Category Archives: Business

The Engagement Layer

I love the immersive experience of SXSW. Seeing, hearing, conversing, touching and tasting* a culture is essential to getting a real understanding of it. And this place, at least for this week, is the intersection of technology, media, culture and business. Being here helps to understand the context of what I see from a greater distance in regular life.

Krogh_140310_0467What does SXSW sound like? To me, it’s the nonstop cultural mashup of Girl Talk. It all comes together as a compelling stream of youth, energy and flagrant copyright violation.

One of the things I’ve been investigating here is the ongoing battle for control of something I’m calling The Engagement Layer in mobile and internet. I’m using that term to mean the place that the user puts his attention. (Back in the olden days, we called this “Portal”) The gigantic explosion of Apps, media, social services and big data all come together in the battle for the top layer of that 3×4 inch screen (for mobile) or 10×12 inch screen (for computing).

The companies that control the Engagement Layer – for the time they hold that control – have an immediate opportunity to gather massive wealth. And every few months, some new game-changing technology is introduced that shakes up the landscape.

Note that the Engagement Layer does not necessarily refer to the main screen you log in with. There’s plenty of opportunity in building an Engagement Layer for a specific area of interest. Food, photography, music, social interaction and more can be brought together and presented to the user in subject-specific engagement.

Those who own a chunk of the Engagement Layer want to hold on to it and expand. And there are tens of thousands of startups that are tying to get into the game and either knock off the top players, or, more frequently, sew up existing services to make a new top layer. Some examples.

Twitter v. Facebook
Twitter and Facebook continue their war, but it’s become an open firefight being waged through the API. They apparently have changed the Terms of Use to forbid major broadcasters from running their content on the same screen simultaneously. (I can’t seem to find a reference to this anywhere on the internet, but the sources were very credible.) In this case, they are fighting to provide the Engagement Layer bridge between the internet and broadcast TV.


140312_MakerMaker Studios

I got to see Ynon Kreiz, CEO of Maker Studios yesterday speaking about the way are using a data-driven curation model to create an Engagement Layer on top of Youtube. I hope to do a longer post on what I saw in that session. I’ll quote my friend Emmanuel Fraysse, “That guy’s a killer.” Later in the day, Disney announced that they were in talk to buy Maker Studios.

Getty
I think the Getty move should also be seen in the context of the battle to control the Engagement Layer. It has three things that any successful player needs here. First, engagement in mobile is driven by photos, and they have a lot of photos. Engagement is also driven, under the hood, by semantic connectivity. (By this I mean, “get me from this thing I’m interested in to this other thing I’m interested in easily or automatically”.)

And, of course, Getty has a lot of users, which is often what companies are really paying for in an acquisition. (Facebook paid $19 billion to purchase WhatsApp – a half-million dollars worth of code and 400 million users.)

All of the other discussions I saw in the last few days – including those involving Amazon, Mental Floss, Atavist, Twitter, Dropbox, and a couple dozen other companies I’ve never heard of – all of these discussions could be best understood in the context of a battle for control of some piece of the Engagement Layer.

*In case you were wondering. It tastes like bacon fried rice, with a Monster Energy Drink and Vodka.

 

Getty did what?

GettyGetty images are now free.

Okay, so I’m trolling. They are not “free.” But editorial and academic uses of unwatermarked images on blogs can now be done for free, as long as the images are embedded in the blog, rather than uploaded to the blog. That looks a lot like free to a lot of people who publish blogs. Including widely-read blogs. Here’s the link.

At right is my chat tonight with a Getty representative. Relevant passage at the bottom of this page.

So what’s going on here?  This is not particularly surprising to me. I’ll outline it here as succinctly as I can. Let me say that this is opinion, including a fair amount of speculation. I wish I had inside information about what they are up to, but I don’t.


On any other day, the photos on my blog are mine. But today, we make an exception, and I’m using photos from the Getty embed service.

Private equity
The first thing to look at, as we consider the new Getty business strategy, is the ownership of the company. They are owned by the Carlyle Group, a private equity firm. While there are plenty of ongoing ventures owned by private equity, it’s pretty common for private equity firms to buy a company, and then sell it for the parts. (As long as the parts are worth more than the purchase price.)

I’m working under the assumption that Carlyle does not want to be operating a stock photo agency in 20 years, or even 10 years.  At minimum, I don’t see them wanting to operate a stock agency that is in partnership with photographers.  2011 revenue was $900 million. If they made 10% profit, that would be $90m, good for you and me, but a pretty tiny return for Carlyle’s 3.3 billion purchase price. And they have a $1.2 billion loan due in 2016. Sometime between now and then, it would be smart for them to sell this thing off and cash out.

