Business models for the sub prime financial crisis, Linus’s laws, Bob Dylan and Favelas

This is not a blog about Mobile but it is an issue I have been thinking of ..

Recently, I got into an online discussion with an IFA(In the UK, an IFA is supposed to be an Independent financial advisor ). This person claimed that IFAs were unfairly penalised by the sub prime issue.

In my view .. Sadly .. The IFAs have been a MAJOR part of the problem – especially in the USA. It is incredible how so many people in the industry got it so wrong and one has to wonder – what motivates the advisors, how independent they are , and how greed drives the whole system ..

As a capitalist, I have believed in creation of wealth – i.e. adding an intellectual component to raw material to create a product or a service that satisfies a customer need. By that definition, a cathedral builder is a capitalist since they convert rocks to a wonderful monument.

But the business model for the sub prime financial crisis seems to defy the laws of capitalism since it seeks to identify (and con!) the poorest people who could never afford to pay for a house by deluding them into believing that they can .. Especially because the poorest pay the highest interest rates!

(In a nutshell .. It is call ‘sub’ prime for a good reason! i.e. these are not the richest customers – hence sub prime – but they think they should pay the highest rates .. and when they default – the bankers still own their house .. )

Let me explain

see THIS link from the BBC ..

I find the statement below deeply distressing and an indicator that the whole system had to be on it ..

The poorest people pay the highest interest rates,” he says. In the low interest rate years after 2001, sub-prime borrowers might pay two or three times the interest of a prime borrower.

And if some defaulted, it wasn’t the end of the world. Property prices were rising so fast in the US that the odd repossession wasn’t a major problem. In an atmosphere of speculation, many people saw there was money to be made in property and so the spiral continued.

“There were strippers in Las Vegas who became real estate brokers,” says Brummer.

But when the housing market took a turn for the worse, the problems started. Many borrowers were on deals that for the first two years had low rates and then switched to a much higher rate. Once house prices fell, borrowers who were struggling started defaulting on loans. Repossessed houses flooding onto the market caused a vicious circle.

By April this year, the FBI was already investigating 19 allegations of corporate fraud relating to sub-prime loans.

Linus’s law says .. Given enough eyeballs, all bugs are shallow.

So, what happened here? Where were the eyeballs? Why could so many people pretend not to see what was in front of them? How can greed blind so many people – and so soon after Dot com?

As Bob Dylan would say:

Yes, ‘n’ how many times can a man turn his head,

Pretending he just doesn’t see?

The answer, my friend, is blowin’ in the wind,

The answer is blowin’ in the wind.

At Mobile Web Megatrends, Priscila Grison from Brazil had a very interesting talk about Brazil and Digital inclusion - a subject historically close to my heart ..

She had the following picture of Favelas – and asked – What was wrong with it?


It turns out that the picture is upside down .. the insight being .. unless we refuse to see that picture being upside down .. we can never hope to include people – technology or not.

Maybe there is something to learn in this for all the investment bankers out there ..

On the way back on the London Underground – I saw two other things .. Rich Dad Poor Dad is coming to town .. the motivational vultures will have a field day with the crisis convincing more people to invest in more oddball schemes ..

And meanwhile .. a busker on the London Underground sang John Lennon’s song Imagine ..

I wonder if you can

No need for greed or hunger

EU commission takes the lead on Web 3.0

When I spoke at the European Parliament, I mentioned that mobile could be a big opportunity for the EU to take a globally competitive position – and hence it is nice to see this initiative from the EU Commission consults on how to put Europe into the lead of the transition to Web 3.0

I love especially the emphasis on mobile and the universal connectivity .. This is truly the next step beyond Web 2.0 and I am glad it is happening here .. and with a chance that we could fulfill this vision

“The Internet of the future will radically change our society,” said Viviane Reding, Commissioner for Information Society and Media. “Web 3.0 means seamless ‘anytime, anywhere’ business, entertainment and social networking over fast reliable and secure networks. It means the end of the divide between mobile and fixed lines. It signals a tenfold quantum leap in the scale of the digital universe by 2015. Europe has the know-how and the network capacity to lead this transformation. We must make sure that Web 3.0 is made and used in Europe.”

Potential downtime today ..

Potential downtime today .. upgrading to three column blog. Many thanks for your patience rgds Ajit

Android – iPhone revenue models: Can 70 plus 30 equal free? – Is the future of mobile apps free or fee based?

