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One of my favorite functions of user-generated content and one of the things that confounds traditional media is the often internet-based cultural phenomena of an incredibly viral piece of content that for a time becomes a media icon. Examples are many and varied: You may remember “All your base are belong to us,” Mahir Cagri, (I kiss you!) or dancing hamsters.

It would be very valuable to certain interests if such a thing could be consistently created and leveraged for some specific purpose, such as for a product or idea or presidential candidate, but mostly when these things flare up, it strikes a nerve (or more often a funnybone) with such a wide swath of the public that it would seem impossible to predict the whim of the people.

Today I was sent a quote via text message about which I am 100% certain is going to lead to such a cultural phenomenon, and may even rise to the level of Saturday Night Live skit. (If Tina Fey was still at SNL, I could practically guarantee it.)

I am referring to this quote from ALLA KUDRYAVTSEVA, who upset Maria Sharapova by handily beating her at Wimbledon today:

“I don’t like her outfit,” Kudryavtseva said. “It was one of the motivations to beat her.”

Oh snap. Instead of a sportswoman-like, “She played very well, it was a great match and I am very pleased with my performance against such an able competitor,” we got the humiliating vitriol, “I don’t like her outfit. It was one of the motivations to beat her.”

Truly awesome. What makes this a cultural spark worthy of massive imitation and distribution is the sheer audacity of it all. It wasn’t enough to beat her. She had to shame her.

Read it again with a Russian accent:
“I don’t like her outfit. It was one of the motivations to beat her.”

Yes, comrade, that makes it a little funnier.

This woman is a literal caricature of unsportsman-like behavior. It is funny because someone ELSE said it. Someone ELSE crafted this beautiful example of ridiculousness that had never existed in the lexicon of professional sports, which gives me the ability to use it with impunity. And I will. Whenever I beat anyone in my life from now on, you can bet I am going to shame them by lowering my voice, assuming a very serious countenance and saying in my best Russian accent, “I did not like your outfit. It was one of the motivations to beat you.”

Yes, I am officially replacing the time-honored Mortal Kombat “Fatality” with this much longer insult. When I win at golf, “I did not like your outfit.” When I win at Quake, “I did not like your outfit.” Even when I successfully call shotgun and beat you to the front seat on the way to lunch, “I did not like your outfit. It was one of the motivations to beat you.”

It occurs to me that, while very funny coming from Alla, it will be even funnier coming from Will Ferrell. Can you imagine him in a tennis dress, being interviewed and delivering this comment with deadpan precision. Or for a more contemporary example, how about Chad Vader? Or how about the thousands of creative examples that the creative consumer base will come up with. Someone will even do a song, and it will be funny. I want to see ALL of these in one place, right now. I want to accelerate the development of the wave of creativity that is going to be unleashed and I want to see it all organized and ranked in terms of funniness and popularity.

And if I owned one of the world’s largest traditional media companies, I would also want to capitalize on the creativity that is going to be unleashed, because this is so obviously what the media company of the future is all about. It is less about producing the right content and more about being able to accelerate the distribution of the right content that perhaps you didn’t produce. I think there is a huge role to be played there, which is just a different version of the model that media companies have already figured out – give people what they want. (This is true even when the people have created it.)

I was just at lunch with Derrick at Harry’s Bar and Grill. They just installed a new plasma TV above the bar and CNBC was doing financial news. There was a bit about Yahoo being painted into a corner and probably having to sell. When did that happen? There were commentators talking about how their execution has been unimpressive compared to Newscorp with its MySpace acquisition and Google’s YouTube deal, like any internet-based media company absolutely MUST HAVE a Social Networking strategy. Then Derrick and I were talking about their aborted Facebook acquisition attempt. I don’t know what will end up happening with Yahoo, but whatever: You wouldn’t see me on TV saying they hadn’t executed very well - that is a powerhouse company. Still, maybe there is some reason why that meme is bubbling to the surface lately. Plus, today we saw Terry Semel step out of the CEO role, with Jerry Yang stepping in and focusing on “a culture of winning.” (btw, wouldn’t you love to have Jerry’s resume? He has only had one job in his whole career. It would be a Post-It note with his name and one company on it, Yahoo, with one bullet point: “Founded and built company into internet icon.”)

So anyway, we started talking about how mobile phones are stuck at an innovation plateau, and maybe the iPhone will be so revolutionary that it will move the whole industry to a new level. Maybe. Then we were talking about how to move the whole industry to a new level.

Then I said that Apple should buy Facebook.

And we talked about it.

Think about that for a second: Facebook is very impressively reinventing itself as a broad communication platform, severing its ties to its “college social networking” roots, while still maintaining those roots and without pissing off that core user base.

I just got back to the office and searched for “Apple buying Facebook” and found that many people are already speculating about the potential value in such a deal. The top result was Howard Lindzon, who posed the concept last month. I am a pretty active tech investor, and I read Howard’s blog now and again for good insight and commentary.

If Apple used Facebook to evolve their .Mac strategy, the result would be phenomenal. Now put the whole thing in the mobile space where a server-based communication platform is tightly integrated with a highly-evolved mobile communication device. This would give users true “anytime, anywhere” access to their contacts, but also to their content that they would essentially be distributing via a series of overlapping personal networks. If the not-apparent-at-first-but-obvious-now synergy of Newscorp/MySpace makes sense, Apple/Facebook makes even more sense to me.

At the same time that Facebook is gathering new users outside of its core target market, so is Apple expanding its base of “new to Apple” users. When I picture the ven diagram where “college students who use Facebook” overlaps “college students who buy iPods” I picture a pretty large sweetspot. When I picture the intersection of “fast followers adopting Facebook now” and “fast followers buying iPods now who want an iPhone” I see a pretty large sweetspot. When I compare the social networking strategy of Newscorp with the apparent strategy of every other very large media company, I really start to wonder if the entire media executive collective has yet fully grasped that “social networking” is now synonymous with “media distribution.” I mean really – where do we think the audience is these days? Watching TV? Not.

We are watching the lines blur between Media and Sharing and Consuming and Communication and Devices and Services. Newscorp made a bold move with MySpace that looked expensive at first but that now looks like a bargain. Google made a bold move with YouTube that looked expensive at first but that now looks like a bargain. If someone is going to make a bold move with Facebook that is going to look like a bargain in the future, shouldn’t it be Apple? (Yes, or Yahoo, but it seems that ship has sailed. We talked a bit about Microsoft in all of this, but for them, I see a backend platform that provides access to all social networking providers that could be integrated into the Windows Mobile OS fitting their strategy far better than a branded destination. Sort of like a specific purpose Opera Mini.)

Now of course, if Facebook does fit the profile of a company that, if acquired, would look like a bargain later, then maybe they could be the one shining IPO example this year, surely rivaling Google in hype, splendor and true value. If the future value of Facebook as a communication platform is so high, wouldn’t investors sign up for that? I would. Paul Kedrosky has put Facebook on IPO Watch, and others are speculating that the platform strategy may be the road to such an event.

I dunno. For a lot of private companies, the perceived horror of Sarbanes-Oxley compliance alone is enough to favor an M&A exit over IPO. But that aside, it comes down to synergy. If I owned Facebook and Apple wanted to buy it for a fair price, I wouldn’t take a dime in cash – I would take it all in stock because I see the potential synergy between the two companies creating far more value than going it alone.

But what do I know?

If Apple IS buying Facebook, a fun time to announce it would be right around the iPhone launch.

You have probably heard by now, but if not, I am Time Magazine’s Person of the Year. According to the flattering article about me in Time Magazine, I won “for seizing the reins of the global media, for founding and framing the new digital democracy, for working for nothing and beating the pros at their own game.” As modest and unassuming as I am, at first I thought it a bit presumptuous to prepare an acceptance speech, but then again, you never know, so I threw something together last weekend just in case:

I humbly accept this great honor. It is as much my pleasure as it is my responsibility to society and the world to take my place among my historical peers. Leading next to Truman, Eisenhower and Kennedy, you will find me. When you think of blazing new trails, yes, think Lindbergh, and now also think me. MLK, Gandhi and Churchill were great men all, and I think you can tell a lot about someone by the company they keep. (Me.)

Frankly, it is an honor just to be nominated, and since I didn’t know I was nominated, winning seems all the more precious to me. I would therefore be remiss if I didn’t mention my fellow nominees and recognize their outstanding achievements, even given their relative shortcomings to being named Person Of The Year like me.

On Time Magazine’s website there was a poll asking who should be made Person Of The Year for 2006. The list included George W. Bush, Kim Jong Il, Mahmoud Ahmadinejad, Nancy Pelosi, Condoleeza Rice, Al Gore, Hugo Chavez and “The YouTube Guys.”
These are people of note: Some great, some terrible and some notorious, I can see how this list of nominees received some share of votes. But really, did they seize the reins of the global media, found and frame the new digital democracy, work for nothing and beat the pros at their own game? (Like me?) Of course not, though I don’t mean to impugn their fine work toward achieving whatever it is they have tried to achieve, I only point out that I applaud the editors of Time Magazine for carefully weighing the facts and then coming to the only reasonable conclusion: That I am Time Magazine’s Person Of The Year.

