Purpose-Driven Media
Business theorists have started to grasp the risks to established businesses of asymmetric competition. (By analogy to the concept of asymmetric warfare, sometimes companies are competing with rivals whose different business model transforms the nature of the conflict. For example, the competition between Netscape and Microsoft was symmetric because both companies employed the software distribution business model, but the competition between Google and Microsoft, or (more granularly), between Firefox and IE or Linux and Windows, is asymmetric.)
But the NY Times points out an even more disruptive trend in an article entitled Death by Smiley Face: When Rivals Disdain Profit: "There is another breed of rival lurking online for traditional media, and it is perhaps the most vexing yet: call it purpose-driven media, with a shout-out to Rick Warren, the author of "A Purpose-Driven Life," for borrowing his catchphrase. These are new-media ventures that leave the competition scratching their heads because they don't really aim to compete in the first place; their creators are merely taking advantage of the economics of the online medium to do something that they feel good about. They would certainly like to cover their costs and maybe make a buck or two, but really, they're not in it for the money. By purely commercial measures, they are illogical. If your name were, say, Rupert or Sumner, they would represent the kind of terror that might keep you up at night: death by smiley face."
CraigsList is the obvious poster child of this movement, with open source projects like Firefox another good example, but as the article points out, even Google began as such a "purpose driven" company, and its non-commercial ideals still drive parts of its business strategy. (I recall a recent conversation with Larry or Sergey (I don't remember which) in which he was commenting on why he'd prefer the ad model to work for Google Book Search if possible, because it would enable poor people to access books, while subscriptions would preserve the old economic dynamics.)
Of course, there have always been purpose-driven entities, some of them great enterprises. But the disconnect between economic ambition and business impact seems greater today than at any time I can remember. Is Craig Newmark an aberration, or an early sign of an emergent new economy of whuffie?
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Before we get carried away to a dreamy 60's reverie here, we should stop and remember that Craig has made himself extraordinary wealthy (I've seen suggestions that Craigslist is in fact more valuable than eBay). A moment's willingness on his part to accept a purchase offer would make that abundantly clear.
I think it will become increasingly apparent that what distinguishes entrepreneurs like him most effectively has been their willingness to defer profitability, to give up short-term profits, and to keep operating costs extraordinarily low. That's refreshing and smart, but in economic terms there's nothing novel about it - it's called 'making an investment'.
Craig is a very nice guy and a very smart investor, but when it comes to assessing the potential for this sort of approach to reshape whole industries the latter will eventually be seen to have been the critical factor (just as it was all the other times through economic history).
So, aren't "purpose driven" business models a reaction to the economics of plenty? I mean, once sandwiches in general are free what's left to pay for other than just exactly the specific sandwich you want?
At first glance that implies these smiley-face entities are non-profit [sic] business models. [They really mean: no profit for share-holders. At first glance, this kind of service and content creation looks like a consulting model with necessarily low margins.] If such a pattern were extended to the entire economy, and suddenly population stablized -- why that would be the very end of economic growth. I think it is that (bogus) projection that leads Mr. Siklos (NY Times) to posit an economic irrationality here.
But take a second glance.
There is always going to be a large segment of the overall economy based on scarce (even if renewable) resources. Economic growth is a permanent condition. It just so happens that the naturally non-rival character of digital media means that it doesn't directly fit into that economics.
So the trick is always to link digital media to some other product which is always scarce and get profits that way. Aha! -- the Google mystery comes clear. They've linked their non-profit digital work (search) to a rival product (advertising bandwidth, in multiple media). I have a short form and long form of a related idea for FOSS R&D.
In the specific case of digital media this is nothing new. The older form of the pattern is marketing consultants who get paid by cost-plus-share-of-program-success.
The real area for concern, I think, is that we are looking at such a spike in the percentage of digital media creation that is, from a business perspective, first and foremost, part of a marketing campaign for some other product. Is this good, bad, indifferent -- for culture? Any answer has to compare to -- let's call it -- the RIAA model of making the media work itself unnaturally scarce.
-t
I had not heard of the "whuffie" before -- it's a very interesting science fiction concept. But, I notice an economics error in the wiki description for whuffie (where the link at the end of Tim's post carries you). The wiki says "In a cash-based economic system, nobody can gain money without someone else parting with an equal amount of money." This is not a true statement. It's an example of the very prevalent zero-sum idea that so many people have about economies.
A long economics discussion is out of place here, but what produces wealth in a society is value that is added/created by an individual's work/productivity. If what the wiki says was true, then a government printing money would produce wealth.
