The Experience of Music

[This entry was originally published as an opinion piece in Music Ally, a European music consultancy.]

The boot print was still clearly visible on my forehead when I stumbled out of Detroit’s State Theatre into the early morning grime of Woodward Ave. I hadn’t been more exhausted, or exhilarated, from a live show since I had played the part of Max at the first Lollapalooza festival a few years earlier. There I had danced for hours with the other Wild Things, high on the grassy hill of nearby Pine Knob Music Theatre, dodging flames from makeshift bonfires radiating the unnatural colors of burning blankets, trash, and suddenly-unnecessary clothing.

At its core, music is communication. Whether experienced with a thousand other people in an amphitheatre, or alone in a darkened bedroom, the value of music is in its ability to connect us all in impossibly complex ways. Like music, mobile communications is all about personal interactions. The way we engage with our mobile device is as personal and diverse as how we experience music. The mobile phone is now at the center of the communication and entertainment universe for an entire new generation, and as we watch the mobile industry converge with the internet before our eyes, we are witnessing the birth of the most empowering personal technology in history. And by providing such powerful and new ways for people to interact, the mobile phone represents an opportunity of unparalleled magnitude for a struggling music industry.

In the business of music, it has become all too common to measure value in ‘units.’ These measures emerged in an era when the production, marketing, and distribution of sound recordings were difficult and expensive problems, forcing the value of the industry to be tied very closely to its ability to solve them. The disruption and chaos that followed the emergence of the first peer-to-peer services on the internet was inevitable: too much revenue came from distribution, and distribution was suddenly completely and utterly free.

But music is not a download. Nor is music a CD, a ringtone, nor any other mechanical representation or reproduction of sound waves. Clearly, no jewel case could contain my Where The Wild Things Are experience of Lollapalooza some seventeen years ago, and no stream of ones and zeros can ever replicate the mingling sensations of ringing ears and metallic taste in my mouth that I associate with that Nine Inch Nails show.

If the music industry is to regain its footing, it must go back to the business of enhancing the experience of music, and break its unhealthy dependency on the mechanics (and, perhaps, monetization) of distribution. Mobile technology is the perfect platform to simultaneously enhance the musical experience while allowing for substantial revenue potential for those who would take a holistic approach.

Ironically, the dominant mobile entertainment value chain today looks a lot like a physical distribution model. High production costs, tightly-controlled distribution channels, and limited retail space are strange characteristics for a digital environment, but they persist in mobile due to a legacy of restrictive and anti-competitive business practices in the telecom industry.

Fortunately this model, like the physical distribution model before it, is quickly becoming an anachronism. Mobile phones have become full-fledged internet devices, and the same market forces that provide the beautiful mess of innovation that is the internet today are quickly converging on the mobile space. Though the promise of a truly open mobile environment remains elusive, there is an emerging new mobile economy that promises to dramatically change the mobile industry for the benefit of all.

Change, especially disintermediation, is always resisted by those with a vested interest in the status quo. But fighting technological advances has historically been a doomed strategy. Indeed, it always will be. By providing zero-cost distribution, technology has fundamentally and irrevocably altered the economic landscape of the music industry. The toothpaste is out of the (you)tube, and no amount of litigation or legislation can change that.

Indeed, society itself is changed by technology. We simply are not the same people we were before the internet, and the mobile generation now coming of age has an identity and set of expectations that are very different from that of their parents.

The fluidity of distribution, and the resulting fluidity of value chains and of society as a whole, has created completely new levels of interaction with music. In mobile, especially, we see emerging artists using text messaging to communicate directly with their fans, harnessing the promotional value of ringtones to virally market themselves, and providing over-the-air downloads of “behind the scenes” videos that fans can enjoy on their phones anywhere. If the spirit of an open mobile ecosystem were embraced fully by the music industry as a whole, we would undoubtedly see huge markets emerge for impulse purchasing of concert tickets, merchandise, and a million other things besides.