As I look back at my achievements this year, I am even amazed myself at all that I have accomplished:
- I blogged, often ramblingly.
- While I didn’t do it myself, I watched as Derrick podcasted because we share an office.
- I “timeshifted” broadcast programming so that I could enjoy it later. I call it “user-generated programming” though I didn’t coin the phrase unless you think maybe I did, in which case maybe I did.
- Through the power of something a small group of us people in the know call “Web 2.0,” I made a friend named Tom.
- I took a picture with my “camera phone” and shared it with some people. I called it “citizen journalism.”
- I made up a word and posted it on urbandictionary.com. This, I am told, gave me “street cred.”
- I sent a witty instant message to someone that was very entertaining yet ephemeral.
- I wrote an insightful review of a book on Amazon.com that garnered over 7 “this was helpful to me”s.
- I basically imploded the telecommunications industry when I Skyped someone in Europe. Boom. Done. Ovah.

It was a great year for me indeed. Thank you, Time Magazine.

The mobile space in 2007
I have been sayin’ it, and I think I may actually be correct now – the hottest story in the mobile space in 2007 is going to be User Generated Content. We have seen the tip of the iceberg and there is so much more to come. When you see it sinking into the world’s collective consciousness that media is about the upstream flow as much as it is about the downstream flow, you start to wonder from whence this upstream flow of media will come in the future.

Here’s a clue: The one device that I carry around with me all the time is a wireless two-way media communication device with a camcorder in it. (Yes, it consumes media of all sorts, and you can broadcast, multicast or even singlecast or whatever cast media to it, but really, with its upstream capability it is an intercasting device.)

Remember the Shawn Conahan’s Media Eras Infographic from October 2005?

Well, here we go into the mobile media era. Remember that the consumer activity of the mobile media era is “co-create.” (Yes, this is according to me, and the Infographic is completely unvetted and does not even exist on wikipedia yet. But it looks right, doesn’t it?)

Can what Time Magazine described as essentially an unregulated mess of low-production value content coexist with the current carrier-dominated landscape? You bet it can.

Remember the User-Generated Content Value Chain?

Certain companies, Media Networking Operators, will dominate the scene in the mobile space in 2007 by bridging the gap between the consumer behavior born on the web and the device for which it is best suited. The story isn’t going to be “What is MySpace doing in the mobile space?” That story has been written, and it went about how we expected it to go. The real story of 2007 is “What is the mobile industry doing in user-generated content?” There are hundreds of ways to capitalize on this trend, and the opportunity by no means ends with one deal with one company.

That said, as a marker that we are headed in the right direction, it was great to see MySpace launch on Cingular today. It is certainly better than their WAP product (the fault going to WAP of course, not to MySpace, there is only so much you can do with WAP) and the simple UI gets done what you want to get done in a mobile environment.

Now I expect that the carriers in general will want to rev the social networking experience in general significantly from this first step, and we should see all manner of social networking, media networking, community, sharing and mobile media applications spring to life in 2007. Good times.

I am glad that I am Time Magazine’s POTY, because now I can really start influencing what happens in the mobile space. More importantly, I am excited at the flood of fresh ideas we are about to see in user-generated content in 2007.

There are differences between men and women. For better or worse, my habits and desires are influenced by my manness. The same is true of all men. There are just certain ways that we do things.

For instance, the next time you are at a gas station, stay for awhile and watch different men and women pump gas. There is one fascinating difference. When women finish dispensing all of the gas into their car’s tank, they remove the nozzle and put it back on the pump. When men finish dispensing their gas, they shake the nozzle to make sure there aren’t a few drops left, then they put it back on the pump. Sound familiar? Men are applying their personal experience with other nozzle-like dispensing devices to a process that doesn’t require the same treatment. When it comes to pumping gas, what is a totally natural behavior for men because they are men, is totally foreign to women. Though I wonder if we put a roll of tissue next to the pump if they would wipe.

Most men will never buy makeup. Buying makeup is a distinctly woman-focused experience that would irritate and confound any man. Simply put, the majority of men go shopping because they have to, and the majority of women go shopping because they want to. There are certainly other big differences in the way men and women shop, and retailers know this and use it to their advantage. On this I think we can all agree: Buying makeup is optimized for the way women shop.

It must work very well, because it is the same at EVERY department store in the world. The makeup is arranged and presented by vendor, typically in a 10-ft. square glass counter with packaged product displayed behind the glass, sample and other interactive product displayed on top of the counter, and a single register in the center. There are anywhere from 4 to 8 people selling makeup, some behind the counter and some on the outside, often applying makeup to women sitting in chairs. This is a highly interactive sales process because the people working there are not selling makeup, they are selling beauty. Women desire significant education on this topic and appreciate the interactive sales process. It is not unusual for a makeup counter to be swarming two or three women deep on weekends, nor is it unusual for a woman to spend an hour or more on the total purchase experience. Twenty minutes or more can easily be spent between the time a purchase decision has been made and the actual payment takes place because the process is optimized for selling, but not for processing payment.

I know this because I recently was a victim of this shopping experience. Our office is across the street from the mall in which there is a Nordstrom. Yesterday at lunch I went to Nordstrom to buy lotion for my face. For as long as I can remember, before I go to sleep at night, I have washed my face with whatever soap was made available to me, then I have applied whatever form of moisturizer was made available to me. Several years ago, the cosmetics industry started marketing products to men. So my soap is now a more expensive variety that comes in a tube instead of in bar form, and I have developed an affinity for a particular type of lotion called “M Lotion” by Clinique.

Whatever. This is far from an indication of my metrosexuality: I travel often and I needed a minimum amount of personal hygiene product, and some ex-girlfriend some time ago introduced me to this product and it sort of stuck.

Here is the problem for me and all men: This product, “M Lotion,” is available at the Clinique makeup counter. Usually I buy it online and it comes in the mail. Alternately, I can sometimes get my fianceé to buy it for me whenever she is going to be at the mall. In rare cases, perhaps once every two years, I have to go and buy it myself at retail. This is a very bizarre experience because it is not optimized for a man.

Dear Clinique: Here is some advice. To effectively sell this product to me, there should be an accessible product display from which I can select my product. The product itself or the box it is in should contain sufficient information for me to make an informed purchase decision. Interactivity should be low, but a non-aggressive salesperson should be available to answer questions. The time gap between purchase decision and payment should be as short as possible, as efficiency is my ultimate measure of shopping success. Finally, it should not be merchandized at the women’s makeup counter at Nordstrom. Mixing me in with the teenage girls, milfs and perky saleswomen achieves one thing: Discomfort.

So that was my recent shopping experience. I happened to glance at my watch when I walked up to the counter. It was 27 minutes later that I was walking away with my $36 purchase of two tubes of M Lotion, mentally calculating my hourly rate derived from my salary to estimate the all-in cost of my experience and vowing never again to repeat the experience.

Here is the really interesting part. I got a “Gift With Purchase.” This is the makeup industry’s way of introducing new products to consumers to drive upsell at the next shopping experience. My Gift With Purchase contained the following:
- Rinse-Off Foaming Cleanser
- Turnaround Concentrate Visible Skin Renewer
- High Impact Mascara
- Colour Surge Bare Brilliance Lipstick
- Colour Surge Impossibly Glossy
- Clinique Signature Key Chain
- Cosmetics Bag

(None of these Gifts is remotely useful to me, though it seemed like a lot of crap to hand over on a $36 purchase.) The salesperson’s job is to hand out a Gift With Purchase as part of the purchasing process. Her job is not to visually estimate the applicability of the Gift to her customer. And so I walked away with this dainty bag of useless crap, drawing at least one awkward stare from a fellow shopper.

Yes, I ultimately got what I was looking for, but not in a way that made me happy at all. In fact, the experience made me specifically decide to avoid the experience in the future, simply because the product isn’t being merchandized in the way that it should be to optimize sales. The entire approach to merchandizing was either created by a woman or by someone who really really really understands how to optimize a shopping experience for a woman.

This made me think of the way mobile products are merchandized.

Open your phone and try to buy something.

I handed my Sprint Samsung A920 to someone on our team here and asked her to go buy a ringtone. She pressed the “Menu OK” button, which took her to the menu. She couldn’t figure out where to buy a ringtone because none of the labels mapped to her mental concept of the place where ringtones get bought. She tried “On Demand” because that seemed closest, as in “I demand a ringtone.” That’s not where it is. After a few other short explorations of menu items, she backed out entirely to the native state. The native state on all handsets are almost totally useless. This one is above average and maps the soft keys to Favorites and Contacts. Later we found out that the Favorites menu actually has a “Get New Ringers” option, but she never clicked on that because “Favorites” communicated to her that it was a collection of things she had already bought or items that she had assigned.

And so she pressed the right side on the 4-directional button. I asked why. She has a Verizon Wireless phone, and on VZW, pressing to the right takes you to Get It Now. On my Sprint phone, the directional button is called the “launch pad” and they are assignable. It apparently comes with the right button assigned to the Sprint music store. While I watched over her shoulder, she scrolled through songs, previewed and bought what she thought was a ringtone. It downloaded to the phone and we listened to it. “How do I make it my ringtone now?” she asked. “You don’t,” I said, “because that is not a ringtone. That is a song.” She went back to the main menu and tried, in order, Tools, Web and Media Player, none of which are the correct path to buy a ringtone. “I can’t figure it out,” she said.

Finally she clicked on My Content, which has a link called “Ringers,” which she scrolled right past trying to find ringtones. I asked why she skipped over Ringers and she said she thought that was the place where my existing ringtones would be since it was under “My Content.” In fact, that is where you buy ringtones.