If I buy a packet of tomato seeds for 49 cents, and work in my garden, and grow tomatoes that have a value of $20, my work (plus nature's energy) has created $19.51 of value. The economy is $19.51 more wealthy because of my effort. And someone who buys those tomatoes from me hasn't lost $20, he's traded a symbol of real value (coins and bills) for substance of actual value.
I think, to a certain extent, purpose-driven models are mostly an advertising gimmick. Once everyone is doing it, it will no longer stand out. Now it looks novel, unique, interesting, it arouses our curiousity, we say "Wow!" But, I don't actually believe that making money isn't the ultimate goal of many businesses that portray themselves as purpose-driven. The driver is profit, influence, power, market position or domination, the means to achieving that is to appear altruistic to the surprised public.
That's a cynical view, I know. I guess 10 years from now we'll be able to better assess whether purpose-driven business was really anything more than an attention/publicity-seeking gimmick.
Sorry, no. "Purpose Driven" business is just a new marketing gimmick.
All businesses have to make pricing decisions. Joel Spolsky wrote a great article on pricing software which applies just as much to any other good.
Basically, there are two schools of though. Assuming a widget which costs $3 to make, and which customers are willing to pay as much as $10 for, how much do you charge. One school charages $3.15 to cover their costs and make a small profit. The rest of the value of the product goes to the customer. School #2 charges $9.99, maximising profit to the widget-maker.
The most succesful example of school #1 I can think of off hand is Sam Walton's Wal*Mart. Low prices, every day. Every penny they squeezed out of suppliers or operations went straight to the customers.
The only reason that media is attracting so much attention right now is because the Internet has changed the economics of media production and distribution to such a great degree that folks like Craig Newmark can topple empires. However, the empires will only topple if Craig follows school #1. If he followed school #2 and charged $9.99 then the newspapers could still compete.
If there's anything which is being learned, it's that charging as little as possible is the best long term strategy for business success (even when you're capable of charging more).
Wow -- a bunch of cynics! In the long term, you may end up being right. As companies and markets mature, idealism does tend to be replaced by profit-seeking.
But I think you all radically underestimate the extent to which different value systems are possible. Craig may have become accidentally wealthy (in potentia) but in fact he hasn't made any moves toward profit maximization or realization of that value. And I don't think Craig's approach to his "business" is the result of him being "a very smart investor." The fact that it is now potentially very valuable doesn't change its origins. Some people really do things for different motivations.
It's rather sad to see folks thinking that profit is the only motive. The generosity and reciprocity that has characterized much of the development of open source software -- and much of science -- is as real as the fact that there are also people who have sought to profit from these exercises.
In any event, it is not "dreamy sixties reverie" to recognize that the nature of competition has changed radically, and that there are cases where people are doing things for non-monetary reasons that challenge existing businesses.
This is VERY much on my radar with regard to O'Reilly's publishing business. Some of our biggest competition is "asymmetric." There is a huge amount of free content on the net that competes with information we used to sell. (As a result, our sales mix has changed significantly away from reference-oriented books to teaching series like Head First, and "fun" publishing like the Hacks books and Make: magazine.) People write web pages, blogs, and other online content for non-monetary reasons, but it still satisfies a need that formerly might have required paid content.
Brock -- you have to ask yourself why Craig does follow school #1 and not #2, and whether Craigslist would be successful if it did follow #2.
I should add that O'Reilly can be considered as a kind of "purpose-driven" company. While our strategies were never as radical as those of Craigslist, we've tended to shake up markets we enter because we aren't solely economic actors. For example, we've always priced our books "fairly" -- which means they are typically cheaper than many competing books, even though they are often better. This has turned out to be a great business strategy, but it isn't something we did as a business strategy. It's something we did because of our core values. Similarly, many of our publishing choices weren't based on calculation of the financial results, but just how cool and interesting the technologies in question are.
Over time, we've figured out that our passion is also good business, but our real goal really is "changing the world by spreading the knowledge of innovators." And that means that when we live up to that goal, we surprise competitors by doing things that often seem irrational to them. And when we compromise that goal by getting swayed by purely financial factors, we've tended to damage our brand and ultimately our financial success as well.
O'Reilly is certainly my technology book publisher of first choice. They appear to be far more "integrated" into the actual development of new technologies than any other computer/technology publisher. And all of the O'Reilly experimentation is very interesting (oreillynet.com, safari, rough cuts, etc.).
But this is, indeed, the passion of individuals, right? It can't be called a business model. It just happens that your work is something you love, which is a great thing.
