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Yesterday, I noted that I made my first foray into the blogging world two years ago by way of few comments on Roger McNamee’s blog: The New Normal. At the time, Mr. McNamee was promoting his new book and writing regularly on the site. There were some ongoing discussions that intrigued me. As a passing experiment I wrote a reply to two of Roger’s posts, one on Sarbane–Oxley and the other in reply to a post of Roger’s about the direction Internet video. My replies were an experiment of sorts for me, and I wrote them anonymously. After recently seeing what I wrote in some old files, I decided to reprint my posts as well as links to the original discussions here on Metue. Yesterday I re-printed the piece on Sarbane–Oxley

Today, Internet Video:

Roger’s original discussion can be found here

In his post, Roger began what was to be a multi-part examination of Internet Video, its delivery models, and how he envisioned the market shaping up.

My reply, as with my Sarbane–Oxley posts, ended up being in two parts, first to Roger’s comments and a reply by Marc Andreeson, then to clarify a misunderstanding and add more to the discussion:

Reply 1:

Whenever I evaluate an early stage business, or new idea, there are a number of questions I ask well before I dig into numbers, the quality of the team, and the analysis.  The first, is always the same thing: “Is this a real solution to a real problem (a problem that potential customers are aware of)..or is the solution just for its own sake?” I know the marketing burden of convincing a customer that your solution is the best is already an expensive obstacle.  But having to first convince the customers that they have a problem and then educating them about the solution is a whole different level of risk. 

With Internet video, one of the core promises is broader programming and customer choice.  It’s hard to argue that these advantages are not saleable.  On the other hand, there is a broad range of programming available from traditional outlets now.  Many customers might welcome more, but how many are currently willing to demand it?  Video-on-demand, and now Internet video, has been a buzz subject many times over the past two decades yet it hasn’t yet materialized fully.  Eventually, I’m certain it will….but when? That seems to be a big part of this discussion.  Have we begun to reach that time or is Internet video just another buzzword ahead of its time?

Geoffrey Moore talked about crossing a Chasm with regard to customer’s adoption behaviors.  I think there’s a different, though equally important, kind of Chasm that exists with regard to some markets’ resistance to change.  Like Moore’s model customer, many entrenched businesses seem to resist adjustment until the marketplace demands the change.  There are early adopters, innovators, and these businesses may be catalysts…but they face resistance. It’s not on the promise of new things that entrenched businesses change, but the necessity to adapt to changing customer demand.  The chasm of marketplace change, in my opinion, is a factor of how loud the customer-based demands are. 

Consider Blockbuster Video before mail-order video services like Netflix.  There was little incentive for Blockbuster to innovate on its operating model.  However, when Netflix began to cut into their market share, and Wal-Mart followed suit, Blockbuster had to accept change to remain competitive. 

Similarly, to stick with the movie industry, consider the behaviors in the film studio system in recent years.  Not long ago, the Independent vision of firms like Miramax led to innovation and development. Movies that traditional studios previously overlooked got made and thrived.  Miramax took the risks that others wouldn’t take.  As the market demonstrated its interest, as measured through high box office grosses, the traditional studios were forced to adapt.  Miramax, eventually, became a semi-autonomous division of a traditional studio.  And now, across Hollywood, Castle Rock, Warner Independent Films and others are carrying the torch that Independent Cinema began.  The exception is:  instead of being independent, they are semi-autonomous divisions of the traditional studio system.. The studios adapted.

Market forces, which can be measured through customer behaviors, can demand adaptation from entrenched businesses that otherwise are resistant to change.  Is Internet video a problem ready to be solved?  Is the demand for change loud enough?  Perhaps not yet.

Marc’s response to this string caught my eye.  I think on one hand, it read as slightly biased toward the microcosm of Silicon Valley.  Often, through the lenses of our technology-centric environment, it’s easy to forget that even with all of the innovation and opportunity in technology and media, what might not seem to be a big deal here (like accessing the VPN for remote downloading) is leaps and bounds away from accessibility for the masses.  Silicon Valley is a classic early adopter to stick with a comparison to Moore.