Then I handed her my Boost phone, a Motorola i855. This handset has a hard key on it that looks like a page with text on it. This is roughly the same icon that is on her Verizon Wireless phone that takes her to their WAP portal. She clicked around on every other key in vain, including clicking the “up” button on the 4-directional pad which bizarrely takes the user to a brief glimpse of what looks like a content menu where you might buy stuff, but then takes you to a “reboost” menu. Then she finally tried that one button that invokes the very clean and clear content menu, where “ringtones” is clearly spelled out. It takes you to “tonez” where the first option is to buy new ringtones.

Then I handed her my VZW LG VX7000 and she immediately clicked on the directional pad to get to Get It Now, and on that menu the first option is “Get Tunes and Tones.” That was easy enough, but then again her personal phone is on VZW.

So I handed her my Cingular Nokia 6102. She clicked on MediaNet. That’s not it. She clicked on Games and Apps, which takes you to a menu that says “Buy Games” but not “Buy Apps.” She backed out and clicked on Cingular Mall, which made her wait for about 30 seconds. Why is that? Is it downloading the entire catalog every time? From there it was relatively simple to get to ringtones.

And that’s just ringtones. This is the most mobile-relevant data product you can buy next to voicemail, and it is merchandized way under water where consumers cannot find it.

I repeated this process, asking her to buy our product, Rabble. Similar frustration ensued.

WHY is the mobile experience merchandized in this way? WHO are the network operators selling to? Is there a category of consumer that prefers very difficult shopping experiences?

It should be said that data evolved from a voice-centric environment and that none of these devices were built with data in mind. But wait a minute – that’s bullshit. We’re past the voice/data hump. Every device that is in the market today was on the drawing board 18 months ago, and we were well into the middle of the mobile data explosion 18 months ago. So why are these devices still so incredibly difficult to use for one of their primary purposes? Why are these devices seemingly built to confound consumers and actually prevent them from buying content and other valuable services? Why are these devices still primarily voice devices when data is at least 10% of revenue and growing at most network operators?

I think the answer is simple: The entire approach to merchandizing was either created by an engineer or by someone who really really really understands how to optimize a shopping experience for an engineer. Failing that, I can say with confidence that the entire approach to merchandizing mobile content was NOT created by a person who understands consumer shopping habits.

Here’s what probably happened: Every carrier has a handset czar whose job it is to buy handsets with the greatest feature set at the lowest cost. The handset manufacturers try to differentiate their products while still meeting minimum functionality requirements by innovating in the areas of:
industrial design (Nokia: “let’s not put a ‘back’ button on the phone”)
UI (Motorola: “let’s make the thinnest phone with the most counter-intuitive UI”)
Media formats (All OEMs: “look – we created another proprietary sound codec”)

…and the list goes on, bringing positive innovation in some areas and negative innovation in others.

Then the network operator further differentiates the product by integrating their custom experience, like Boost’s menu button or Helio’s coolio circle menu interface. Sometimes they go so far as to offer their own custom-built UI, which is sometimes better than the OEM’s and sometimes not. The operators further integrate their data experience, which invariably is powered by a different vendor and therefore invariably offers a completely different experience to subscribers across the board. Note that I didn’t say a “better experience,” because no consumer thinks that their mobile phone is exceedingly easy to use. The net result is that when a carrier adds a new subscriber, they force the new customer to learn an entirely new UI, nomenclature and set of conventions, essentially starting out with a negative experience. (Not to mention high CSR cost: “How the hell do I access my voicemail??”)

The limitations of the carriers’ vendors’ mobile data solution generally leads to a confusing experience for customers because 1) not all content fits into the predefined categories and 2) the shopping experience is so convoluted that a customer cannot easily find anything compelling to buy anyway, and the only semblance of assistance in this regard is a category called “What’s Hot,” which is the most tenuous example we have today of true mobile merchandizing.

On top of it, because the mobile data experience is inherently separate from the device experience and in fact built on top of it rather than being integrated into it, the user is presented with a dichotomous experience that is really two worlds in their pocket: The native handset world and the wild and wacky online world, and nary the twain shall meet.

The result of such an approach are examples like the LG F9100 that had a beautiful slider design with a full keyboard that couldn’t be used with a downloaded messaging application like Mobile IM. Really? So wtf do I need the keyboard for? RETURN. And now Cingular doesn’t carry that device anymore. Who’s to blame? I dunno, but don’t get mad about your customer service expense when you are pushing picture sharing applications that cannot access the camera on the phone.

What I do know is that this all comes down to merchandizing and nobody does it well. BUT THEY COULD. Where’s my Gift With Purchase? When I buy JAMDAT Bowling, give me a free month of Bejeweled, too. Cross-promote, cross-sell, merchandize and manage the shopping experience.

T-Mobile 5
Last week, T-Mobile launched their “5” product in two test markets. One is San Diego, because I saw it in the T-Mobile store across the street, and the other is Portland. This is the first real innovation I have seen in the mobile space in a long time. Like Alltel Circle, T-Mobile’s 5 allows users to identify a small number of people to which they have unlimited calling, regardless of network. Pretty cool, but Alltel Circle requires you to set it up on the web.

T-Mobile 5 has a slick and simple interface right on the handset. On your active desktop, you have icons representing your 5 friends. You can even replace the icons with little pictures of their faces. You scroll to the person you want to call and click call. Or send an sms. It’s like your PIM is an iceberg and the tip of it, your five friends, sticks up out of the water and onto the native state of your handset, putting this most-used feature right at your fingertips.

This is massively innovative because it is actually merchandizing communication. Rather than the functional approach found on every handset on every carrier around the world that silos communication into functional verticals called “voice” and “sms” and “mms” and “IM,” T-Mobile is taking a consumer-centric approach that combines an active UI that is easy and fun to use with the core communication functionality of the handset. Simple innovations in the future would include data integration, so you could communicate in whatever way you choose with your defined 5 at the tip of your iceberg.

So how hard would it be to introduce other active-desktop communication-based applications? Not very. In fact, why the hell hasn’t this happened already in a big way? The network operators are in the business of providing communication, after all. Making it easier to communicate and effectively merchandizing this functionality to subscribers should be the number one goal of any carrier.

Simply put, as an industry we now run the risk of finding ourselves selling makeup to men: The consumer mobile communication experience is not being properly merchandized. As new forms of communication evolve on the internet, these must be brought to the mobile consumer in a carrier-friendly but mobile-relevant context and presented to users in a way that they can adopt them without suffering through the pain of finding the “buy” button on their phones. The good news is that the innovation is starting to accelerate. The next big opportunity in the mobile space is communication applications. This means applications tightly integrated with the core handset functionality. The last mile to making it all truly valuable is effective mobile merchandizing.

Has the FCC ever overstepped its authority? Four TV networks think so, according to this article in the LA Times.

Here is an excerpt:
“’The FCC overstepped its authority in an attempt to regulate content protected by the 1st Amendment, acted arbitrarily and failed to provide broadcasters with a clear and consistent standard for determining what content the government intends to penalize,’ the statement said.”

If a broadcaster is going to risk a fine from the FCC for indecency, it seems reasonable that a clear definition of “indecency” would be the minimum that they should require the FCC to provide. Apparently, there is some question as to whether the FCC is totally clear on this point.

Regardless of where you stand on the issue of indecency or how you define it, you should at least be in favor of defending the 1st amendment, which, in James Madison’s 45 words, is a framework for personal freedom and the cornerstone of our definition of a free society.

I believe that it is the duty of such a free society, if it is to call itself free, to test and verify the boundaries of its government’s authority over society as defined by the rules by which we all agree to be governed.

As it relates to the wireless industry, my opinion is that we look more like the cable industry. Network operators in this country are operating subscriber-based private networks, not public airwaves, and this should delimit the authority of the FCC in this area. I therefore favor self-regulation in this area.

And so I was just reading with interest the Cingular Wireless Parental Control Guidelines, generally based on the CTIA standards, which they sent to all their developers and partners. I think this is good, and I am happy to see the CTIA and individual carriers like Cingular proactively address the issue of indecency so that parents can make informed decisions about the content to which they decide to expose their children.

But there is a trickle-down effect that concerns me: If there is the least bit of ambiguity in how the FCC defines “indecency” at the top of the pyramid, a great many entities at the middle and bottom of the pyramid will be greatly impacted. Further, I question the ability of the FCC to legislate decency when the very notion of it has wide margins of grey at its edges. To illustrate:

Do you know what “skeet” means?

The American Heritage Dictionary of English Language 4th Edition says it is a noun: “A form of trapshooting in which clay targets are thrown from traps to simulate birds in flight and are shot at from different stations.”

www.urbandictionary.com has a very different definition popularized by urban culture. So is this a “bad” word?

Apparently context makes all the difference. “Skeet” isn’t on any of the restricted word lists that I have seen.

There are other instances where context makes the difference between an acceptable use of a word and Tipper Gore putting a sticker on it:

You can “Prick your finger,” but not the other way around. You can also put your finger in a dike, or cock your gun.

Even adding a non-offensive word to a non-offensive sentence can be problematic:

If you say “Dick Cheney shot my face,” that’s ok.
If you say “Dick Cheney shot on my face,” that’s not ok. (Unless you’re into that sort of thing.)

None of the words in these sentences are offensive and the preceding sentence would make it through any automated filtering mechanism. Typically a “stop word” list will contain the George Carlin dirty words that we all know plus a good number of (sometimes humorous) derivitives. That is all fine and good.

But how do you apply a universal rule of decency to all content and implement controls to ensure adherence to the rule?