If others notice your success (financially), they don't care why you did it that way. They'll mimic the method in an attempt to duplicate the profits you attained due to "following your bliss". That's when "purpose driven" becomes a business model. The connection with passion needn't be there for the imitators, so in the end it does all turn into economics...
But by that time, O'Reilly will surely be pursuing new passions, its business methodology duly adapting so as not to interfere with passion's fulfillment!
Tim,
You mistake me if you think I was advocating business philosophy #2. I wasn't. I think school of thought #1 is the better one, both in business and for your soul. As you say, "This has turned out to be a great business strategy."
My only point was that "purpose driven media", as a meme, is simply a new hat on an old idea. It's not new. Sam Walton was a purpose driven retailer. Henry Ford was a purpose driven car maker. Both these men could have charged more for their products, but instead chose to charge less so that everyone (or as many as possible, at any rate) could afford their products. It also made them enormously wealthy as a side-effect, because their low prices and autotelic innovation allowed them to starve competitors out of the market and discourage entrepreneurs from challenging them.
To dodge your question though, I will not tender my guess as to why Mr. Newmark runs his list according to school of thought #1. Not with him possibly reading this thread at any rate. :-)
Publishing the "knowledge" of "innovators" turns out to be a superb profit-driven strategy in the tech book biz, because there are zillions of workers who are afraid of falling behind the curve. Or hoping that buzz-word savvy ahead of the curve might compensate for lack of depth in more pragmatic areas.
They will buy books about all kinds "innovation", some of it useful, much of it state-of-the-moment. They buy even though sufficient content to fill their actual need for information about a given issue can be freely obtained online; a book is a more tangible information ingot than a bookmark.
The cynical take on that strategy is that it uses one of the classic selling levers: fear.
Now I realize that has not been the intent of O'Reilly Media. But it seems to me that purpose and profit align very helpfully in this case.
Mr. O., I think you should lay off trying to make grand summaries about the prevailing or even significant motivators among significant contributors to the FOSS world. I don't want to start a game of rhetorical class warfare here but from my perspective, your perspective is pretty horked. Yes, there are (arguably) outliers like RMS. Yes, there is a lot of incestuously reinforced hypothesizing among pundits. As a consequence of the latter, you certainly find a lot of people talking that talk while walking a very different walk. In making such sweeping generalizations from your position, I think you are messing with a lot of the heads of less advantaged participants.
As for what should be on your radar: I would think it should be more along the lines of the dissolution of the publication, distribution, and marketing pipeline into commission-based services which are simple enough to assemble that authors can do so. This has nothing to do with anyone in the pipeline not being interested in a fair profit. Where's the line between "vanity" and "author as sole proprietor"? It's coming up fast, I think.
-t
Also, as for your own motivations (whether O'Reilly is "purpose driven") -- um, *really*? You mean you'd be doing all this even it meant you had to live sub-poverty?
I think you have badly misread Siklos' NYTimes article if you think that Sam Walton and Henry Ford qualify as "purpose driven". Neither, by a long stretch, not even a little bit, was in it to simply "do something they do good about".
Even Siklos gets a bit wrong when he considers Craigslist. We'd have to do a psychological analysis of Craig to find out the motivation of the original mailing list, before commercialization was considered. At this point in history, though -- no, it's just a fairly ordinary business blessed to have a strong brand for an otherwise banal and easily replicated service.
-t
-t
I'm also surprised at the assumption in the comments that everybody is motivated by profit - it just doesn't seem true for most of the people I talk to. I wonder (just wonder - not accusing) if this is a particularly American perspective?
But - this isn't anything new. The media business, in all its forms, has always been about the interaction between people with different aims, and their mutual exploitation of each other.
Think of the typical music promoter. She'll put on popular, big-name events that rake in the money - and then plough most of the profits back into smaller events highlighting groups she thinks are new or interesting. Same with publishers, balancing blockbusters against good niche books.
Or take the tv/film business: read any trashy hollywood expose, and much of the drama comes from the interplay between people with different motives. Some want money, some want fame, some want to get laid, some want to make their artistic vision into reality.
There is something interesting going on here, but it isn't simply "more organisations not motivated by profit". It's about technology making it easier for amateurs and professionals to work together, about lowering the overheads of running a company. Probably about lots of other things I can't get my head round right now, and would take more than one blog-comment to talk through.
And even if nothing is new, it's worth talking about the phenomenon, just to make the theory match reality. Economics 101 will assume everybody is driven by profit - because that's a good assumption, makes the equations work out, and helps students grok economics. But that assumption - although most professional economists will agree it's often invalid - seeps out into business studies and pop culture, and gives us a skewed picture on the world.