Mobile represents an incredible opportunity for the music industry, but the true potential can only be realized by working in an open environment to enhance the experience of music, rather than trying to control its expression. Openness encourages a vastly higher level of engagement, such as my experience at Lollapalooza so many years ago, and can serve as the foundation of a valuable and profitable modern music industry.

By fully embracing the mobile music experience we find more than ample opportunity to compensate for the loss of the industry’s historic profit centers.

Flickr my Myxer! Or. Don’t.

So we launched what I thought was going to be a wonderfully well-received feature on Myxer this past weekend. Using the public flickr APIs, we wired up Myxer’s search functionality such that, in addition to searching our large catalog of user-submitted images, we would also search public photos hosted by flickr. We then added a “send to phone” feature to the images, so that Myxer users could send images they discovered to their phones (e.g., to use as wallpapers).

We loved this feature internally, because most of us around here use flickr as a way to share simple snapshots of people and places that we want to share with others. Adding “send to phone” functionality to flickr was a great way to quickly find photos of friends, etc., and send them to your phone. Because we always included full attribution and direct links back to the hosting page on flickr, we thought the integration would be appreciated by the flickr community at large.

Unfortunately, that’s not exactly what happened.

Soon after we launched this feature on the evening of July 3, 2008, a thread appeared on Flickr’s help forums with the title Myxer Using Copyrighted Images Without Permission. After browsing through a dozen or so posts, it became fairly obvious that the community at large had some, err, issues with our implementation. We quickly disabled the Flickr integration feature on Saturday so that we could step back and take a look at the situation, and I posted a response on the flickr forum apologizing to the community for having obviously struck a nerve.

Comments publicly ranged from the straightforward (”The fact that you can see something on Flickr doesn’t automatically mean you can use it.”) to rather more USENET-style flaming to my personal email (”I guess you cheated in school and feel you can do anything you want just because you think you can”). At least there were a few less angry comments, for example a simple post by Jayal Aheram who said the words we were hoping everyone would say:

“Oh, sweet! They can send my photos and my favorites straight into my phone. How cool is that?”

So what was the problem? Well, the mechanical thing that caused grief was that our engineers mistakenly assumed that search results we received from the “public” flickr photostream via the API were all appropriate for use by Myxer (assuming we included all of the attribution information) because we had obtained a commercial API key. But as was very quickly pointed out to us after launch, the Flickr API Terms of Use state (in section 1.a.ii.):

…your use of the Flickr APIs [does not] override the photo owners’ requirements and restrictions, which may include “all rights reserved” notices…Creative Commons licenses or other terms and conditions that may be agreed upon between you and the owners. … If you use Flickr photos for a commercial purpose, the photos must be marked with a Creative Commons license that allows for such use, unless otherwise agreed upon between you and the owner…

In other words, without the explicit consent of the photo owner, a commercial Flickr API partner should filter out content that does not have an appropriate Creative Commons license attached to it. iansand pointed this out very concisely in a follow up post on the flickr forum (”Use CC Commercial content only and there will be no problems”).

So that appears to be a relatively simple fix for us: update our code to examine every item that comes back from the flickr API, and check it for a CC Commercial license, signaling that the owner of the photo has consented to commercial use such as ours. No CC license? Toss it in the bit bucket.

I think, though, that the mechanical failure is in many ways less notable than the failure to realize that, at a high level, not everyone who uses Flickr uses it like most of us here at Myxer do. Indeed, the Flickr community is home to a large number of professional photographers who use Flickr as a showcase for their commercial photography. This is to be contrasted with many people’s personal use of Flickr, as a convenient place to upload digital snaps they want to share freely with the world of family, friends, and so on. And while we have a couple of professional photographers in our company, it didn’t really sink in to us that there were many in the Flickr community who were not interested in spreading their photos far and wide, and opening them up to new uses by the web community.

