The future is analog (at least part of it)

Mixed messages in a digital economy

Open...and Shut The times they are a' changing for digital media and software, but perhaps not always for the better, as recent reports suggest, and not always as completely or as fast as the Silicon Valley set would expect.

Silicon Valley, with its endless fascination for the new and the novel, is quick to point to Apple as the slayer of traditional media business models, or Google as the conqueror of Microsoft, but the facts simply don't bear such facile characterizations out.

Not yet, anyway.

After all, the old world of analog thinking and analog business models still mints billions of dollars of profits each year, profits that continue to help create exceptional content and fantastic software, including mountains of open-source software.

This is particularly evident in the media world.

Time Warner chief executive Jeff Bewkes would be unlikely to find much of a following in Silicon Valley, but his against-the-grain "analog" approach just might be saving Time Warner's business:

Bewkes says a growing number of content companies are waking up to the perils of the new low-cost Web channels. "For a year, they had some young digital-rights VP selling this stuff for an extra 10 percent, and people said, 'You should give little Freddy a bonus because he made some extra money,' " he says. "Meanwhile, someone realizes he just sold TNT a series for $2 million an episode that can be shown two times a week, and Freddy sold the same rights for $200,000 to a website that can run it day and night." There go your syndication deals and DVD sales, he says....

Netflix stock rose almost 220 per cent last year, while Time Warner shares underperformed the market, rising a little more than 10 per cent. As Bewkes sees it, a great website and low-paying subscribers don't add up to a healthy business. "We've all seen this movie before," he says. "It was called AOL."

Whether or not Bewkes will be right in the long run is unclear. But for now, Time Warner is almost certainly right not to hop on the open-everything, digital mindset that many demand (as I once did in my "burn the boats" screed). Time Warner has lived it in the form of AOL. Small wonder that it's not anxious to go down that path again.

Nor would industry numbers suggest that digital media is a financial savior.

Take the music industry, where digital media has not so much saved the music industry as eviscerated its profit models. The International Federation of the Phonographic Industry recently reported that digital music sales grew six per cent in 2010, while the overall music market dropped by as much as nine per cent. This leads Forrester analyst Mark Mulligan to declare, "Digital music has failed."

It's possible that Spotify and its kin will save the music industry. Or not. It's also possible that music will become free(r) and artists will make all their money from concerts and t-shirt sales. Or not.

What does seem clear, at least to me, is that in music, as in other industries, the future looks very much like a blend of analog and digital, of proprietary and open.

Google gets this. So does Facebook. And Red Hat. Each is built on the model of encouraging or channeling widespread abundance, but then filtering it down. In a world of abundance, scarcity becomes critical for being productive. So Google helps you search; Facebook helps you connect with friends; and Red Hat delivers a certified, stable stream of updates and access to open-source software.

For each of these companies, as well as others like Netflix and Groupon, success starts with giving lots of code/services/goods away for free. But not everything. Something is always held back - something "analog" - that enables the provider to make money.

Because in business, it's not enough to just be popular. You actually have to deliver shareholder value. It's a legal requirement.

For a variety of reasons, the technology world does seem to get this better than most, and has much to teach more traditional businesses like entertainment and news media organizations.

Take Facebook, for example. It just released its Supercell test infrastructure. Facebook's Scott MacVicar explains:

Testing is an important part of any project; it allows the engineer to discover errors that could have occurred while adding a new feature or a regression introduced while fixing a bug. These are all a normal part of the software development process.

While companies generally have dedicated resources available for this task, the same isn't always true for open source projects....Our...goal is to provide an easy to use service for projects to do testing on various operating systems and hardware architectures.

Not to mention to ensure Facebook becomes a default destination for open-source developers to write and test code. Facebook isn't doing this out of the kindness of its heart. Facebook is giving away this Supercell service in order to drive business goals.

And so it should. Microsoft shouldn't dump its profits-generating business any more than Time Warner should, simply because Google, Netflix, and other comparative newbies have found new ways to do business with the web. Instead, they should be looking for ways to blend disruptive digital business models with their old-line profit machines.

In like manner, it's interesting to see new-wave digital companies embracing analog elements to their otherwise all-open, all-digital models. Many new tech ventures have looked to advertising to hide their lack of viable business models, but companies like LinkedIn, Atlassian, and Jive have shown ways to blend open and closed, analog and digital, to create vibrant, growing businesses.

"Love, peace, and harmony" are great goals, but "maybe in the next world," as The Smiths once sang. In the meantime, there's "love, peace, and a certain amount of proprietary control." That seems to be the right model for today, and maybe for tomorrow, too. ®


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