So I vote for going ahead and focussing on this. New or not, focussing minds around this area will generate a lot of interesting ideas.
One person you should be talking to is Pat Kane; his book The Play Ethic touches on a lot of these issues.
Dan, I think a point Thomas is trying to make (and which I also tried to make in my response to the Radar post that followed this one), is that: you cannot have a "purpose-driven" business model unless you already have enough profits/income/wealth to have leisure to run your business in a "purpose-driven" mode.
Helping the world through material gifts of "products" can only be done by those who possess an excess or at least a sufficient measure of material goods. For those of us who work 80 hours a week because that's what it takes to provide an adequate living environment for our families, yes, the world looks like one that is entirely profit-driven. Our business interaction with the world is entirely profit-driven, because our lives are purpose-driven, the purpose being to provide the best environment for growth that we can provide to our families.
There is a class distinction. The big name promoter is wealthy. So she throws some shillings to selected barely viable (financially) bands she likes. What does that do for the just as worthy unknown bands that she doesn't happen to like as much?
I'm sorry, but to someone like me, Google does not look like a great big charity. Every move, however dressed in "we're being nice to the world!" garb, is ultimately calculated to also increase long-term profits. If that wasn't the case, why would they be part of the S&P 500?
Hey, I have an idea! Let's convince all these purpose-driven businesses to pony up $1 a day for the 80 Million people in Africa who have AIDS. That's all it would take to purchase the drugs needed to keep them alive. As it is, these people and their governments don't have $1 a day, so millions of Africans die every year, leaving millions of children orphaned. If these companies really care about human beings, isn't this the perfect venue for proving it?
Or, will we find that, in the end, the ultimate purpose that drives their decision-making is their own bottom line?
Whatever the scale, whatever the subject everything is driven by the need to be recognized as a original and distinct being among the other.
People try to be distinct by many different ways: the money they got, the power they have, the fame...
In order to find sincerity (or marketing lies on the opposite if you prefere) just proceed by elimination:
If there it is clear that there is no need for Money
If something is achived and does not give more power
If it does not bring more fame
...
Then yes, the guy or the organisation is sincere
If there is a doubt, the guy/organisation is cynical or is dumb (does not have enough advice to realize that he may be only 20% sincere)
Irak is not about freedom
France is not the human rights country
The 3x1% from salesforce.com is marketing
... and so on
Sincerity is hard stuff nowdays
I am not sure that open source software is really purpose-driven "media", since media usually refers to newspapers, magazines, blogs and other sources focused on content. A more appropriate term might be "purpose-driven technology" referring more to the method of creation (open source software) rather than a media outlet.
Open source software fits well within the Christensen disruptive innovation model by approaching the market in a very different way to fill a niche need along the edge of the market, but then grows to displace the mainstream market. This idea ties into the purpose-driven technology concept for open source software especially well when you consider the origin of many open source software projects and how they began to fill their niche market. Linux started when Linus Torvalds wanted a Unix-like system that ran on less expensive hardware for his own use and for use by a few people with similar needs. Linus did not start this project to make money or disrupt an industry; however, the end result was purpose-driven technology that may have seemed like an illogical competitor for Microsoft and Unix operating systems from an economic perspective. Many other open source software products had similar beginnings and a similar purpose-driven technology as a result.
Actually Warren Buffett and Bill Gates, for example, meet many of the same moral criteria as Craig does, if by that we mean that that most of the value they have created is still locked up inside their companies, in ownership interests they acquired but have never sold.
Further, in both cases only a tiny fraction of their wealth has ever been spent on themselves. Far greater amounts have been spent on charitable purposes, solely for the public good.
Careful economic analysis does not always lead to cynicism. Sometimes it yields a more favorable assessment of what other people have done.
There is a simple way to solve the craigslist problem: snap a Google ad on the side. Nobody can accuse Mr Newmark not making a lot of money anymore. It probably won't offend craigslist loyalists that much. The publishing industry will still be struggling. But then at least they can focus on reinventing themselves rather than blaming another person.
I really don't see that profit-driven v.s. purpose-driven idea that insightful. Like the article says there is tectonic changes in the industry. A lot of old business will hit the rock. New businesses that arise would not resemble them. Most people will still want to make money. But given the competitiveness it is hard to maintain a franchise like it used to.
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RADAR TOPICS
Craig Newmark [04.02.06 10:02 AM]
Ah, whuffie is good, so is Cory's work. (I might also be an abberation, but this is San Francisco, so it's hard to tell.)
thanks!
Craig