The iPhone has a simple revenue share model – 70 percent to the developer.

Considering Google’s developer friendly credentials, one would have hoped for something along the same lines .. But disappointingly – that’s not the case .. Because the revenue share depends on the agreements between the carrier and the developer.

Moco news points out that It will purely be an arrangement between the carrier and the mobile app developer. It is unknown what the revenue-share agreement will be between the carrier and a developer.”

To me, this is not a good development in the short term and needs to be clarified in the long term.

It appears that Google is working on the equation that 70 plus 30 equals free i.e. instead of the 70 30 model adopted by the iPhone. Also, Android itself appears to lean to free(ad funded model) for all mobile applications.

Here is why

1) In terms of data usage and subscribers, I do not believe that individual Operators can have a large enough user base to make a commercial difference to a developer.

2) Individual agreements between developers and Operators are not feasible for Long Tail applications when most of the applications do not make a lot of money in the first place.

3) Also, we start to get fragmentation immediately(for example if developer gets 70 perc for supporting x devices and 50 percent for not doing so etc etc)

All this means that (at least) initially, free applications will proliferate.

This makes little difference for Google since every element of Android is a Mobile web 20 element – (because every element of the stack is capable of creating metadata – all of which can be harnessed towards targeted advertising – just like Gmail)

Hence, Google has a viable economic model but I do not believe that small developers can survive on an ad model alone(and further it is likely that operators may want a share of the ad pie as well)

On the other hand, Android may provide a genuine opportunity for operators to start with a clean slate. Apart from the Korean and Japanese operators, none of the operators have built viable portals. Android offers the choice to start with a clean slate and attract developers and to create a viable ecosystem.

Android raises a broader question is : Are all mobile applications likely to be free(ad funded)?

If we consider the example of the iphone, so far paid iphone applications have not fared well.

So on one hand, while we worry about the contrast between 70 30 and free, we have to consider the broader question of – which mobile applications will users pay for? And the answer is not very clear cut ( see this post where I say that we may have to adopt Kevin Kelly’s principles to the Mobile ecosystem ).

Longer term, I see an irreversible trend with more value being abstracted up the stack, multiple payment systems(Paypal and Google checkout), multiple networks(Wimax, WiFi and so on) – but the short term is unclear.

William Volk makes an interesting point when he says


The problem isn’t just the revenue share. It’s that Google, by handing off the sale of paid apps to individual carriers, have added an element of ‘friction’ to the entire publishing process:

With existing content sales carrier terms are typically net 60 to 90 days.

What’s more if you sell in multiple territories, then you will have to deal with multiple carriers.

Also, while there is an unfettered process for free apps, paid apps will certainly be subject to a review and approval process if for no other reason for issues of insuring appropriate content. What will that approval process entail?


So, Can 70 plus 30 equal free? To me, it seems that Google is going towards Free and not a revenue share model.

Happy Shana Tova(Jewish new year)

shana tova.jpg

Happy Shana Tova(Jewish new year) to all our readers. Image courtesy Xen mendelsohn

Catching up with the Carnival of the mobilists ..

I am catching up with the carnival posts and with blogging in general since been a bit busy last week and we continue to revamp the blog. I forgot to post back to two carnivals:

First one: Carnival of the mobilists No 142 at the next generation mobile content blog (Ofir Leitner’s blog) and previous to that Carnival of the mobilists No 141 at Chetan Sharma’s blog where I got the post of the week.

Social networking more popular than porn ..

Social networking more popular than porn .. Very interesting ..

Better than free for mobile : Any comments? – what mobile digital goods will we pay for?

Many of you may have seen this seminal article.Better than free It talks of a what digital goods will we pay for. Question is: How does it apply to mobile?

I want to create a mobile version of this article.

The gist of the article is


When copies are super abundant, they become worthless.

When copies are super abundant, stuff which can’t be copied becomes scarce and valuable.

When copies are free, you need to sell things which can not be copied.

Well, what can’t be copied?


From Kevin Kelly’s article below:

This super-distribution system has become the foundation of our economy and wealth. The instant reduplication of data, ideas, and media underpins all the major economic sectors in our economy, particularly those involved with exports — that is, those industries where the US has a competitive advantage. Our wealth sits upon a very large device that copies promiscuously and constantly.