Let me say now that I am personally in favor of parental controls. As a media populist, I believe that all content should be readily available to anyone who wants to consume it. Adding clearly presented information about the nature of the content so that the consumer can decide whether he or she wants to consume it is a fine way to inform consumers to help them make decisions.

I believe every parent should have the ability to express their parenting preferences through the choices they make regarding the media that their children consume. Some parents may feel confident that their children are mature enough to make appropriate choices on their own. Others may feel that a more active role in what their children consume is more appropriate. In any case, the key is information. Parents can benefit from standardized information about content because it means the most paranoid among us do not have to see every movie, listen to every song and watch every TV show before our children do in order to determine whether they can watch it or not based on our own “parental sense” of what is acceptable.

If all content can be put into buckets and a user can filter access to a particular bucket of content (say, R-rated content) by setting a preference on the TV, radio, computer or their mobile phone, then 99% of the cases of offensive content will be addressed.

Here is a big problem:
There is no uniformly standardized information about content.

Let us take, for example, one of my favorite subjects of ratings history: A Clockwork Orange.

Did you know that the ground-breaking 1971 Stanley Kubrick film A Clockwork Orange was rated X?

X?? Isn’t that rating reserved for hardcore porn? Sort of. The rating “X” essentially got co-opted by the adult film industry and became synonymous with that genre. It was not a rating copyrighted by the MPAA, and so the MPAA later created the copyrighted “NC-17” rating to replace it.

A Clockwork Orange, nominated for an Academy Award for Best Picture, was rated X.
Compare to Beach Blanket Bingo. (Which I have never seen.) Do these films belong in the same rating category? Some might argue yes, some no. Mine is not to argue either way, but just to question whether the categories in any rating system are descriptive enough. Let’s examine…

The current MPAA rating system maintains the following copyrighted ratings:
G
PG
PG-13
R
NC-17

Interestingly, A Clockwork Orange has also been rated C, O and R. The United States Catholic Conference’s Office for Film and Broadcasting maintained a rating system at the time that included a “C” rating, for “Condemned,” as in “no Catholic may see this.” The “C” rating was later dropped and replaced after 1982 with the “O” rating for “Morally Objectionable.” Kubrick cut 30 seconds from the film to receive an “R” rating from the MPAA in 1973.

The United States Catholic Conference’s Office for Film and Broadcasting maintains the following ratings:
A-I
A-II
A-III
L
O

Some other churches have rating systems of their own, but I didn’t take the time to search for them.

If there were a game based on A Clockwork Orange, it would likely receive an ESRB rating of “AO” meaning “Adults Only” for “prolonged scenes of intense violence and/or graphic sexual content and nudity.” (Not to mention Blood and Gore, Intense Violence, Strong Language, Strong Sexual Content and Use of Drugs, if that’s what they were selling at the Korova Milk Bar.)

The ESRB currently maintains the following ratings:
EC
E
E10+
T
M
AO
RP

If A Clockwork Orange were a coin-operated video game, it would contain a parental advisory on a red sticker, because all coin operated video games now have Parental Advisory Disclosure Messages on a sticker in the following colors, apparently indicating the level of alarm a parent should feel:
Red
Yellow
Green

If they showed A Clockwork Orange on television, it would likely receive the rating of TV-MA, for Mature Audiences only. Here are the copyrighted television ratings:

TV-Y
TV-Y7-FV
TV-G
TV-PG
TV-14
TV-MA

(Since 2000, all televisions of 13” screens or larger contain a V-Chip that enables viewers to filter content based on these ratings.)

The soundtrack to A Clockwork Orange would not receive a Parental Advisory sticker on it, but the RIAA maintains its own rating system indicating whether song lyrics are “Explicit” or not.

I like the CTIA’s simple approach
The CTIA’s content rating system is easy to understand:
Cellular Accessible
Cellular Restricted

On top of this, individual carriers will probably promote their own marketing-ready interpretations of these guidelines. Cingular is very proactive in this area. It looks like Cingular may go with “Cingular Safe,” which is their working name at this point. I personally like it, as I think it sends the right message to parents. They want to know if content is “Safe” for their children or not.

The CTIA guidelines essentially put all repurposed content that already has a rating into each of the two buckets. So, PG content would go into the “Accessible” bucket, and R content would go into the “Restricted” bucket. This is simple and effective. Good. Good good good for all content that already exists, has already been rated elsewhere and only needs to be mapped to the additional rating system. But what about all the content that gets created and distributed via mobile devices every minute of every day?

Here, finally, is my point:
How do we effectively implement a rating system on communication?

Mobile “communication” is no longer defined simply as a station-to-station voice call. Communication in general is now comprised of text, photos, audio and video, and it is not limited to interaction between two people. You can take a picture with your camera phone and post it on your blog for a million people to see.

And what about the example of A Clockwork Orange mobisodes? There are clips of that movie that are completely inoffensive. Should every 1-minute slice of that movie, if that is how it is going to be distributed in the mobile connected future, be given the same rating? Who is going to watch every movie, minute by minute and assign a rating for each piece of content?

Of course there are review tools that can be deployed, and we built such a tool for Rabble. This picture with the caption “Man with big cock” showed up in our content monitoring tool recently because we flag the word “cock” with no relevance given to context.

(It’s ok to click – it’s not what you are thinking.)

An automated tool is only so effective because it cannot determine context. So we add human review to enforce our content policies. So far it works very well. But is this the right way to handle the regulation of all user-generated content in the future?

There is no way a centralized reviewing entity can effectively address all user-generated content in the world because content production is distributed. By comparison, it is easy to administer ratings for whole movies for traditional distribution – they only have to look at maybe 1000 pieces of content per year. Most blogging and social networking sites generate that much content in one minute.

There is a massive vacuum for an effective rating system for user-generated content. The answer is a distributed rating mechanism. I know of one company that has a very elegant solution about to be rolled out: User-generated ratings. You self-rate your content. If you lie about the rating, your standing as a good citizen gets affected negatively. The community, along with objective moderators, determine rating validity by voting on it. The majority rules. Prolific and truthful raters elevate their standing. Then every consumer of content has filtering tools that allow them only to see the level of content to which they want to be exposed. This can happen on the individual content level, the channel level, user level or categorically. The rating system contains buckets that map similarly enough to the MPAA or ESRB that it is easy for all to understand.

Our next platform release has a ratings widget for just such a purpose. It can be repurposed and/or combined for a variety of uses. At one end of the spectrum, there is the frivolous but fun “hot or not” type of rating. At the other end is content filtering that can then map to a rating standard for content filtering.

I know it seems simple, and I know some companies like Amazon.com and eBay have been doing a version of community-based rating and review for years in different contexts, but in the user-generated content space, we are about to see an explosion of activity in this area.

The FCC performs a valuable function by establishing a generally acceptable standard of decency. While the FCC can also make some guesses as to the specific definitions of decency at the blurry edges of content and communication, proactive companies will likely help the effort along by evolving content standards and practices along with the changing production and distribution mechanisms. Look for this to be one of the hottest topics in this space through the rest of the year.

This is a product I would like to develop but do not have the time, so someone please beat me to it. I think some media-focused mobile content company like InfoSpace should create the following product:

Personalized keypad tones.

Witness this old skool mobility: When Gordon Gekko punched in Bud Fox’s number on his Motorola DynaTac 8000x all he heard was DTMF tones. That picture of Gekko rolls me. It seemed so hi-tech at the time, didn’t it?

What is the value of DTMF to a user’s ear? Zero. Yet many handsets still make DTMF tones when the keys are pressed. I don’t mean in the earphone, but in the external speaker. Seriously – why the hell do I have to hear that?

Do you remember playing Baa Baa Blacksheep or Mary Had a Little Lamb on your phone by pressing the keys? How sad does that seem now? What a comparatively pathetic form of entertainment that was. Here is a nifty site I found if you want to play some songs on your handset, as lame as that is.

I think this is an interesting personalization opportunity. It would take a celebrity 5 minutes to record their voice saying, “One” then “Two” etc. and maybe for other keys like the Go button, it could vary by celebrity. It would be enough for most people just to say, “Go” but other stronger personalities like Snoop Dogg (he is the Doggfather after all) could say something like “Yeahhh” or “Go maf*cka.” This could be a standalone product or a feature of a phone personalization product that includes a ringtone, wallpaper, ringback, etc. And now that I think about it, the personalization wouldn’t even have to be mapped to the keypad numbers themselves (like “one, two, three” etc.) because that wouldn’t even really add value. It would just have to be entertaining.

I would personally never tire of my phone if everytime I punched in a number I heard a bunch of funny shit from Samuel L. Jackson. Click around on the Samuel L. Jackson Soundboard and picture it replacing the keypad tones on your phone instead.

I also don’t think it would get annoying because most of the calls I make I place from my address book and don’t really use the keypad that much. The rare times that I would have to actually use my keypad would make the presently cumbersome act of dialing a number more fun.

So what would have to happen? Well, we know the handset makers can make the keypad tones sound like whatever they want – it doesn’t have to be DTMF. Some just make standard beeps. At a minimum, a handset maker would have to expose access to whatever very small piece of code controls the keypad tones. This would probably be trivial, but I don’t know. Then someone just has to create a package that contains the media and a bit of instruction that tells the control function on the handset how they map to the keypad. This gets sent to the phone like a ringtone or wallpaper and the user saves it and executes it the same way they personalize other parts of their handset.