Mea Culpa.

Let me repost some of my original reply from the Flickr forum thread:

“First of all, I want to apologize to everyone who was angered by the recent launch of our Flickr integration feature, and I want to thank everyone who took the time to send a note to our copyright alias (copyright@myxer.com). We do, in fact, read and act on every single email we receive.

Because of your emails, we have suspended Myxer’s Flickr integration features until we can re-evaluate the situation. (This feature was live on Myxer from late Thursday, 3 July, to Saturday, 5 July).

It was never our intention to power mobile delivery of any Flickr content against the wishes of the person who posted it to Flickr, and I feel terrible that there were many who felt violated by this feature. We were honestly just really excited to add what we thought was a really cool feature for Flickr users — the ability to send publicly-posted photos to mobile phones.”

Now, a couple of other bloggers picked up on this thread and ran with it. Jim Goldstein wrote a piece called How Every Flickr Photo Ended Up For Sale This Weekend on his blog that discusses the issue in the broader context of what responsibility Flickr should be burdened with with respect to controlling access to images via APIs, RSS feeds, and so forth. Says Jim:

This latest incident is by far the most egregious, as the use of photographs from Flickr were being sold with out the consent of a single photographer, all while photo licensing terms were programmatically ignored. I’m glad to see that Myxer took the proper steps to disable their Flickr integration, but this is the latest example of Flickr playing with fire. On some varying level it is easy to point the finger at Myxer, Dave Winer (author of FlickrFan), Eightface (the company behind FlickrRSS) or any other developer/company for improperly using the Flickr API, but I would argue that responsibility ultimately lies with Flickr.

(Now, I feel it is important to point out the fact that Myxer never sold photographs from Flickr. We are, indeed, a commercial company, but we are a service provider who generates revenue primarily by selling advertising around our conduit between the traditional web and mobile phones. Something akin to NetZero for mobile.)

Jim also points to Dave Winer’s FlickrFan (the website for which has the retro/Mosaic feel befitting a true web pioneer) as an example of concern for professional photographers.

These are indeed trying times for a massive number of creative people whose footing has been destabilized in this era of instant, zero-cost distribution of digital content on the internet. It’s not unlike the challenges faced by the music industry in the internet age, a topic about which I have previously written and that I spend a considerable amount of time thinking about.

I have to say, though, that I have always been a huge fan of Flickr, and have long respected the community of creative people that make it what it is. It pains me to see members of its community turn against pioneering features such as the open APIs, because I have seen firsthand how they have fostered innovation across a large spectrum of web companies. Web 2.0 itself owes a lot to the ‘mash-up’ spirit encouraged by Flickr early on, and the evolution of the web from an archipelago of isolated websites to a fluid and interconnected network of cooperating web services will ultimately bring previously unequaled opportunities to everyone — content creator and consumers alike.

And so I again apologize to all of those in the Flickr community who felt violated by our integration, and I assure you we will very carefully evaluate all of the details of our integration with third party sites going forward. Our current plan is to fix our original implementation such that it filters out non-CC Commercial content, as was discussed above. We’re also considering providing a mechanism by which Myxer users can proactively link their Myxer account to their Flickr account (on an opt-in basis) to make their Flickr photostream available on Myxer’s site according to their explicitly-defined policies.

I hope, on the second time around, the combination of Myxer & Flickr will be seen purely in a positive light by everyone!

Myk

Mobile and the Music Industry

The carrier-dominated world of the mobile industry has created a mobile entertainment value chain that, ironically, has a lot in common with physical distribution models. High production costs, tightly-controlled distribution channels, and limited retail space are characteristics we normally think of as being part of the music industry’s past, when records and CDs were the products being sold, but today we find the same limitations in the mobile entertainment value chain.

And so it is perhaps not surprising that the music industry has found some success in this environment. Still struggling with the shift from physical to digital distribution on the internet, the artificial limits imposed on mobile technology have allowed a reprise of many of the same business practices that were honed over decades to sell music in the physical world.

