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Category: markets

Hypertargeting and the Panopticon of Social Networks

Published November 26, 2007 by cgerrish

Panopticon

The rebellion against hyper-targeting continues. Doc Searls weighs in, as does Jason Calacanis. Targeted marketing always worked with fairly crude tools, and because of this it was tolerable. Marketers looked at demographics and psychographics, made educated guesses about the audiences of particular radio or television programs, and did the best they could. It was more art than science. The direct marketers were the most statistically driven. Marketers dreamed of knowing enough to target perfectly. Now with Facebook and other social networks, they’re starting to get their wish. The user inhabits a panopticon, and the data generated belongs to the system to be rented to the highest bidder.

Will the inmates rebel and demand the authority to selectively release data to the system? Will they be able release none of their data and still participate in the system? Can they withdraw their data, move it and use it to their advantage in another system? When a customer uses her data to her advantage in a system, the system benefits as well.The coarse targeting of marketing has required high frequency bombardment. We’re entering the age of smart bombs, but the frequency seems to be just as high. Shouldn’t smart marketing just be the thing I want, when I’ve indicated I actually want it? Advertising frequency goes down, but the number of transactions probably increases.

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Bring me the dreadlocks of Jaron Lanier

Published November 21, 2007 by cgerrish

Jaron Lanier

Jaron Lanier writes in a New York Times Op-Ed piece that creative types need to get paid for “digital content.” Lanier used to be in the “information wants to be free” camp. Now that information has become content and it seems to adding some value when it grows via spontaneous generation in caves like Facebook or Delicious, Lanier is interested in a piece of the action.

Burma Shave Sign

Lanier thought that somewhere down the road the creative people making digital content would find a payday. But the network is what you make it. The network we inhabit isn’t built for collecting tolls, it’s built for billboards along the roadside. There are some closed loop systems like Second Life where payment for digital goods is normal. All that’s required is for the system owner to control the physics of the entire virtual experience. iTunes is an end-to-end experience as well, but it’s an extension of a familiar payment model. These are the kind of models that Lanier is well-known for pioneering.

The question about getting paid is an interesting one. Right now it’s advertising and targeting that pays the bills. Better targeting + big traffic flow = Google.But what if we want an alternative to advertising.

When the work of art is a physical thing or a performance there’s a clear ceremony around collecting payment. The introduction of mechanical reproduction changed the intrinsic value of the work of art, the price, but not the nature of the transaction was affected. Generally the cost of mechanically reproducing art or creative output was still relatively high and required a specialized set of skills. In the age of digital reproduction, the only skill required is “copy” and “paste.” The original and copy are only differentiated by a creation time stamp. The digital is also viral in the network and the packets can be anonymous as they travel through the long series of tubes. When you bought that digital content, which vintage of time stamp is yours? Can we put toll booths on every entry point on the network? Can we implant the toll booth in the user?

This is the point where it would be nice to reveal the magic method by which creators of digital content get paid on an open network. There’s not one answer. Some clues to help us along the road? Philip Greenspun’s book was free and digital before I bought the copy that sits on my bookshelf. The 37 Signals book, Getting Real, was sold first as a PDF download, but is also available to read for free online. Here’s another clue, we pay for the container, not the content. It’s the form of the hardback book, not the text it contains. Think about that in relation to the network. You can see the problem.

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Bill Hambrecht, Google & pricing an IPO with a social network

Published November 18, 2007 by cgerrish

The Google offering happened a while after I left WR Hambrecht + Co, but I can’t believe I never saw this Charlie Rose interview with Bill Hambrecht. It seems like ancient history viewing it now. Looking at the offering price and today’s price one might think the deal was underpriced by the modified dutch auction. As I recall, at the time, many thought the IPO offering price of $85 per share was too high.

Hambrecht’s modified Dutch auction method of pricing IPOs still isn’t understood very well. Basically it’s the idea of the wisdom of crowds (or markets) applied to determining the appropriate offering price for a company’s initial public offering. Think of it like Digg for pricing the initial stock price for a company. It’s a like asking the community of investors what the right price should be— a radical use for a social network.

The method works best when a broad range of people have an opinion on the proper initial price for a company’s stock (a high bid to cover ratio). It doesn’t work very well when the company isn’t well known. In cases like this investors (bidders in the auction) actually have to read the prospectus and attempt to determine a reasonable price. This, of course, is nearly impossible. It would be like trying to rate a new album from a band you’d never heard based on the tax returns of the musicians.

For those in the tech community looking for liquidity events through an IPO (as opposed to acquisition), you’d do well to at least take the time to understand how the Dutch auction works. Back in the day Joe Tennis and I put together a flash animation explaning how Hambrecht’s OpenIPO works. Check it out, it still holds up pretty well.

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Decoding Wall St.’s Analysts: Full of Bull

Published November 10, 2007 by cgerrish

Full of Bull

Attended a book launch party last night for Stephen T. McClellan‘s Full of Bull. The subtitle of the book is: “Do what Wall Street does, not what it says, to make money in the market.” The crowd was an interesting and lively mix of financial industry folks, artists and people connected to the world of opera. (Stephen’s wife is a painter and worked at SF Opera for many years)

I haven’t read the book yet, but what I gather from Stephen’s remarks, and skimming through, is that he hopes to help people decode the language of Wall Street. As in Lewis Carroll’s Alice in Wonderland, it’s important not to take things at face value. A “buy rating” doesn’t mean buy, and a “hold rating” doesn’t mean hold. A lot of the communication on the Street is through signaling, in the margins, or outside of the official channels. Information asymmetry is the primary method by which money is made. Clarity in communications levels the playing field and destroys perceived advantages. Muddy waters are the natural habitat of the players in financial markets.

As the market enters a period of uncertainty after an extended bull run, it’s good to have books like this to turn to. An investor looking for advice would do well to learn how to converse in the language of the Street before acting on the latest hot analyst recommendation spewing out of a cable news station.

I’ll be reading Full of Bull in the next few weeks, and you should too. Let me know what you think of it.

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