Yet the previous round of wealth in this economy was built on selling precious copies, so the free flow of free copies tends to undermine the established order. If reproductions of our best efforts are free, how can we keep going? To put it simply, how does one make money selling free copies?

I have an answer. The simplest way I can put it is thus:

When copies are super abundant, they become worthless.

When copies are super abundant, stuff which can’t be copied becomes scarce and valuable.

When copies are free, you need to sell things which can not be copied.

Well, what can’t be copied?

There are a number of qualities that can’t be copied. Consider “trust.” Trust cannot be copied. You can’t purchase it. Trust must be earned, over time. It cannot be downloaded. Or faked. Or counterfeited (at least for long). If everything else is equal, you’ll always prefer to deal with someone you can trust. So trust is an intangible that has increasing value in a copy saturated world.

There are a number of other qualities similar to trust that are difficult to copy, and thus become valuable in this network economy. I think the best way to examine them is not from the eye of the producer, manufacturer, or creator, but from the eye of the user. We can start with a simple user question: why would we ever pay for anything that we could get for free? When anyone buys a version of something they could get for free, what are they purchasing?

From my study of the network economy I see roughly eight categories of intangible value that we buy when we pay for something that could be free.

In a real sense, these are eight things that are better than free. Eight uncopyable values. I call them “generatives.” A generative value is a quality or attribute that must be generated, grown, cultivated, nurtured. A generative thing can not be copied, cloned, faked, replicated, counterfeited, or reproduced. It is generated uniquely, in place, over time. In the digital arena, generative qualities add value to free copies, and therefore are something that can be sold.

Eight Generatives Better Than Free

Immediacy — Sooner or later you can find a free copy of whatever you want, but getting a copy delivered to your inbox the moment it is released — or even better, produced — by its creators is a generative asset. Many people go to movie theaters to see films on the opening night, where they will pay a hefty price to see a film that later will be available for free, or almost free, via rental or download. Hardcover books command a premium for their immediacy, disguised as a harder cover. First in line often commands an extra price for the same good. As a sellable quality, immediacy has many levels, including access to beta versions. Fans are brought into the generative process itself. Beta versions are often de-valued because they are incomplete, but they also possess generative qualities that can be sold. Immediacy is a relative term, which is why it is generative. It has to fit with the product and the audience. A blog has a different sense of time than a movie, or a car. But immediacy can be found in any media.

Personalization — A generic version of a concert recording may be free, but if you want a copy that has been tweaked to sound perfect in your particular living room — as if it were preformed in your room — you may be willing to pay a lot. The free copy of a book can be custom edited by the publishers to reflect your own previous reading background. A free movie you buy may be cut to reflect the rating you desire (no violence, dirty language okay). Aspirin is free, but aspirin tailored to your DNA is very expensive. As many have noted, personalization requires an ongoing conversation between the creator and consumer, artist and fan, producer and user. It is deeply generative because it is iterative and time consuming. You can’t copy the personalization that a relationship represents. Marketers call that “stickiness” because it means both sides of the relationship are stuck (invested) in this generative asset, and will be reluctant to switch and start over.

Interpretation — As the old joke goes: software, free. The manual, $10,000. But it’s no joke. A couple of high profile companies, like Red Hat, Apache, and others make their living doing exactly that. They provide paid support for free software. The copy of code, being mere bits, is free — and becomes valuable to you only through the support and guidance. I suspect a lot of genetic information will go this route. Right now getting your copy of your DNA is very expensive, but soon it won’t be. In fact, soon pharmaceutical companies will PAY you to get your genes sequence. So the copy of your sequence will be free, but the interpretation of what it means, what you can do about it, and how to use it — the manual for your genes so to speak — will be expensive.

Authenticity — You might be able to grab a key software application for free, but even if you don’t need a manual, you might like to be sure it is bug free, reliable, and warranted. You’ll pay for authenticity. There are nearly an infinite number of variations of the Grateful Dead jams around; buying an authentic version from the band itself will ensure you get the one you wanted. Or that it was indeed actually performed by the Dead. Artists have dealt with this problem for a long time. Graphic reproductions such as photographs and lithographs often come with the artist’s stamp of authenticity — a signature — to raise the price of the copy. Digital watermarks and other signature technology will not work as copy-protection schemes (copies are super-conducting liquids, remember?) but they can serve up the generative quality of authenticity for those who care.