What’s wrong with this? Seems like a pretty cool product. I wonder if someone has already hacked a handset to change their keypad tones. Maybe it’s not as interesting as ringtones, but then again ringtones weren’t as interesting as ringtones at one point, either.

This would be a good way for a handset manufacturer to differentiate itself, as well. LG or Kyocera or whatever could partner with InfoSpace to roll out the product, leveraging their content licensing expertise.

Anyway - just a thought. I think there are still interesting opportunities for device personalization and this one seems fairly simple to implement.

Making money in mobile media is like mining for gold
To put it simply, the winning business model of the gold rush was not mining for gold. The phrases commonly used during the gold rush were “I struck gold!” or “I struck it rich!” or “Eureka!” When one found gold, one did not say, “We effectively executed on our carefully crafted business plan and exceeded even our own expectations of our well-defined methodology.” No, these people were all surprised when they found gold.

This is what I call a hit-driven business, and I see similarities in the mobile media space. Content is the gold in this case, and a good many companies are betting that they will make money in this way. Of course, when it pans out, (har har) only around 20% of the prospectors will make anything in this way, and over time they will represent 80% of the value exploited.

When James Marshall first discovered gold on January 24th in 1848 while employed by John Sutter, the gold was just lying around. It literally sparkled in the water of the American River. There was so much of it and so few people able to pick it up that even when word got out that there was gold around what is now known as Sacramento, the first prospectors to make it to the area in late 1848-1849 (“the ‘49ers”) got rich just by wading into the water and picking the stuff up.

1849 was an interesting year. San Francisco’s population grew from about 800 in 1848 to over 50,000 in 1849. That’s what I call hockey stick growth of a market. Still, growth has its casualties: According to Steve Wiegard of the Sacramento Bee, “one in every five miners who came to California in 1849 was dead within six months.” This is further evidence that the hit-driven part of the gold rush offered little guarantee of success. (Similarly, hundreds of mobile application developers have tried and failed already.) But still they came, which further grew the market in California. This meant opportunity for the people who made money around the content, whether the prospectors were striking gold or not.

This is what is most interesting to me about the gold rush: Think about all the streets in San Francisco that are named after people from that era. Fremont, Sutter, Marshall, Ghirardelli Square. None of them made money from Gold. Sutter was already rich, and really just wanted to build a vast agricultural empire. His participation in the gold rush was purely accidental.

Domenico Ghirardelli tried and failed at mining and instead made a small fortune (and a lasting legacy) in chocolate, one of the standout luxury goods at the time for a market that was not only growing but also growing in wealth. It was the size of the market of consumers that made him successful.

In 1852, Henry Wells and William Fargo recognized the need for a trusted banking and logistics operation to support the creation of wealth and cart it around the country (by stagecoach.) As transactions increased, so did the need for a trusted source to act as a clearinghouse, and so did their value. It was the size of the market of consumers that made them successful. Chase and Sterling at QPass are the Henry and William of the mobile media gold rush. They provide a crucial billing service that benefits both buyers and sellers, and they are not making their fortune by mining for gold.

Jacob Davis and Levi Strauss didn’t apply for their patent for their famous garments until 1873, which was well after the first wave of prospectors in California, but they still made a fortune on a maturing market for gold mining. Whether they struck gold or not, miners needed sturdy pants to wear, with lots of pockets in which to put their various prospecting implements. One could easily argue that Levi Strauss was the biggest winner of the gold rush, without ever touching a shovel to soil.

My favorite characters from the gold rush
Sam Brannan was my number one hero from the gold rush. Since there was no defensibly repeatable model for mining for gold that would yield results every time, (which, by definition, would require knowing exactly where to mine for gold) the business model of the gold rush was not mining for gold. The earliest business model of the gold rush was selling picks and shovels. No matter where they were digging or whether they struck gold or not, the miners had to use picks and shovels, and selling such implements represented a defensibly repeatable business model that didn’t require any favorable treatment from the gods in order to make money. Sam Brannan understood this better than anyone.

Upon hearing about Marshall’s discovery of gold, Sam Brannan literally ran through the streets of San Francisco shouting that gold had been discovered near Sutter’s Mill. He did this while waving a bottle of gold dust in people’s faces as proof. History refers to this stunt by Sam Brannan as the spark that ignited the explosion of gold fever that started the gold rush. Everyone that was convinced by Sam to go prospecting for gold first had to buy a pick, a shovel and maybe a pan. Brannan understood well the laws of supply and demand. By evangelizing the gold rush, he created tremendous demand for the tools to get at the gold, and a few days earlier he had purchased every pick axe, shovel and pan in the region. A metal pan that sold for twenty cents a few days earlier now had to be bought from Brannan for fifteen dollars. In just nine weeks he made thirty-six thousand dollars.

My second favorite character from the gold rush was George W. Hearst. He represented the opposite approach to Brannan’s. He believed in getting as close as possible to creating perfect information in a hit-driven business in order to ensure success. A mine that had produced some gold might produce more. It’s hard to tell what the future holds when mining for gold, which makes it a risky endeavor. One way to stack the deck is to buy as much land as possible that has already proven to have some gold in it, and then keep digging until you find more. He bought the claims of various individuals and consolidated them all to form a large mining organization with superior economies of scale. Hearst eventually owned interests in the most important claims in the U.S., including the Comstock in Nevada, the Homestake in South Dakota, the Anaconda copper mine in Montana and the Ontario silver mine in Utah.

In a hit-driven business, increasing your chances of having a greater share of the hits by creating more inventory is a good way to win, as Hearst clearly demonstrated.

So step back for a minute and compare the gold rush to the mobile media industry. Think of the gold as content, the picks and shovels as distribution, and the massive number of people energized around a common topic (gold) as the market of consumers all energized around a common platform (mobile phones.)

What does the opportunity in mobile media look like now? Who’s winning? Who’s moving in the right direction? Where does it end up?

The current state of mobile media
When I was at Moviso, we had the discussion about picks and shovels often. I wanted to be the leading supplier of picks and shovels in the mobile media space. I had no idea what was going to be the best-selling ringtone, graphic or game, and I didn’t care. Content popularity is very fashion-driven, often confounding the best laid plans of highly-paid marketing executives. The market of consumers ultimately decides what is cool or not, so just let them decide. Is that crazy frog shit going to last any longer than our fascination with the macarena did? No. If Jamba announces a “Super Crazy Frog 2″ I will know to short VRSN.

So at Moviso we built a platform and tried to establish deep integration with carriers to be the storefront where the content got purchased. This is a much more capital-efficient model in my mind than trying to be a branded destination or a producer of content, and it worked. Our two most important clients were Cingular and T-Mobile, and these are the relationships that continue to be the most important clients to InfoSpace today.

We were focused on providing white-label services to carrier-branded portals so while I really would have liked to, there was no way we could also provide branded media services to consumers because we would be competing with our own white-label business.

In essence, I got our business model wrong. We weren’t selling picks and shovels to the carriers. If that were true, they wouldn’t have minded if we used the picks and shovels ourselves to find a little gold on the side. Rather, we were hired hands mining on the land that they owned and keeping a percentage of the gold we found because we had provided the labor and the picks and shovels. This is a hybrid model, and it is important to point out because it hints at the future of mobile media.

The opportunity in mobile media right now is not unlike the gold rush. There is a rapidly expanding market. The people who showed up early and found the gold just lying around have long since taken their profits and gone. Now the next wave belongs to those who are willing to spend the money to dig the mines deep into the ground to get at the rich veins of gold that are there, and they are doing it now. How they do it from this moment will determine who wins in the end.

You have probably never heard of Sam Brannan. You have also probably never heard of George Hearst. (Though you have heard of his son, William Randolph Hearst.) What does that mean? Well, usually, history is told by the winners. I have personally invested in Homestake Mining in the past, but I cannot think of any company having to do with Sam Brannan that I ever could have invested in. I think this is significant with respect to the mobile media space, and I can speculate on where the presumed players are moving and who I think the winners are in the future.

InfoSpace, Openwave and Comverse: Picks and Shovels
I received several emails regarding the InfoSpace/Cingular MEdia Net announcement asking how I viewed it. I view it favorably. It is the kind of picks and shovels business that I love to see because it is media agnostic and grows transactionally without having to guess at what is going to sell well.

That said, take a look at who owns what among big media companies today.

Click around and you’ll see that the big media companies own many links on the value chain, most importantly including content production, content distribution and content promotion. I would like to own the movie studio, the movie distribution company, the billboards on which to promote my movies, the television stations on which to advertise my movies, the movie theaters in which to show my movies and the web sites on which to virally promote my movies. Then I would provision my movies in a series of release windows starting with film, then moving to DVD, then to Pay-per-view, then to cable, then to broadcast TV. I’d even find a way to distribute right into the pockets of consumers on their mobile phones. In short, I’d own the whole value chain if I could. If you look around you’ll see how many media “megacorps” are called megacorps because they own that many links on the value chain.

Now look at the mobile media companies of any size. They haven’t gotten there yet. I want to see InfoSpace and Openwave, clear leaders in the picks and shovels business, place a few bets in the mining for gold business. I am talking about moving downstream to branded B2C products that may produce some hits. That is all. These companies have great businesses poised for growth as the market grows, but if they are going to reinvest their profits, it should be on some higher-risk consumer-branded gold mining expeditions because they have such leverage to do so.