I just don’t think that Getty looks like a buy-and-hold for Carlyle. So what would they sell? I don’t think it’s a souped-up old-school Getty. It’s something different.

And keep in mind we’re in a world where Instagram has opened up the spigot for usage of its 20 billion image collection through the API.

Picscout
Picscout is image recognition technology that Getty bought for $20 million. It was developed to help photographers find infringing uses of their photos on the web. It does a very good job of scouring the web and finding multiple instances of the same photo. Getty has built an enforcement department that collects some royalties for these infringements, but this is a lot of work for a small amount of money (again, in their context).

And it only works for pictures that Getty owns outright. If Getty has a non-exclusive right to license a photo, then it can’t go around demanding money from anyone using the photo. The user might have a valid license obtained from the photographer or another stock agent.  This takes all the automation out of the process, and turns it into a high-cost, low-reward endeavor. This business absolutely does not scale in the way Carlyle needs.


Pinterest
Last year, people were scratching their heads over a deal Getty made with Pinterest. Getty is using Picscout technology to indentify images on the social media site and provides permission to use the photos.  But they are not licensing the photos, exactly. Getty agreed to license metadata. On one level, it’s pretty obvious what’s going on. Getty is not obligated to pay photographers for metadata, so that makes sense (if you’re Getty.)

And on another level it works even better. Getty gets to build and deploy some really interesting new technology that provides licensable connectivity between different copies of an image. So you can connect that cute dress photo on Pinterest to the online catalog is was pulled from. It allows Pinterest to say they are working on a rights solution, while not setting  a precedent for actually paying for photos (which could come back to bite).

Getty makes money it does not have to share. The private equity firm that bought Getty gets a great sandbox to build the business, and Pinterest gets some safe-harbor cred when it tries to be bought or go IPO.

The valuable technology here is not photo licensing or license enforcement. The valuable technology is a semantic understanding of the visual web. Getty is building the technology to tie photos to each other, to the places they are published and how they are shared, and to provide an underlying commerce engine.

(From here out, I’m going to call this “the database”. While it has more elements than a simple database, at the core, like Google, it’s a set of related data.) This database has the potential, in my opinion, to be worth far more than the picture licensing business ever will be, at least in our current hyper-inflated tech bubble.

It’s like what Google can provide, but different. Google Maps is extensible underlying technology. It can be used by nearly any application, business or individual in the world to help them understand context and connection in nearly anything, as long as there is a geolocation component. Imagine if you could do that for photos. Technologies like this are extremely valuable, on many different levels.


This is a photo of Betty, the lady who runs the internet.

It’s about connectivity

Ultimately, the strategy for leveraging Picscout technology is all about connectivity. The database provides connections between images, which enables an understanding of the context of images in a semantic way, a behavioral way, as well as a commercial way. As images become a new language and central to most forms of interpersonal and cultural communication, it’s ever more valuable to understand them in these contexts.

The more robust, ubiquitous, and intelligent the database, the more valuable it is.

So an important part of the business plan is the connectivity enabled by Picscout. But you can get connectivity another way. Embedding images is the ultimate connectivity. The existence of the photo is utterly dependent on the connection between the server and the user remaining intact. This means that the website using the photo is beholden to the service offering the photo. If the hosting stops, the photo disappears. All the photos on this page, for instance.

(This is at the very core of API World. More on that another time).

But even more important, connected web objects like these embedded photos are a means to gather tremendous amounts of information. You can know who sees the photo, who clicks on it, how many times it’s served, to what countries, what times of day, where the viewer came from and where they exit to (to name just a few details).

And if you allow for in-object links, the image can even become a platform for commerce. (Read the snippet from Getty website at the bottom of this page). One day, Getty could decide that  photos of VWs will carry a link to an Amazon store that offers vintage VW parts. They can turn it on, and be in millions of places instantly. The technology to do that is already in HTML 5 and does not require plug-ins or updates by users or anything else. (Check out Stipple if you don’t know what I’m talking about).

Roadkill?
So if the really valuable thing that Getty owns is this connectivity and the semantic understanding of our visual media, what about the stock photo licensing business? It’s certainly a really useful tool for building the database – it offers a whole bunch of useful assets: a lot of images to test on, negotiating power with any social media entity, legal cover for social media companies and official agency for many people in the industry, which allows Getty to implement the database without being bombarded by lawsuits from image creators.

Getty has chosen a strategy (give it away for free, become core service) that is tried and true for company flipping, but much less successful as a long term strategy. To me this speaks very clearly.

