journalism at National Research University – Higher School of Economics. He is working on the master’s project with the theme “The Online Media Business Models and their Transformations” and wanted to ask me some questions about online media business models.

Q. What factors cause the origin of new online media business models?

I think the simple answers are technology and customer expectations. Media consumers are busy and they want their content where and when they want it. Digital technology has disrupted traditional media models and the empowered the media consumer – so far. One way to start thinking about this topic is by reflecting on Nielsen’s 3 screen strategy. The venerable ratings agency is now tracking attentive eyeballs on PCs and mobile phones as well as televisions. These viewing options expanded the time and place of viewing media and challenge the traditional media models and in the process they have created a more demanding media customer. Having said that though I think innovation is driving these services, creating new services customers didn’t even know they wanted, creating a “cool” factor when unanticipated new apps, technology and services are released, literally “blowing people’s minds”.

Q. How can online media firms renew their business model in the dynamic media industry?

From the business perspective it’s all about competitive advantage, something that has been hard to obtain in the web world. How can a company create or utilize barriers to entry to keep other companies from competing with them?

It is unfortunate in many ways, but the “app” is a vehicle to reduce competition on the Internet. How many apps do you have on your Droid X? On your iPad? When you are mobile you generally look to reduce your options so the apps are convenient. How many apps do you actually use? Compare that to the links you interact with when you get on your PC or MacBook at home.

Mobile devices are quite small for the web model – physically. How much space do you have smartphone? How small do you want the icons to be? How long is your thumb? The app will capture customers by limiting their options like the web never could. I’m sorry to say.

3. What are the future challenges for the online media business models?

I think money, people making payments, is a real issue. As is a related issue, security. Companies that tie in customers with comfortable payment systems like Amazon and Netflix have real advantages. People love the advantages of e-commerce and the social media aspects of the web, but are extremely wary of identity theft, fraud, malware and other problems that come with giving up personal information and making purchases over the Internet.

All this discussion about “free” is useful too. Free has always been an important model for the broadcast industry in that advertisers picked up the costs of production and distribution. Interesting that Netflix has challenged that model with a subscription model – remember that cable television started off in the US promising an ad-free environment. Now you have pay the subscription fee and suffer the ads. Cable has managed to maintain some key sources of competitive advantage: government protection, customer captivity, and fixed costs such as their huge investments in the network infrastructure. Media industries will have to continue to figure that calculus between ads and subscription prices. The higher the subscription costs, the lower the customer base, and the less interested advertisers will be. Its interesting to the see the New York Times has had some success with their new subscription model but other newspapers may not have the base of high income readers that don’t know how (or care) to clear their cookie cache. Media firms, particularly, news organizations need to come to grips with ads and economics of the Internet.

The “freemium” model is popular now and it makes a lot of sense. Sites build up a large customer base by offering a free service and then offer a premium service at a price. Picture sites are good at this, Flickr provides free storage services to the general public and makes money by offering advanced services to more serious photographers for a price. I noticed Skype is aggressively trying to move people into the premium paid services after their purchase by Microsoft last month as is Linkedin, after its recent IPO. Another strategy is to offer something free and then sell other products to produce a revenue stream. Fotki.com, another picture site, makes money by selling products like coffee cups, mousepads, and refrigerator magnets customized with user images along with traditional images used for framing.

4. What online media business models will be efficient during next five years?

Content continues to be overrated. Anytime you can get someone else to produce your content you are ahead of the game. Content is expensive and extremely interchangeable. Digital cameras, mobile camcorders are providing a lot of useful “user-generated” content and of course anytime you do a search you are producing statistical content that companies like Google are increasingly able to monetize. Just because you are not paying for something, it doesn’t mean someone is not making money from your online activities.

Syndication is also an important dynamic to consider. The process has been around for awhile. Think cartoons in your local paper. But it is particularly effective in an online environment. Think RSS feeds. Syndication is basically selling the same thing again and again. Hard to do with a car and hamburgers but possible with digital processes and products where the costs of reproduction and distribution are nil.

It’s hard to think 5 years into the future, but it’s clear one trend is that consumers are putting the ‘commune” back into communication. I’m talking about social media here. This is working itself out in three ways. One is that they want to interact with content, question it, explore it further, and add to it. Shopping is a much richer experience now due to all the information and reviews you can access online. Much better in many cases than dealing with a pushy salesperson, if you can track one down. Second, consumers want to share the media content with others. By sharing they express themselves and construct an identity. Facebook as been great for this. People are sharing their intimate photos, revealing their links with other people, and attaching media content that they find interesting. Mimetic desire is an important factor here. That is a theory of desire that recognizes that people develop interests based on the interests of people they are interested in. Third, they want to connect with people who share the same interest and interact with them. Whether it is organized around a football team, a pop singer, or a political cause, people are interested in being part of a community that shares the same meanings, goals, and values.