JAMDAT: Mining for gold
These guys are the inverse of InfoSpace. JAMDAT’s revenue is hit-driven: Branded apps like Tetris, Bowling, Bejewelled and others represent a large percentage of revenue. Mitch and Scott are great guys, btw. I remember one call we had a while back right before Verizon Wireless was putting out a press release naming the top ten applications on their Get It Now service and JAMDAT had eight of the top ten spots. We all had a chuckle at their obvious domination. The details are hazy, but I think the top spot went to Carolynn’s ModTones. Our ringtone application, Ringster, came in around 8th, I think, and the rest of the list was comprised of various JAMDAT games. Great for them, but this was a time when there were virtually zero mobile gaming application providers who mattered.

When you are the only guy mining for gold, it all belongs to you. The next miner has the potential to cut your revenue in half or even more. From there, it’s all out war to defend your position. So, while I would like to see InfoSpace and Openwave swim downstream to consumer-branded applications, the opposite is true for JAMDAT - I want to see them move upstream to become more of a picks and shovels player in their space. So why not develop and patent the mobile-media 3D engine that they license to every game developer? Or how about the massively multiplayer mobile gaming platform that they give to carriers to give them a single, controllable point of contact to consolidate all of the gaming publishers that want to provision their applications? In short, isn’t networked multi-player league-based JAMDAT Bowling complete with integrated wagering the wave of the future in mobile gaming? How many other verticals could you think of that make similar sense? So why not build the platform that enables every similar application and operate the marketplace for all league-based sports games with a unified UI, empowering not only your own branded applications but also inviting players of others applications to compete with your players via your platform? Is the future of gaming really about shelf space and trying to predict stand-alone hits or is it more about being the conduit through which all games are transformed to be most relevant in the mobile space? And, btw, looking at gaming as just another form of communication is a good place to start.

When the value is shifting across various links on the value chain, isn’t it best to own as much of the value chain as possible? I want to see the companies selling picks and shovels make some bets on some gold mines, and I want to see the guys mining for gold recognize that with the money they already made they could buy some land and make a percentage off of the guys who want to mine for gold on their land.

The earliest and largest players in the mobile media space have the potential to stay on top if they recognize where to reinvest in complementary business models.

The mobile media future
In this post, I have been applying the traditional media model of content production and distribution. But in the mobile media space, the most likely winners are those who realize that the future of media looks more like communication than content. Analogs to MySpace, Cyworld and NeoPets are more likely to generate usage and massive profits than console games crammed onto mobile phones or 2-minute mobisodes of the hit TV show 24 (the UK mobile version of which was recently cancelled due to low subscribership.)

What do you think? Is the LMNO more or less viable in the future of a location-based communication-centric world? Will mobile dating, citizen journalism, mobile blogging, mobile social networking and mobile participative media make more or less money than ringtones, games and mobisodic versions of whatever the reality show du jour is in the near future? Are we on the verge of a 2.0 revolution in the mobile media space, sending the lucky early prospectors home with small fortunes but reserving the big payoff for the Hearsts of our industry? Is JAMDAT the company most like the original stake holders that sold their claims to some larger, better-financed player in it for the long haul? Contrary to the speculation, I think they have the potential to be the Homestake Mining of the mobile media space.

What Sam Brannan should have done
Rather than sell the picks and shovels and pans, Brannan should have given them away and in return accepted a small percentage of the gold that the miners found using his tools. Wild West legal issues aside, he would have made a lot more money.
This is the value of user-generated content in the mobile space (or content as communication) because it is the best hybrid of both gold rush business models. You provide the picks and shovels for users and take a percentage. The difference is that your tools don’t just enable people to find gold – it enables them to make it, too. Those are some special tools, and it requires rethinking what a pick or shovel looks like. The gold is just as valuable, too, when you consider how much more valuable communication is than content on its own.

Anyway, I am clearly biased on this last point, so feel free to ignore. But if I am right about how these business models are converging, there really is a sweet spot that grows both sides of the value chain from the middle and not either end. We shall see. One thing is for sure: The word is out, the market is huge, and prospectors are coming to mine for gold.

Today was one of those days where all my meetings went right. I moved the ball forward and on top of it, the universe sent a subtle sign of its intention to align various planets in some form or another in the media future.

I was at a Westin hotel somewhere in the middle of the country and I opened my door to see the USA Today. It’s always there, and I always step on it on my way out unless I see the cleaning people in the hallway – then I feel bad for some reason like I am shunning this little gift from the hotel and I pick it up and throw it into my room on the way out hoping it lands on the bed. Today, though, I looked down and on the front page above the fold was the headline: Future of TV on pause? Companies find better picture, more channels a hard sell.

Now this caught my eye, because that’s a theme I often parrot myself. What good are 500 channels if nothing is on? So I picked up the paper to read on the plane later.

On the front page of the Money section of USA Today are these three headlines:
Cable’s final frontier: People who want less
Tailored, ad-free TV gains ground
File-sharing Grokster plans to go legit

USA Today tapped three veins that lead to the heart of the future of media.

1) People don’t want higher quality or more channels at a higher price. I have a 60-inch plasma TV. It does not look better than the Trinitron I had before. But even when it’s off it looks cool, and I like the flat panel display. HD on my plasma draws attention to my TV’s lack of resolution, and doesn’t improve the experience of watching TV. Nor does the availability of the 10th Cinemax channel make me want to part with an additional $10/month to get it.

TiVo improves the TV experience. User-generated programming is truly useful. I happily pay for that. In the article, Gene Kimmelman from Consumers Union says, “Companies are pushing bigger packages, promoting digital, and not offering what consumers want most: fewer channels at a lower price.” Then, among other salient points, it talks about how the soon-to-launch U.S. Digital Television is betting on giving consumers fewer channels for less. They are backed by Fox, Hearst-Argyle and McGraw-Hill. Smart.

Allow me to further observe that when it comes to mass media, “more and of higher quality” isn’t driving the market. What’s the big media story of the last two years? Blogs. Simple verticalized text-based unvetted thoughts from largely non-professional writers that capture a smaller but highly targeted audience. A medium with a better cost-to-reach ratio there is not. Lower-quality does not mean uninteresting to the masses. There are more people sending an SMS at this moment than there are watching digital cable television.

2) People will pay for, and media companies will support, user-generated programming. Check the first sentence of the second headline: “CBS and NBC delivered another hammer blow to the traditional TV economic model on Monday by agreeing to let some Comcast and DirecTV customers pay 99 cents to watch certain hit shows on demand and ad-free.”

That’s right. It’s not that I have 500 channels and nothing is on, rather, I have 500 channels and nothing is on when I want to watch it. I will pay for control. This is why people still actually go to Blockbuster to get what they want when they want it.

This is an important development to the future of media. I wonder how that TiVo/EchoStar lawsuit is going to play out. Seems more important now.

And, it’s 99 cents for a whole hour-long show to your TV. How does that jive with the “3 bucks for a 2-minute mobisode to your cell phone” pitch?

Well, that’s a matter of distribution cost, right? This sounds like an expensive proposition to me: “We’ll use satellites that orbit the earth to beam TV to people who will buy satellite dishes.” I love when the audacity of capitalism proves out. Does the satellite thing sound more expensive than “We’ll put up a bunch of radio transceivers on telephone poles so people can talk to each other”? The latter lacks a certain je ne sais quoi in terms of its appeal as a business, as do most companies that have in their business plan the word “radio.” It sounds so turn-of-the-century. (The one before this one.) It’s just not sexy like “satellite.” Radios are in New Hampshire. Satellites are in space.

99 cents for an hour of on-demand television, yet today people regularly pay 50 cents to send a still picture to one other person with their cell phone. Does this in any way hint at the massive value of the mobile space? I think it is due to its origins as a communication medium and not an entertainment medium. I think people on the whole are more interested in communicating their thoughts and ideas than they are in simply receiving a story. The exciting part is that those two worlds are colliding. The lines are blurring between content produced by Hollywood and content produced by ordinary people like you and me. In theatrical terms, what we are seeing is a shift from viewing the narrative (TV) to helping with the set design (TiVo) to participating in the narrative (Blogging) to virally sharing in the creation and dissemination of the content itself. (Social networking) Which brings me to…

3) Media companies will devote massive resources to the pursuit of killing the illegal distribution of their content, which may be a good thing
Grokster gives up, and is planning to become a legal download site. Now, nevermind for a moment that it is generally understood that this “win” by the RIAA will not stomp out file swapping on the internet. To play devil’s advocate, if you could distribute content on the net the same way as Grokster, and some would be free and promotional or whatever and the only way you could get some other content was to pay 99 cents for a full-length redbook song that didn’t come with any experience-killing inane DRM crap wrapped around it and all you had to do was click a button and it debited some account that you only see later, would you be cool with that? I would. If it were simple and didn’t make me feel like a criminal, yeah, sure. iTunes is not that, btw.

There are two possibilites that may come from the RIAA suing 12-year-old girls and shutting down piracy sites. On one hand, it is getting annoyingly tiresome and maybe people won’t mind if the party winds down a bit. I feel like there is a giant collective sigh about to be let out: “OKAY, already, you wore us down. We’ll pay a buck for your Clay Aikens art.” On the other hand, it may invigorate millions of lesser-known artists to create and market their music through other channels like MySpace, Xanga and Rabble, effectively diminishing the power of the central media distribution model and mobilizing the masses at the edge of the network who will form their own distribution channels. (That’s what I’m thinking.)