When it comes time to sell Getty, the stock photo licensing business – the one where the company partners with photographers and other image makers and does traditional RM or RF or even subscription licensing – will probably be second-fiddle to the technology company. In that context, the most important issue is not screwing up the bigger, more valuable deal. Maybe their image collection is central to the business model, or maybe the far larger set of images outside their collection is more monetizable. The disposition of Getty’s stock photo business is a question mark. They may need to keep and nurture it, spin it off to make a few bucks, or kill it if it’s getting in the way of the bigger deal.

In the end, I think the traditional partnership-based stock business is probably roadkill in this equation, at least from Getty’s perspective. Stock photo partnership is going to be flattened by a truck rolling down the highway that is 100 times larger. Inflated tech money is starting to roll into media and content in a big way. I think we a sale or some other recapitalization of the company before the end of 2016. I’ve actually been waiting for this to start in earnest, and here it is.

Or maybe they just decided to give away the photos for free.

 

Embed Terms:

Embedded Viewer

Where enabled, you may embed Getty Images Content on a website, blog or social media platform using the embedded viewer (the “Embedded Viewer”). Not all Getty Images Content will be available for embedded use, and availability may change without notice. Getty Images reserves the right in its sole discretion to remove Getty Images Content from the Embedded Viewer. Upon request, you agree to take prompt action to stop using the Embedded Viewer and/or Getty Images Content. You may only use embedded Getty Images Content for editorial purposes (meaning relating to events that are newsworthy or of public interest). Embedded Getty Images Content may not be used: (a) for any commercial purpose (for example, in advertising, promotions or merchandising) or to suggest endorsement or sponsorship; (b) in violation of any stated restriction; (c) in a defamatory, pornographic or otherwise unlawful manner; or (d) outside of the context of the Embedded Viewer.

Getty Images (or third parties acting on its behalf) may collect data related to use of the Embedded Viewer and embedded Getty Images Content, and reserves the right to place advertisements in the Embedded Viewer or otherwise monetize its use without any compensation to you.

(Editor’s note: Or the photographer)

Form and Content

I read a post on boingboing recently that got me thinking. In it, Cory Doctorow takes a swipe at business models where the term Content is part of the core plan. (“Content” has the stink of failure…)

While I don’t entirely agree that the term Content is a marker for a poor business plan, Cory raises some interesting points. The form of the presentation must drive the design of the material. New technologies and formats create new opportunities and limitations for the artist/writer/photographer/musician/publisher/whatever. (DJ Clark, for one, is working to create good disciplined thinking about the form, structure and usage of content as it relates to various media.)

Krogh_131102_0752Repurposing material has created a lot of wealth. Great books can be turned into movies or even video games. Movies have had multiple new commercial lives being repurposed for tv, DVD and streaming.

So it’s tempting to create a business plan that is medium-agnostic (as Cory says, to remove all “form-dependent elements.”)  The “content”, the theory goes, could be created in a non-native form, and simply poured from bucket to bucket, reducing the friction for each new instance of monetization.

I agree that this feels like MBA-think which does not respect the creator, audience or real value of the product.

However, there is an element of “Content” that is essential as part of a media business plan. But that content exists in the underlying ideas or story, not the exact expression in a particular medium. The story of To Kill a Mockingbird has a beautiful perfection in the manuscript form, but also a different beautiful perfect form in the 1962 Universal Pictures version. The content is the language in the original book, but on a more fundamental level, the content is the story and the characters.

When used in the proper context, “Content” is at the core of all media enterprise. It’s essential to understand exactly what your real content is. Is it the words or images, or is it the underlying ideas? There’s no universal shortcut for creating form-independent expressions of content, but there are huge opportunities in understanding the opportunities new forms present.

CC Licenses, APIs and Content Stacks

I just read an article in Wired that pushed a lot of my buttons, and illustrates a number of the points in my talk at the PACA conference two weeks ago.

A company called Pro Populi has used some AOL data to create a new service that makes the data available in new ways, notably on a mobile platform. The data is published by AOL under a Creative Commons license which allows for reuse in an nearly unlimited number of ways, as long as credit is given.

At first I thought this was a story about people unwittingly giving away the store. As I have been writing recently, I think that many people are granting very broad licenses to use their content when they post on social media. This can come back to bite you when someone starts to build a new service with your data in ways you aren’t expecting.

This is a particular problem for media companies that publish stuff to other social media platforms. If you are a media company pushing your content online to Instagram or Facebook, you may find that the content shows up in competing products that you exercise no control over (and get no revenue from). The story in Wired uses this as the lead – AOL publishes database, and company scrapes up the whole thing, reformats it, and builds a new service with the data.