Anthony J. Pennings, PhD has been on the NYU faculty since 2001 teaching digital media, information systems management, and global communications. © ALL RIGHTS RESERVED

Smith Effect III: Adam Smith, the Census Machine, and the Beginnings of IBM

Posted on | June 20, 2011 | No Comments

This is the third in a three part exploration of Adam Smith and how his ideas laid the foundation for information technology (IT). Here I specifically explore connections between his theories and the formation of IBM which last week celebrated its 100th birthday.

This post further develops the thesis that Adam Smith’s new conception of wealth set the foundation for modern information practices and calculating technologies. The premise of this section is that the new system of economic understanding engendered by Adam Smith, the Scottish philosopher and author of the Wealth of Nations (1776), laid an important intellectual foundation for modern information technologies.

Smith contended that the wealth of a nation lay not in the riches gathered by the monarch but rather in the enterprise and productivity of the population. This had the effect of helping to transform a system of calculation, “political arithmatik,” designed to tally the wealth of the sovereign, into statistics (“state-tistics”), a system of measuring a wide range of economic and social activities.

Smith is mainly known for his notion of the “invisible hand” – God’s infusion of the world with a regulatory system based on individual human desiring. However, his reconceptualization of governmental wealth reverberated through time to stimulate the development of information technologies.

This “Smith Effect” grew in importance, especially as modern computerized bureaucracies emerged and “electronic” monetary policy became heavily reliant on the surveying capacity of modern statistical techniques. Smith, while generally accredited with ideas used to argue for the limitation of the state, also set the foundations for modern bureaucratic states and extensive surveillance systems dependent on information technologies.

This new direction in governmental activities led to continual interest and innovations in mechanical calculations and statistical measurements.

Consequently, it can be argued that the Smith effect resulted in Herman Hollerith’s tabulating machines, created for the 1890 US Census. These technologies eventually became the foundational product that led to the formation of International Business Machines (IBM). The Constitutional Convention of 1787 mandated the counting of Americans every ten years.

Still, by the late 19th century the American population had increased to the point where calculations were nearly impossible to compute using non-mechanical means. Immigration surged after the Civil War, and the whole idea of census-taking nearly became obsolete because of the complexity of the task. By the time one census was finished, it was almost time to do the next one.

Hollerith’s machine became an immediate success and prospered mainly due to the process of “Morganization” occurring in major companies at the time. J.P. Morgan was consolidating several similar companies under names such as AT&T, General Electric, New York Central Railroad, and US Steel. These companies had significant data processing needs that required the telegraph for transmitting information from various locations to tabulating machines that would aggregate information for reports to upper management.

Failing in health, Hollerith sold his business to Charles Flint in 1911. Flint merged the enterprise with two other companies to form the Computing Tabulating Recording Corporation. IBM celebrated this merger as its centennial marker in 2011.

CTR changed its name to International Business Machines (IBM) in 1924 after it purchased German tabulating firm Deutsche Hollerith Maschinen Groupe (Dehomag). Under the leadership of former NCR and indicted supersalesmen, Thomas Watson, IBM expanded to other countries interested in tallying their own populations. In the 1920s and 1930s, IBM began to comb the world, selling its tabulating machines and personalized census services to countries like Russia and Nazi Germany. The punch-card tabulating systems were then generalized for a wide range of commercial and government purposes, including monitoring racial politics as well as parts management for the Luftewaffe, Germany’s air force.

In the US, IBM got the Social Security contract that supported them through the Great Depression. Former IBM salesman Ross Perot would follow that model by getting Medicare contracts to help build his company EDS. It was the son, Thomas Watson, Jr., who guided IBM into the electronic computer age during the Cold War.

Citation APA (7th Edition)

Pennings, A.J. (2011, June 20). Smith Effect III: Adam Smith, the Census Machine, and the Beginnings of IBM. apennings.com. https://apennings.com/dystopian-economies/adam-smith-the-census-machine-and-beginnings-of-ibm/

Ⓒ ALL RIGHTS RESERVED

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Anthony J. Pennings, PhD is a Professor at the Department of Technology and Society, State University of New York, Korea. From 2002-2012 was on the faculty of New York University where he taught comparative political economy, digital economics and traditional macroeconomics. He also taught in Digital Media MBA atSt. Edwards University in Austin, Texas, where he lives when not in the Republic of Korea.