So stand back and look at all of these headlines as a whole and you’ll see the dots connecting to form a sketchy outline of the media future: A trend toward lower production value, increased consumer choice, user-generated programming, mass-market pricing for on-demand media and a move toward monetizing the distribution of content via overlapping personal networks. To me, Newscorp’s acquisition of MySpace is looking shrewder every day.

One of my many mobile service providers is Cingular Wireless. I am extremely loyal to this company - I have had this account the longest, since it was Pacific Bell, in fact. I have always been happy with their coverage, their rate plans are generally fair, and their service is top-notch. I went to the website today to buy a new handset, but I had some questions about accessories and my plan so I thought I would call them up instead. Like every business, they have an Interactive Voice Response (IVR) system. Here is what I got when I called. (The bold items are my selections.)

Thank you for calling Cingular Wireless. Por informacion en espanol, oprima el asterisco.

If you are calling about number ###-###-####, press 1

To pay your bill or get other bill related options, press 1
Check minutes press 2
For help with voicemail press 3
To report a lost or stolen phone press 4
For an item not covered in this menu or to speak with a customer service representative press 0

So we can quickly transfer you to the person who can best help you please listen to the follow menu:
If you are having problems with your existing phone press 1
For sales, accessories or to purchase another line press 2
For text messaging or mobile internet press 3
For information on closing your account press 4

Please hold while your call is being transferred.

To purchase new service press 1
If you purchased in the last 30 days and need help press 2
For assistance with your current account press 3

Please wait while we transfer your call. This call may be monitored for quality assurance.

Thank you for calling Cingular Wireless. Por informacion en espanol, oprima el asterisco.

I was back at the beginning! I actually went through it again before realizing I was stuck in some sort of IVR temporal loop like in episode 118 of Star Trek: The Next Generation. (Star Trek co-stars like Kelsey Grammer so strain suspension of disbelief that such episodes are instant classics.)

1-0-2-3, 1-0-2-3, 1-0-2-3…like in that Star Trek episode, it would have gone on forever had I not changed that last number. 1-0-2-1 gets you to a salesperson, and he was quite helpful. I also let him know about the IVR loop, and he said he’d let someone know to fix it.

It’s an honest mistake. Programming an IVR deeper than even one submenu requires careful planning and a very large whiteboard. I am sure Cingular isn’t the only company with a minor programming error creating déjà vu (nIb’poH to Klingons) for their callers.

But think about the impact. What if 1-0-2-1, their inbound sales channel, instead resulted in the endless loop and they were essentially shunning their lowest-cost, pre-qualified sales leads? Anyway, this experience just reminded me that I’ve been meaning to talk about how Voice has to change and how important I think the changed version of it will be to the future of media.

To the LMNO, voice interfaces are inherently broken
Worse with all IVRs is that they require the caller to employ an inductive logic Criterion of Adequacy at every submenu. (CoA: As evidence accumulates, the degree to which the collection of true evidence statements comes to support a hypothesis, as measured by the logic, should tend to indicate that false hypotheses are probably false and that true hypotheses are probably true.)

In other words, all IVRs are so complex that there is no way for a caller to deduce that he or she is actually going to eventually arrive at what they were seeking in the first place. You only ever really think you’ll probably get there, and a measure of your decreasing confidence is how quickly you press the button that gets you to a live person. Lacking any sort of guaranteed outcome, callers try to guess the right selection at every submenu to at least increase the probability of arriving at what they seek. What they seek is usually a live person, btw, because the most efficient way to answer questions from your customers is not to try to anticipate every single question they could possibly have and present them all of the possible answers. Rather, providing the right interface for the particular exchange of information is the right way to go.

When I call any business and get an IVR, I am immediately unhappy because I know that it is going to take longer to navigate through their challenge/response system than it would to simply talk to a live person. For the most offensive example of this, try calling Amtrak and dealing with “Julie, Amtrak’s automated agent.” You can reach her at 1-800-USA-RAIL. It took me 4 minutes and 43 seconds to learn what exact time a train is leaving tomorrow around noon from San Diego to Los Angeles, and that is before I even attempted to purchase the ticket. I also counted 15 questions by the system in order to provide the information. (Do you know your departure city? Please say your departure city. There are two stations in San Diego, which one do you want? I thought you said Solana Beach, did I get that right? What is your destination? What day do you want to leave? Around what time do you want to leave? Will you also be needing pricing information? Is this an adult? Etc.) I called back and bypassed Julie and got the same information from a live person in less than 12 seconds:
“Hi there, is there a train leaving around noon tomorrow from Solana Beach to Union Station?”
“Yes, at 12:33. Tickets are $22. Would you like to reserve a seat?”

Another good example is American Airlines: 800-848-4653. Of the four top-level menu items, ticket reservations (the primary revenue driver, btw) is the last one. Compare it to Southwest Airlines: 800-I-FLY-SWA. Two rings and a live person answers. I get right to what I wanted in the first place, and Southwest didn’t make me suffer through a tedious process or push to me the responsibility of figuring out how to best navigate their system.

All I am trying to illustrate is that the old media push model apparently applies to voice applications, resulting in inefficiency and barriers creating transactional friction. IVRs push the responsibility to choose the right path to the consumer rather than enabling them to effectively pull what they need. The shift we are seeing in media in general must also apply to voice, as the lines are blurring between media and personal communication: It must move from a push model from the center of the network to a pull model at the edge of the network.

Voice as a distributed media application
Voice will evolve in the new media future. Think of voice as an additional application that augments some existing core functionality. Southwest Airlines is not in the telephony business, but they know a lot of people have telephones, so they built the most transparent use of that technology to augment their core business. It’s an enabler. I know that’s not a particularly insightful observation, given that for as long as I have been alive, the world economy has been largely driven by the application of technology to existing businesses.

But what about media companies? A good example of a media voice application is MovieFone. It’s a good use of IVR to provide access to movie listings and times. If voice is an enabler and the media business model shifts from a push model to a media networking model, then voice will exist to enable it, right? How important is voice specifically to whether or not they win the battle for media supremacy? That depends on whether I am right about the most likely future media titans being an LMNO.

If the future winners in the media space are the ones who understand that media is a form of communication and that personal media created at the edge of the network will drive more value than media produced at the center of the network, then voice will figure prominently in the future media titan’s offering because it is the most intuitive communication interface we have and will naturally be used to augment the exchange of personal media.

Why did Ebay buy Skype? I have seen many justifications posit that since Ebay has so many small business customers to which they can market additional services, they could become the telephony provider of choice for the web-based small business market, just like buying PayPal made sense as the de facto financial clearinghouse of the same realm. Maybe, and it makes a lot of sense, but I don’t think it is as compelling as a simple bolt-on to their core offering, which is auctions. Giving people a click-and-talk interface would dramatically decrease the already low friction involved in the bidding process and the associated required communication around it, as would a hosted IM solution. Skype provides this, but Ebay didn’t have to buy Skype to achieve it.

Ebay fits my definition of an LMNO: They enable people to post media for the purpose of networking with other people they don’t know in a geographically related environment. Given the time-based aspect of their business, I personally think the last mile for Ebay is a more useful “anytime, anyplace” upstream and downstream mobile app (not just the simple one-way bidding thing they launched over a year ago) to put this functionality in their users’ pockets. But that’s a separate thought.

Ebay as a media company is a bit of a stretch for some people, so how about Yahoo, IAC or Newscorp? All of these media companies will eventually have to deploy voice as part of their media offerings. Newscorp apparently understands well the future of media. With the shrewd acquisition of MySpace, they bought themselves a media networking platform. If Newscorp understands that content in the future has a lower value than the community, communication and connection around the content, then Newscorp will add voice to augment their growing LMNO offering. The interesting thing about it is that they don’t have to pay billions of dollars for Skype if they want to enable their media offerings. They need a tool they can bolt on that adds a button attached to every content channel that says “click here to talk to this…[whatever].” It could be a sports television personality looking for commentary from someone in the stands, a news anchor reporting on a hurricane who wants to broadcast from within someone’s house in the eye of the storm, or it could simply be another person who went to the U2 concert that you want to chat with. It will not be an IVR.

VoIP is making voice as an application possible, and the truly visionary companies understand that it is an integral part of the media networking future. Pay attention to the small voice providers and pay attention to the media companies and tell me if you start to see some patterns emerge where they intersect.

Lower ARPU aside, the industry is still growing. But there is one trend that could kill the ARPU driver with the greatest potential.

Total Telecom reported last week that Global mobile ARPU fell 13% in the second quarter as compared to the same quarter last year.

Eastern Europe saw a 27% decline and Asia saw a decline of 18%. The U.S. saw a comparatively smaller decline at 2%.

The reasons for declining ARPU are generally understood, but there is some conjecture about the future. Here, let me conject…

Competition Drives Pricing Pressure
Open any Sunday paper and you’ll see a full-page ad for one of the top three U.S. carriers revealing their apparent race to the pricing bottom in order to attract more subscribers. The offer is invariably increasingly x000 more minutes for a decreasing $x9.99 per month. So while the average monthly bill has decreased almost by half in the past ten years, the total number of subscribers has increased more than 10x, which has driven revenue over 60x to the $100 billion U.S. wireless industry today.

