Sessions Top Ten Insights - Two
Social production systems seem to deliver a much higher portion of the economic value created to the consumers than traditional production systems do.
As Tim O’Reilly says,
"if you look at … Ebay or Google, even though they're very, very successful companies, they're actually pretty generous in creating value for people outside the company".
This may be because peer producers could get restless if they felt that too much of the value they created was being appropriated by others. It could also be happening simply because the economics of social production make it possible for people to be generous.
But, Tom Evslin pointed out that generousity can be used as a competitive weapon.
"if we think of Craigslist's strategy, it's a brilliant anti-competitive strategy and I don't mean a value judgment by that. How do you compete with them? If you're not in the areas that they charge for, then you can't make any money because you can't charge for those areas either. So you can say, "Okay, well, I'll go compete in San Francisco by giving the ads away," but you don't have the readers in San Francisco. So what they've done is they've said that I've got the network effects from all the places that I give the ads away that I use to make the ads more valuable in the places that I sell them. And so I don't think it's just negligence that they haven't got around to charging for the other places. It's deliberately focusing the value on where they're extracting the money. It's like the Microsoft strategy of always pricing under Lotus, because you just don't want to leave any room for a competitor. And so here's the brilliant I'll price it free in most places so you can't go around me and get in anywhere, and I'll expect value from a few sweet places which you can't beat me there because the value I'm giving away for all the free places"
Whether this was conscious on Craig’s part or not, it has made it difficult for an entrepreneur to enter one of Craig’s markets with an offer that is less generous to the end consumers.
October 28, 2005 10:25 AM, By Brad Burnham
Tags: topteninsights usvsessions
Comments (6)
Brad,
I read your entire transcript as soon as it was made available. I was hoping you were going to podcast the session. Maybe next time. I love this obsession you and Fred have with trying to figure out these models / concepts. I've been following Fred's Blog for some time now and its really interesting to see how much you guys are observing and absorbing in this space. I'm sure your investments will benefit from your willingness to learn. I've been researching and studying what you guys are now discussing for the last 2.5 years. This is very exciting for me and I would love to chat or communicate sometime. If interested, I would like to send you (and Fred) some thoughts, ideas and concepts that I've come up with that focus on this peer production business model topic. Would this be OK? If so, where shall I send it?
Posted by Andrew , October 28, 2005 11:12 PM
Do we have a strategy?
(if you want to confirm it's me, send me an email)
Craig
Posted by Craig Newmark , October 29, 2005 12:06 PM
Google can take this strategy one further. By buying/licensing content such as maps and then giving them away, because the search eyeballs are so valuable, they can effectively destroy small companies charging for the same content. They are strengthening the web 2.0 ad-based revenue model by destroying other models, intentionally or not.
Posted by Ian McAllister , October 29, 2005 04:09 PM
You could also posit that in a social production system, the act of charging for services acts as a behavioral guideline for the users. In the case of Craigs List, by having businesses pay to posting job offers, it helps to ensure that the ads people post are legitimate (in larger markets anyway). In the game of giving services away, charging for services can function in a different capacity that just generating revenue, it can help to form the unspoken rules of engagement.
Posted by colin , October 30, 2005 10:35 AM
An important area that I feel is highly relevant to social production systems but which has not been mentioned in the discussions or follow up comments is Massively Multiplayer Online Gamess. The real value of all these games is only partially in the content the publishers create. Most of their value is in what the players create in terms of characters and social organizations.
Clearly MMOGs are some of the most closed walled gardens in existence, trying to shut down Ebaying etc. I think it is a particularly interesting dimension as to this point they are paid services and funded very differently (no advertising to speak of) than the other models discussed.
So could an open garden model work and would it surpass the wildly successfuly closed versions that exist today?
Posted by Andrew Holz , November 1, 2005 10:50 AM
I think the insight relative to Craig's pricing model is interesting. Did he think of that or did Tom just invent the theory? Craig? Someone is brilliant...
Posted by Alexander Muse , October 28, 2005 08:30 PM