Category: dystopian economies, the cold war, the smith effect
Tags: Adam Smith > Census Bureau > Constitutional Convention of 1787 > Herman Hollerith > IBM > International Business Machines > Nazi Germany > punch-card tabulating machines > Social Security Act > state-tistics > Tabulating Machine Company > The Wealth of Nations

All Watched Over by Machines of Loving Grace – The Poem

Posted on | June 19, 2011 | No Comments

I’m following and commenting on the BBC documentary series All Watched Over by Machines of Loving Grace by Adam Curtis. So, I wanted to post the actual poem and reading by American poet Richard Brautigan.

I think it beautifully textualizes the early utopian vision of computers and nature working in harmony to provide a stable ecosystem for humans and other forms of life on what Buckminster Fuller refers to in the second episode as “Spaceship Earth.”

I don’t hold out a lot of hope for utopian ideas and actually spent some of my PhD dissertation critiquing both utopianism and dystopianism, but I find this series thought-provoking and worth some time. Here is the poem “All Watched Over by Machines of Loving Grace.”

“I like to think (and
the sooner the better!)
of a cybernetic meadow
where mammals and computers
live together in mutually
programming harmony
like pure water
touching clear sky.
I like to think
(right now, please!)
of a cybernetic forest
filled with pines and electronics
where deer stroll peacefully
past computers
as if they were flowers
with spinning blossoms.
I like to think
(it has to be!)
of a cybernetic ecology
where we are free of our labors
and joined back to nature,
returned to our mammal
brothers and sisters,
and all watched over
by machines of loving grace.”

— Richard Brautigan – All Watched Over by Machines of Loving Grace (1967) [1]

And read in his original voice:

Citation APA (7th Edition)

Pennings, A.J. (2011, Jun 19) All Watched Over by Machines of Loving Grace – The Poem. apennings.com https://apennings.com/how-it-came-to-rule-the-world/all-watched-over-by-machines-of-loving-grace-the-poem/

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Notes

[1] Transcript of the poem from Chris Hunt’s blog
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Anthony J. Pennings, PhD is a Professor at the Department of Technology and Society, State University of New York, Korea and Research Professor at Stony Brook University. He teaches broadband policy and ICT for sustainable development. Previously, he was on the faculty of New York University where he taught digital economics and media management. He also taught in the Digital Media MBA at St. Edwards University in Austin, Texas, where he lives when not in South Korea.

Category: how IT came to rule the world
Tags: Adam Curtis > All Watched Over by Machines of Loving Grace > Buckminster Fuller > Richard Brautigan > Spaceship Earth

All Watched Over by Heroes of Loving Grace

Posted on | June 12, 2011 | No Comments

I’m working on my manuscript How IT Came to Rule the World this summer so not surprisingly I took an interest in the recent BBC documentary by Adam Curtis called All Watched Over by Machines of Loving Grace, named after American poet Richard Brautigan’s publication of the same name. The title poem was written in 1967 while he was a poet-in-residence at the California Institute of Technology. It reflects on the Utopian possibilities of a society where the advancements in cybernetic technology leads to a world where the need for human labor is diminished, and the Earth returns a state of nature that is balanced with the demands of its human population.

I was intrigued with “Episode One – Love and Power,” which starts with exploring Ayn Rand and her influence on the rise of computer and financial technology during the 1980s and 1990s. Rand was the author of two novels, The Fountainhead (1943) and Atlas Shrugged (1957) which presented her theories known as objectivism. This philosophy stresses heroic individualism, human rationality, and free-market capitalism. I can’t say I’m a Randian (if that is what they call themselves), but this does fit in with my understanding that the Cold War produced many technological innovations ripe for entrepreneurial commercialization in the late 1970s and early 1980s.

The documentary uses Rand to explore the motivations of financiers and entrepreneurs, many of whom claimed to be inspired by her books. Adam Curtis takes particular delight in the story of Alan Greenspan, an early devotee of Rand, who became the “most powerful man in the world” as the Federal Reserve Chairman from 1987 to 2006. Notable was his speech on December 5, 1996, in which he expressed his concerns about “irrational exuberance” when the DJIA stock market went over 6,000 and his subsequent dismissal of this concern. Greenspan quickly embraced the stock market and guided it to over 11,000 before he retired. Also mentioned is his embrace of the “new economy” during the dot.com bubble of the late 1990s. This process included the globalization of financial markets that led to the Asian contagion and the promise of the electronic securitization environment for mortgages that led to the credit crisis of 2008.

Missing from the Alan Curtis analysis, though, is the larger social context of the time. By the late 1970s, the counter-cultural reaction to “The Establishment” of the “Nifty Fifty” corporations and their complicity in the Vietnam War and what President Eisenhower called the “military-industrial complex” was morphing into a new critique of big government “Liberalism.” Many believed that the US was becoming a “Welfare State” that was redistributing not only wealth, but also opportunity and privilege. These tensions were even more evident in Curtis’ England, which, in the wake of their imperial demise and impoverishment during World War I and II, nationalized their major industries, entrenched their labor unions, and implemented wage and price controls to fight off the inflation of the 1970s.