Accessibility — Ownership often sucks. You have to keep your things tidy, up-to-date, and in the case of digital material, backed up. And in this mobile world, you have to carry it along with you. Many people, me included, will be happy to have others tend our “possessions” by subscribing to them. We’ll pay Acme Digital Warehouse to serve us any musical tune in the world, when and where we want it, as well as any movie, photo (ours or other photographers). Ditto for books and blogs. Acme backs everything up, pays the creators, and delivers us our desires. We can sip it from our phones, PDAs, laptops, big screens from where-ever. The fact that most of this material will be available free, if we want to tend it, back it up, keep adding to it, and organize it, will be less and less appealing as time goes on.

Embodiment — At its core the digital copy is without a body. You can take a free copy of a work and throw it on a screen. But perhaps you’d like to see it in hi-res on a huge screen? Maybe in 3D? PDFs are fine, but sometimes it is delicious to have the same words printed on bright white cottony paper, bound in leather. Feels so good. What about dwelling in your favorite (free) game with 35 others in the same room? There is no end to greater embodiment. Sure, the hi-res of today — which may draw ticket holders to a big theater — may migrate to your home theater tomorrow, but there will always be new insanely great display technology that consumers won’t have. Laser projection, holographic display, the holodeck itself! And nothing gets embodied as much as music in a live performance, with real bodies. The music is free; the bodily performance expensive. This formula is quickly becoming a common one for not only musicians, but even authors. The book is free; the bodily talk is expensive.

Patronage — It is my belief that audiences WANT to pay creators. Fans like to reward artists, musicians, authors and the like with the tokens of their appreciation, because it allows them to connect. But they will only pay if it is very easy to do, a reasonable amount, and they feel certain the money will directly benefit the creators. Radiohead’s recent high-profile experiment in letting fans pay them whatever they wished for a free copy is an excellent illustration of the power of patronage. The elusive, intangible connection that flows between appreciative fans and the artist is worth something. In Radiohead’s case it was about $5 per download. There are many other examples of the audience paying simply because it feels good.

Findability — Where as the previous generative qualities reside within creative digital works, findability is an asset that occurs at a higher level in the aggregate of many works. A zero price does not help direct attention to a work, and in fact may sometimes hinder it. But no matter what its price, a work has no value unless it is seen; unfound masterpieces are worthless. When there are millions of books, millions of songs, millions of films, millions of applications, millions of everything requesting our attention — and most of it free — being found is valuable.

The giant aggregators such as Amazon and Netflix make their living in part by helping the audience find works they love. They bring out the good news of the “long tail” phenomenon, which we all know, connects niche audiences with niche productions. But sadly, the long tail is only good news for the giant aggregators, and larger mid-level aggregators such as publishers, studios, and labels. The “long tail” is only lukewarm news to creators themselves. But since findability can really only happen at the systems level, creators need aggregators. This is why publishers, studios, and labels (PSL)will never disappear. They are not needed for distribution of the copies (the internet machine does that). Rather the PSL are needed for the distribution of the users’ attention back to the works. From an ocean of possibilities the PSL find, nurture and refine the work of creators that they believe fans will connect with. Other intermediates such as critics and reviewers also channel attention. Fans rely on this multi-level apparatus of findability to discover the works of worth out of the zillions produced. There is money to be made (indirectly for the creatives) by finding talent. For many years the paper publication TV Guide made more money than all of the 3 major TV networks it “guided” combined. The magazine guided and pointed viewers to the good stuff on the tube that week. Stuff, it is worth noting, that was free to the viewers. There is little doubt that besides the mega-aggregators, in the world of the free many PDLs will make money selling findability — in addition to the other generative qualities.

These eight qualities require a new skill set. Success in the free-copy world is not derived from the skills of distribution since the Great Copy Machine in the Sky takes care of that. Nor are legal skills surrounding Intellectual Property and Copyright very useful anymore. Nor are the skills of hoarding and scarcity. Rather, these new eight generatives demand an understanding of how abundance breeds a sharing mindset, how generosity is a business model, how vital it has become to cultivate and nurture qualities that can’t be replicated with a click of the mouse.

In short, the money in this networked economy does not follow the path of the copies. Rather it follows the path of attention, and attention has its own circuits.

Careful readers will note one conspicuous absence so far. I have said nothing about advertising. Ads are widely regarded as the solution, almost the ONLY solution, to the paradox of the free. Most of the suggested solutions I’ve seen for overcoming the free involve some measure of advertising. I think ads are only one of the paths that attention takes, and in the long-run, they will only be part of the new ways money is made selling the free.