But Marc’s reference to Bit Torrent hints at something I see as significant which echoes sentiments in the initial blog.  One of the things that is sometimes lost in a discussion of Internet video is the element of time.  With VoIP and phone technologies, near instantaneous delivery of data is essential.  You can’t have a lag in a conversation.  But with video, at least in the near term, as bandwidth and hardware continue to improve, instantaneous delivery is not necessary.  Video technologies can move step by step in a progression that encourages customer change, and thereby market change, in a more measured way.  The reference to Tivo is a perfect example.  Marc’s reference to Bit Torrent similarly is as well. 

To further echo some of what stood out, and I strongly agree with :

• A large barrier with Internet video is not with the technology of delivery but with the ownership of content. 
• A significant portion of content lies in the hands of entrenched, innovation-resistant organizations.  That will change, arguably significantly, but it will take time. 
• How is the IP protected? Will its owners demonstrate a willingness to allow the content to be available?  Will making it available present a possible channel conflict with other revenue streams? Questions like these, and others, will underscore established content owners willingness to resell their material.
• It will take changes in customer behavior and the indirect pressure it causes to move entrenched businesses toward newer models.

Internet video is in a stage of innovation.  I think It’s looking for a catalyst.  When the right one comes along, and gains traction, the chasm in the market will eventually be bridged. 

 

Roger’s post proved to be incredibly popular. More than 30 comments were written before some comment-spammers damaged the discussion. In response to some misunderstandings about my first post, and the comments of others, I ended up writing a second reply to the discusion.

My Second Reply:

Looking over what’s been said here, like any good debate, it seems the points of view in this discussion approach issues from different sides. There is the technology centric approach which focuses on how services are delivered; the consumer centric approach which focuses, in part, on what a consumer might be willing to try, and their user experience; then there is also the investor or entrepreneurial approach which focuses on both with an eye toward balancing business risk and market opportunity in a new venture.

Given the different points of view, I want to expand a few of my early thoughts and share a few further observations:

First, the reference to Geoff Moore was not presented in the context of his thoughts on customer adoption but as an analogue to issues effecting change within Entrenched Enterprises (like the Hollywood Studios) and what motivates them to innovate.  That’s important to reiterate, I think, because, to me, important questions lie not in the “user’s” ability to accept or learn a technology but in two other places:  The users incentive to try something new; AND The incentive of businesses that can control content to make their content available through whatever new distribution methods develop. 

These questions present different perspectives from which to approach things.

• The obvious incentives for the end-user are tied to the ease of use/convenience factor of the product; or benefits provided by the product that are not otherwise available in the market.  I agree – A college student might well explore a product that is difficult to use if it’s providing a benefit to justify the difficulty.  It’s not necessary to use Mom as the torchbearer of the ideal market.
• Incentives for mainstream content-providers are tied to the demands of their customers, and the content-provider’s existing business models.  Studio executives have legitimate concerns about both piracy, and devaluing their content by making it too widely available (which could present channel conflicts). It would be ideal if they were willing to take risks and innovate on their own but often it is customer demand that forces change in behavior from businesses not known for innovation, or taking developmental risk.

There is a little bit of a chicken and egg problem here. Some content owners need demand from consumers to grow before they’ll likely make more content available.  Some consumers, on the hand, will want more content before they are willing to consider change. 

The existence of this dynamic underscores a comment I made earlier.  I think Internet video is in a stage of innovation and it’s looking for a catalyst.  There is opportunity for innovative solutions targeting the college student of reference, or others.  Content availability and product development will push things ahead.  Non-traditional content sources will likely have an impact, as blogs have. But also, behaviors and change with mainstrean content owners will be significant.

Apple brilliantly navigated the joint issues of content and product with the iPod and I-tunes package.  Would the I-pod have become the icon it is if the primary means of adding music was the slow, tedious conversion of cd’s to a digital format? Or does it owe some of its success to the more symbiotic combination of product and content?  It’s an interesting question to ask with regard to Internet Video

Internet video is entering a place where a company that innovates as Apple did might do phenomenally well.  Alternatively, change and innovation may come in a more spread out way.  Some product(s), service(s), or company(s) will be a catalyst.

Will the catalysts that come in the near term survive, down the road, once the incentive for entrenched companies’ change? That is a different discussion. Maybe they will, maybe they’ll get swallowed up, maybe they’ll get brushed aside.