What emerged was a new cultural era of self-based “heroic” philosophies espoused by a divergent group of proponents. These included authors such as Rand and George Gilder (Wealth and Poverty); (Wealth and Poverty); economists such as Arthur Laffer, who championed supply-side economics, and Milton Friedman of the Chicago School; and self-help gurus such as Scientology’s L. Ron Hubbard, est’s Werner Erhard, and fire-walker Tony Robbins. Even heroic popular culture icons in Star Wars and the Superman movies helped characterize the new era.

By the 1980s, political operatives such as Keith Joseph and Margaret Thatcher in England and Ronald Reagan in the US benefited from this trend. Each affirmed heroic entrepreneurial action and sanctioned the market-based capitalism that helped commercialize the fruits of the Cold War into the computers, data networks, and satellites of the new digital age – the machines of loving grace?

The loss of collective responsibility did not come without its consequences. The excessive focus on individualism and the rejection of public solutions led to a tragic underinvestment in public infrastructure, including education. It created a tax structure that encouraged exporting jobs and industries to unregulated and exploitative markets. It capitulated in the deregulation of financial markets, leading to destructive asset bubbles and endangered democratic prospects by enhancing class divisions and reducing the viability of the middle class.

Citation APA (7th Edition)

Pennings, A.J. (2011, Jun 12). All Watched Over by Heroes of Loving Grace. apennings.com https://apennings.com/how-it-came-to-rule-the-world/all-watched-over-by-heroes-of-loving-grace/

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© ALL RIGHTS RESERVED

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Anthony J. Pennings, PhD is a Professor at the Department of Technology and Society, State University of New York, Korea teaching broadband policy and ICT for sustainable development. From 2002-2012 he was on the faculty of New York University where he taught digital economics and information systems management. He also taught in the Digital Media MBA at St. Edwards University in Austin, Texas, where he lives when not in South Korea.

Category: books and films, democratic political economies, how IT came to rule the world
Tags: All Watched Over by Machines of Loving Grace > Ayn Rand > George Gilder > How IT Came to Rule the World > Richard Brautigan > Werner Erhard

Setting Up Your IT/Media Enterprise as an LLC

Posted on | June 9, 2011 | No Comments

First off, I am neither an accountant nor an attorney so by all means obtain proper counsel for setting up your business.

That said, I’m often asked about setting up a company and wanted to point out some options and things to think about when starting up your business. In particular, you should look at the benefits of setting it up as a limited liability company (LLC).

The major options for creating a company are a sole proprietorship, partnership, and corporation, although an interesting legal option is the limited liability company. Although not recognized by the Federal government for tax purposes, this valid legal form combines some benefits of a corporation, particularly the limited liability, with the more manageable aspects of the partnership or sole ownership. Note, it is a company, not a corporation, and it can be used for non-profit status but presents a few challenges tax-wise.

You can go to one of the many online services to set up your LLC. For example LegalZoom will allow you to form your company over the Internet and charter it in most any state including Delaware, a popular “location” due to its history of corporate law. They will prepare and also file your paperwork with Delaware’s Division of Corporations.

This would include the Articles of Organization that lists the name of the company (must include LLC abbreviated or written out), mailing address, duration (perpetual or for a set amount of time) , state location (ie Delaware), organization and management structure, initial contributions, etc. They may also assist in conducting a name search, establishing a trademark, getting a tax ID, and even filing for a patent.

Once your articles of organization have been successfully filed, your LLC begins its existence as a legal business entity. One of the first things you need to do is to get a bank account. For that you will need your articles of organization that proves you have a business license, the tax identification number (or EIN number) and the authorized members of the LLC. You might want to talk to a banker first, they can get probably advise and get you a Tax ID for free (vs. $75 at LegalZoom)

Something you must think seriously about is an Operating Agreement. This is not required by the state but is one of the most important steps in maintaining your liability protection, preventing disagreements between the members, and raising additional capital. An operating agreement specifies members’ ownership percentages, the members’ draw or salary, bonus distributions, and any privileges or enhanced ownership rights given to any members. The management plan should also include the duties, rights, and responsibilities of non-members employees.

Anthony J. Pennings, PhD has been on the NYU faculty since 2001 teaching digital media, information systems management, and global communications. © ALL RIGHTS RESERVED

Category: enterprise systems, media strategies, social media
Tags: limited liability company > limited liability company (LLC) > LLC

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