But buried in the 12th paragraph is the real story – the business implications of the Application Programming Interface or API. APIs allow one company to make their data available to another user, service, device or application. And they come with their own terms of service, with implications that few people understand.

On the surface, an API seems like a great way to short-cycle development. You can wire up the content or service into your own in a matter of minutes, hours or days, instead of months or years of development. It’s creating phenomenal growth as data stacks and business models are remixed on the fly.

But APIs typically come with take-it-or-leave-it usage terms. When you build with APIs, you run great risk that the service which is offering the API-fed data will simply turn off the spigot. If your business depends on the live link to the data that APIs provide, you are at the mercy of the provider. And that’s the story here, the one that Wired buried.

Welcome to APIworld. Over the next few years, APIs are going to become central to the battle for commerce and business development, particularly in the media realm. We’re going to be seeing this story a lot in the next few years, as more people find that they have built their businesses on agreements they did not even know they were making.

David Byrne and the Independent Creator

I’m peeling this post off of a discussion I’m having on Facebook with Leora Kornfeld, who writes about Disintermediation as a Harvard Research Associate. I think this message is an important one for all independent creators to be thinking about as all content-based industries are changing around us.

Here is David Byrne’s Oped in The Guardian. In it, he argues that new media consolidation on the internet is squeezing the economic sustainability out of music broadcast.

And here’s my take on it:
I think he has a point about the economics of the new aggregators. It’s a little ironic to see a reference to the good old days of the record company fairness, since they were the posterboys of IP robber baronism. 

Now, it’s the tech aggregators turn. It may be an even less fair arrangement, due to a confluence of factors. The end result will probably depend on whether the winner-take-all model topples, or whether it stands. 

Also it’s probably more accurate to say that the new model is sucking the economic sustainability out of the middle and bottom rungs of a professional art form. Whether that translates to the “life” or not is a different question. 

Of course, both of the above questions are linked. Do new disintermediation models spring up to get around the reintermediation™ of Amazon and Pandora? Jeff Goldblum would say that life will find a way.

You’ll see many people in the tech world shrug and say, “Get used to it.” But this ignores the fact that there is no one single natural order of things. The rules (laws) governing business practices set the playing field. And those rules are set by governments.

When radio was new technology, for instance, payola was outlawed. This law was instrumental in the development of music businesses in the radio age. Without these laws, the record companies would have had an even tighter stranglehold on the entire industry and could have required even more onerous contractual terms.

Monopolies deform the marketplace, generally to the detriment all outside stakeholders. Disintermediation is undermining the power of the existing content oligarchies, but reintermediation is apparently on track to bring an even greater concentration of wealth and power into fewer hands.

Along the way, these companies will work to bend the rules in their own favor. So I don’t think that stakeholders outside the new oligarchy should simply “get used to it.” Our laws are ill-equipped to deal with the challenges of the digital age. And we should not leave the law-writing only to those with the highest concentration of wealth and power. History teaches us that they will try to increase their power by tilting the playing field. 

It’s possible that these companies will be prevented from becoming true monopolies through some market-based limiting factor, such as hubris, incompetence or outside competition. But it’s also possible that they win the winner-take-all game.

In that case, as with the monopolies of the last century, it may fall to governments to limit the power of these companies. It’s important for independent creators to stay informed and to advocate for their own best interests.

The other shoe dropping

Late breaking news: Facebook has delayed the implementation of the new policy. Send your comments to Facebook today. Link at the bottom of this post.
Facebook has just claimed the right to use or sell your identity, your content and your data without limit. They have nuked their own privacy policy, removing the right for you to keep anything private.   This takes the suckiness of the Instagram contract and adds even more suck by explicitly making you agree that everything they know about you is for sale, and that you have no right to keep any of it private. The new terms are set to take effect next Thursday.

ReallFcebookYou can find the proposed document here.

 

Facebook has asked for comments. They can be posted here.

 


Here’s the most important language (strikethrough indicates language that is being removed. Bold text is used to indicate the new additions).

You can use your privacy settings to limit how your name and profile picture may be associated with commercial, sponsored, or related content (such as a brand you like) served or enhanced by us. You give us permission to use your name, and profile picture, content, and information in connection with commercial, sponsored, or related that content (such as a brand you like) served or enhanced by us, subject to the limits you place. This means, for example, that you permit a business or other entity to pay us to display your name and/or profile picture with your content or information, without any compensation to you. If you have selected a specific audience for your content or information, we will respect your choice when we use it.