But that’s another story.

Beneath the frothy layer of advertising, these eight generatives will supply the value to ubiquitous free copies, and make them worth advertising for. These generatives apply to all digital copies, but also to any kind of copy where the marginal cost of that copy approaches zero. (See my essay on Technology Wants to Be Free.) Even material industries are finding that the costs of duplication near zero, so they too will behave like digital copies. Maps just crossed that threshold. Genetics is about to. Gadgets and small appliances (like cell phones) are sliding that way. Pharmaceuticals are already there, but they don’t want anyone to know. It costs nothing to make a pill. We pay for Authenticity and Immediacy in drugs. Someday we’ll pay for Personalization.

Maintaining generatives is a lot harder than duplicating copies in a factory. There is still a lot to learn. A lot to figure out. Write to me if you do.

Can Carriers/Mobile Network Operators execute Long Tail / Web 2.0 applications?

Can Carriers/Mobile Network Operators execute Long Tail / Web 2.0 applications?

A good question .. raised at forumoxford. Here is my analysis .. I believe that most of what I am describing below can be done by a product such as Xtract today

What is the Long Tail?

The Long Tail is the opposite of the Pareto distribution(aka 80/20 rule) and is the preferred business model behind many of the recent Web successes – specifically

Supply side motivations

On the supply side, we need low inventory and distribution costs. This means, unpopular products can be stocked. Netflix and Amazon are examples of this model.

Demand side motivations

Demand side motivations include search engines, recommendation engines, sampling tools etc allowing customers to search a wide range of products OR for products that they normally cannot find physically in a store due to lack of time. Again, and many others excel here.

Much has been said about why telcos cannot execute Long Tail applications. So, I am addressing the more challenging aspect of – How Telcos CAN execute Long tail applications.

Firstly, demand side is a software, recommender, and influencer problem. This can be addressed.

The supply side problem is more complex. The Telco needs to maintain a Long Tail inventory of some entity. The obvious answer is a Long Tail of content. A more interesting answer (for a Telco) is a Long tail of people.

A Long Tail of people is an interesting proposition for a Telco since it is accessible through voice and SMS. Remember that a social network can be built from transactions i.e. the underlying data. There are various research papers about how this can be done(for instance creating a social network from email data or from IM data). Therefore, implicit and explicit recommendations can be captured from voice data or SMS data and that can then be used to identify the long tail in an aggregated manner

Here is an example:

If many people call a specific Pizza place, then that Pizza place gets an implicit recommendation as ‘Good’. Note that individual records are not revealed ; rather aggregate records are used to create the rating. The initial rating can be displayed to the users and users can contribute. For instance – if users see this Pizza shop rated ‘Good’ and it turns out that they have been calling to complain – then users can update that information (this works same as Amazon ratings). But the difference is – this information is seeded by the Telco from voice records. Once it is seeded by the Telco, it can be enriched by the users. This is classic Web 2.0


a) Supply side: The ‘Long tail content’ could be lots of shops and stores(by postcode)

b) Demand side: The social search and recommendation tools can be created

What is missing

a) Profiles!!! At the moment, very basic user information is known to the Telco

b) External feeds(for instance feeds of restaurants etc)

c) A social network built from transactions i.e. the underlying data

Like I said, all this is currently possible through products like Xtract. I think Telcos need to address this space by engaging more with the end users and building the profiles(that’s the missing link!).

Comments welcome

(Variant of ) APML for mobile devices ..

A very late night blog on a sat evening .. but still I think this significant ..

I have been following APML for some time ..

More than APML itself, what is intriguing is a variant of APML at a BBC site which is inspired by an article from Matt Biddulph

As the above article says:

APML allows you to share your own attention data. That’s data about what you have given your attention to; whether by browsing websites, reading RSS feeds or listening to music. You could then take your attention data profile and pass it to another website which would then be able to automatically customise itself to your preferences or interests. That seems to be its conventional use-case.

But a variant is

What if you could generate APML for a music radio show? That would be based on the music that the show or DJ has played and, by extension, has been paying attention to.

I find the variant more interesting than the actual use case of APML

Extending this idea .. what if the variant is a mobile device instead of a radio show?

Then it gets very interesting indeed i.e. the attention stream of data generated from a mobile device

Thoughts welcome

So more links below