Apparently, there is massive demand for communication. Good to know. Charts about dollars that go up and to the right always look pretty healthy, so who really cares about Average Revenue Per User when it is apparently being offset by volume? There are some reasons to be concerned:

The cellular telecommunications industry is competing with FREE
VoIP is one of the most transformative technologies of the decade, and possibly the century. What happens when free or nearly free IP-based telephony goes mobile? Rather than employ a metered or semi-metered model, the communication provider of the future is the ISP, providing access to data via tools that consumers will find themselves (like a Skype client for their multi-air interface handset.) Even then, people will only pay for QOS, which is the reason I maintain my T-Mobile Hot Spot account despite the fact that I am increasingly finding free though sometimes unreliable connectivity in places I didn’t expect to find it before. I should note that QOS can still be made available for free, since the cost of offering it in a limited geographical area is simple and cost-effective especially if your primary business model is to get people to sit in your store and buy stuff. Now when I absolutely have to call Europe, I go to a Panera Bread Mecca and do it for free where I know the signal will be strong and uninterrupted. (I also love to spend money there to reward them for their apparent vision of the “Atkins Backlash” driving millions of carb-starved people to the yeasty, floury comfort that only freshly-baked bread can deliver.)

If you are saying to yourself, “That will never happen,” think about some other industries that have found themselves competing with free to their great detriment. The music industry ignored the MP3 format and the internet to their great detriment and they will never recover. True, it didn’t completely kill their business, but it did unseat them as the only source of content. Once they lost control, it was (and continues to be) a downhill slide from there.

Panera won’t put Cingular out of business, but isn’t Google planning to wire the country with free wifi? I predict a coming chilling effect on the cellular telecommunications industry. After all, I am not using my cell phone anymore to call Europe. That is a contributing factor to declining ARPU, and I wonder how big that trend is. Still, this is a legitimate business issue grounded mainly in free market competition.

The cellular telecommunications industry is competing with other verticalized communication services
I noted recently that I have:
- This blog,
- A personal blog,
- A channel on Rabble,
- A travel blog,
- A Skype ID,
- 2 primary AIM handles,
- 1 primary business email address,
- 2 primary personal email addresses,
- A gmail account for large files,
- 5 Yahoo email accounts, (1 spam catcher, 1 Yahoo ID and 3 for which I have forgotten the password)
- A profile on Evite that I use from time to time for that kind of stuff,
- A profile on Match.com, (purely for research purposes)
- A WAP site,
- A fairly active and useful profile on LinkedIn,
- 3 mobile phones, (one unlocked which I use primarily for voice and when I travel abroad, one test phone and my Nokia N90)
- 2 laptops,
- and a SideKick.

Think about your own list and it probably won’t be much different from mine. You have multiple emails, IM handles and clients, two-way publishing points, etc. I am not unlike many people who are verticalizing their communication because there isn’t one perfect tool that does it all. In 1999, I had 2 email addresses and a Nokia 6190. That was old skool.

The net result is that my time and attention is finite, but I am communicating more in general. Therefore, the biggest opportunity to the cellular telecommunications industry is to offer the kinds of applications that verticalize my communication. Note that only one of the services I listed is voice-centric. If I am using my various communication tools more, and none of them are available to me via my primary mobile device, this will drive ARPU down since the percentage of my consumer wallet allocated to communication that intersects my mobile device is surprisingly small. They’ve got me for voice and SMS for sure, but as my communication options increase, the total amount of time spent on cellular voice is simply decreasing. I personally think the biggest opportunity for network operators to grow data ARPU is to focus on communication-based applications since it is in line with their core offering, but of course I have a bias. This is also a function of free market forces, and if carriers choose not to provision the kinds of communication applications that people are using, that is their business, and a perfectly legitimate reason for decreasing ARPU.

The cellular telecommunications industry is selling data
In and of itself, selling data and not just voice is generally seen as a step in the right direction. I am obviously in favor of this trend. I have made the argument before that in some cases it might cannibalize other revenue, but even that is not such a big deal since the total sale of data (primarily driven by high-margin SMS) is increasing. The argument I have made before is that when you download a game and pay a one-time fee, the marginal value to the carrier is very high, but then you use the game offline potentially for months or years without utilizing the network. It sounds like a favorable “gym membership” business model at first (people pay but don’t use it) but when you consider that your offline game exists to fill your time when you are sitting in the airport, the opportunity cost of selling the game may be the value of the many SMS you might have sent instead if you didn’t have the game. It is a difficult argument to back up, and I have never come across a study on the topic, so if you know of one please let me know.

No matter. If it is even anecdotally true it is a legitimate contributing factor to declining ARPU, but not a big deal given the current volume and besides, the truly exciting games are network-based and I think that is the future of mobile gaming.

There are also plenty of other reasons for declining ARPU, and I think that in addition to the ones I mentioned, they are simply the result of healthy competition, market pressures and enabling technology which are all good for the consumer, particularly if the industry as a whole is growing.

BUT, there is one possible reason for declining ARPU I want to discuss that truly concerns me.

The cellular telecommunications industry is selling data off-deck

This is the ARPU driver with the greatest potential, and it is already in jeopardy.

Can the effect of Jamba be measured? What does this mean for the future of data ARPU:
Lawsuit accuses Jamba of making misleading ringtone offer
Jamster slammed for mobile selling practices

Verisign CEO Stratton Sclavos pre-announced that it would miss its 3rd-quarter consensus estimates due to weakness in its wireless business, citing among other things “new advertising guidelines and restrictions in several key European markets.”

It is possible that the translation of that last part might go something like:
“Our somewhat aggressive business model that pushes content to people who in some cases did not know they were opting to receive what we push them had to be, ahem, revisited.”

I am not indicting Verisign, though there does seem to be some evidence to support the possibility that their business practices are misleading.

There are others. Try searching for “SMS.ac scam” and you’ll get an interesting mix of results mostly focusing on misleading business practices.

Here is the problem:
Wireless carriers operate in a highly regulated industry and are fearful of offering content that may be objectionable, and rightfully so. The solution is to offer billing services to various 3rd-party content providers and/or allowing their users to get to content they are not provisioning but are nonetheless profiting from. Such arms-length mechanisms as Premium SMS and BOBO arrangements are a perfectly reasonable way for carriers to avoid scrutiny, operate more like ISPs when it comes to data services and provide their subscribers the content they obviously want without having to actually provision it themselves. I personally think the carriers should be fully entitled to profit from the content we all know people want with impunity but unfortunately they have to work within the rules of doing business set forth by the FCC. With off-deck marketing, a wireless carrier can and should claim ignorance to the content of the transactions passing through their system, and as an added benefit they get to leverage the marketing power of their various unknown partners. Content outside of their walled garden is not their responsibility to police. I think it makes perfect sense.

The unfortunate part is this: The only business model that can be promoted in the environment I describe is “Push.” When you push someone something, you make your cut on the PSMS. Profit-minded capitalists are therefore incented to push as many PSMSs as they can, and that’s where business models get scammy. You see businesses that dupe you into a subscription when you were absolutely sure you only authorized a one-time transaction. Or you see businesses pushing you content you didn’t want and cannot opt out of. It’s like once they have your phone number and any kind of authorization (or not) they fire a very costly spam cannon at you. Then they amplify their business model by expanding their reach through channels like MTV and Nickelodeon asking you to text 12345 to short code 45678 to receive your free blah blah blah. Then it goes downhill from there.

The problem with push is that it is separated by a very fine line from spam. Email spam is annoying enough, but in the mobile space it is also very costly, and it would be impossible to do if the carriers weren’t lowering the walls on their walled gardens. I do not blame them at all, but it bears mentioning that the most important asset they have is the billing relationship with their subscribers. A near-frictionless billing mechanism like PSMS, if immediately and vigorously abused, will end up hurting consumers, the wireless carriers and all content providers (legitimate and otherwise.)

How many customers does a wireless carrier lose due to an abusive 3rd-party content provider? If the answer is one, it is too many.

We are about to see the same thing that happened with premium-rate landline billing. Tell me honestly – are you not afraid to dial a 900 number? You are almost guaranteed to see a $50 item on your phone bill if you dare dial one. It got so bad that the FTC had to step in and create a rule stating that consumers have to be able to see upfront what they are going to pay, what they get in return and what happens in a billing dispute.

I’ll bet you these are the basic dimensions you will find in the complaint filed against Jamster.

So let’s say the FTC steps in and makes a rule about premium rate billing on mobile phones. Would it matter? Did it matter for 900 numbers? No – if the FTC steps in, that means it is such a problem that it is far too late and we will never get the shit back in the horse. People will simply never send anything to a short code ever again. And there goes your hockey-stick data revenue.

This should scare the shit out of everyone in our industry given the number of people who believe data ARPU is going to replace declining voice ARPU. For that to be true, we must recognize as an industry that consumers respond to fair value for their dollar.

A carrier’s storefront is only so big, and it is difficult to monetize effectively. Off-deck marketing, leveraging existing audiences and promotional dollars, is the only path to increased data ARPU. Teaching consumers now that it is easy to get scammed on their cell phones by off-deck marketers is not the way to ensure the future data revenue streams that are going to be critically important when organic subscriber growth can no longer drive topline revenue in saturated markets.

So, a dilemma. You can ensure long-term customer satisfaction and keep your gardens walled and offer only vetted content and services that under your watchful eye will not abuse your customers, or you can take the short-term revenue gain now and manage by exception hoping that most of the 3rd-party services will be legitimate. It is a tough decision to make and I have not seen measurable evidence of the fallout from the handful of scam-based business models in the mobile space, but as the mobile phone number becomes the singlemost important piece of personal information it would be wise to offer consumers some level of protection lest they find their own way to do so.