The Section-by-Section Summary of Updates takes pains to claim that Facebook has the right to collect and make use of data that it finds “when you are using Fcebook or when Facebook is running.” This probably gives Facebook a license to collect, use, share and sell most of your web browsing (unless you are running software to block cookies) and much of what your mobile phone is gathering, such as your location, phone calls, etc.

They are already collecting a lot of this information. The screenshot below is from my Facebook feed a few hours after I did a search for a hotel in Reston on a totally unrelated site. Facebook is already collecting, using and selling this kind of information. They are now asking for irrevokable permission to continue, and to add your photos to the mix.

130829_Facebook

As with the Instagram Terms of Use, I believe that Facebook is asking for open-ended permission here that does not serve the needs of users. This is an overly broad agreement that shifts the control over a person or company’s content and identity too far into the hands of Facebook.

I’ll be deleting the mobile application off my phone because I’m uncomfortable with the amount of data it gives to the company. I’ll have to think about any additional action depending on how the company responds to the comments.

The Instagram Papers

DAM Useful Publishing and ASMP have just released The Instagram Papers, a collection of essays about the current Instagram Terms of Use, and the rights that they give the company.  The company claims a right to do nearly anything with the photos and videos uploaded to the service, including to sell them, forever.

TheRightToTerminate

In response, we have put out an open call for a meaningful right to terminate social media contracts. We believe that the right to sublicense your photos and identity should be something you can revoke, if the company’s practices become objectionable.

Over the next few months, ASMP will be working with other organizations to advocate for this basic contractual right. If you are interested in lending your name or your organization’s name to the effort, you can contact me here.

Here’s a link to the complete papers, which are available for free download and distribution.

 

 

Ink, Paper and Diesel Fuel

Once upon a time, print media empires were built on a platform of ink, paper and diesel fuel. The most important prerequisite for a publisher was the ability to afford the cost of distribution.  On top of that platform, an editorial voice or service was built, along with an ecosystem of advertisers, and an audience of readers. Record companies added the cost of vinyl to the mix, and broadcasters added access to a government-licensed monopoly of the public airwaves.

Because the publishers controlled the means of production, they were the gatekeepers of media and, to some extent, of modern culture. They became the intermediaries between the creators and the public at large. Publishers built success by curating a voice or a point of view, leveraging their distribution abilities to make a coherent body of work. Few creators could afford to front the cost of distribution, even if they could manage to do the production themselves.

The high cost of distribution helped to create a controlled ecosystem for publishing. The value proposition for any media could be calculated using some factor of the cost of distribution. For many years, photographers charged on the basis of image size and print run – fees were tied directly to the cost of ink, paper and diesel fuel.  This set a valuation that people could understand and created a relatively stable market.

Disintermediation describes the what happens when the intermediary players are no longer needed. Amazon, iTunes, YouTube, Hulu, Google and a few more have taken the middleman out of media and retail businesses. Disintermediation is clearly happening, and it’s measurable. You can compare audience size, money paid, number of paid performers, profit sharing of the technical partners and more. If you have some good information to work from, it’s possible to form a good picture of the actual progress in getting rid of the middleman.

ZenithOptimedia recently came out with a list of the 30 largest media companies, and Google is at the top of the list with media revenue of $37.9 Billion. And the vast majority of Google’s revenue in this space is tied to a model of Disintermediation, where the gatekeeper simply opens the door, and lets anyone walk through.  Of course, there are still a number of companies that remain on the list that do function in a more traditional manner, but they all are working to adapt to the new environment.

The gatekeepers have lost their oligarchy, and, yes, the barbarians are at the gate. Electronic distribution has taken the hard value factor out of the compensation equation for creators, leaving a zero in place in some instances. In other instances, the multiplier remains, but it is so much smaller than the cost of physical distribution, that it amounts to nearly zero.

Crowd-sourcing is not the only model, thankfully. There is still room for a voice or a point of view that is curated. Yes, you can listen to a computer-generated playlist on Pandora, but I still prefer the surprise and delight of listening to great DJs like Mark Wheat at the Current (a real over-the airwaves station, in addition to an internet station.) I don’t think we’re anywhere near the end of curation. Rather, we are in a new world of curation where it’s possible become an editorial voice, despite your inability to pay the cost of ink, paper and diesel fuel.

Leora Kornfeld is doing some really interesting reporting on this subject.  She’s a Reasearch Associate at Harvard, studying disintermediation. Her blog De-mass’d reports on the phenomenon, providing good research into the specifics of the media reach, money earned, and implications of the demassing of mass media.  If you want to really get a handle on Disintermediation, and how it is actually taking place, put her blog on your reading list.