Ringtones, for example, are methodically manufactured, focus group-tested, and released on carefully-controlled schedules that accommodate the weeks or months it takes to get creative to the carrier deck. The ridiculous transaction fees charged by mobile operators, often up to 50% of an item’s purchase price, are tolerated by physical distributors accustomed to giving retailers a similar markup.

But this model, like the physical distribution model before it, is quickly becoming an anachronism. Mobile phones have become full-fledged internet devices, and the same market forces that provide the beautiful mess of innovation that is the internet today are quickly converging on the mobile space. The costs of distribution, storage, and service provisioning are all asymptotically approaching zero, and consumers have developed an appetite for the open access and limitless shelf space that internet economics provide.

It’s now clear that long-term success with mobile music is not going to be achieved $1.99 (or even $0.99) at a time. And the potential for subscription models in mobile has been squandered by the tactics of unscrupulous companies with misleading bait-and-switch tactics that trick consumers into recurring $9.99/month charges they didn’t expect. The scummy underbelly of the mobile content market has damaged consumer confidence to the point where the convenience of mobile payment, already encumbered by ridiculous carrier fees, is often overshadowed by confusion and fear.

The good news is that, in the same way that music is not just an MP3, the mobile industry is not just ringtone downloads purchased through premium SMS. The mobile phone is an inherently personal device, the most personal computer ever to emerge, and the convergence of mobile phone technology with the internet is an opportunity for the music industry unparalleled in its entire existence.

Never before has such an intimate connection between artist and fan been possible; never before have market forces pushed distribution costs to effectively zero; never before has technology conspired to intertwine social expression and interaction so tightly with entertainment.

To take full advantage of this new opportunity, though, requires a mental shift, one in which we stop thinking of music as a collection of discrete units (CDs, MP3s, PSMS purchases, etc.) and go back to thinking more holistically of music as an experience. The limitations imposed by physical distribution (reflected in today’s artificially-stifled mobile entertainment market) have historically driven the music industry as a whole to an unnatural position in which value is represented by the number of units an artist can sell to the mass market.

When one removes the high production costs, constrained distribution, and limited shelf space of physical distribution, a new world is revealed. This has been extremely disruptive and disorienting to the music industry as it comes to grip with the internet. It will be just as disruptive as mobile advances, but this time around the industry has a chance to reflect on lessons learned in the shift to internet and apply that proactively to the emerging new mobile economy.

The knee-jerk reactions of fighting technological advances (suing innovative service providers instead of adapting the technology to one’s own benefit; preaching to consumers and lecturing against their desired usage patterns instead of engaging in a dialog and learning to adapt) have had - can have - no long term benefit. On one level, this is because technology changes the economic landscape such that the industry is fundamentally altered. Technology never moves backwards, so once technology takes us to a new place, the toothpaste is out of the (you)tube, and any attempt to put things back the way they were before is futile.

On a more human level, resistance to technological change is doomed because society itself is changed by technology. We simply are not the same people we were before the internet, and we are changing yet again as mobile takes the torch.

Faced with not just fluidity of distribution, but fluidity of value chains and of society as a whole, the best positioned companies in the music industry are those who have evolved to enhance the experience of music. Labels who work with their artists to create a valuable and sustainable brand that transcends any particular packaging are far more likely to succeed than those that measure value by units shipped on a weekly basis. The musical experience is multi-modal, encompassing everything from live performances to chat rooms to merch to MP3s and a thousand things besides, and new digital technologies provide new ways every day to profit by facilitating the interaction of artist with fan.

One of the reasons mobile technology is so exciting is because it has the potential to bring together so many aspects of the musical experience in a way that has never before been possible. Artists can communicate with their fans using the same tools the fans themselves communicate with each other (SMS); fans enjoy self-expression through music (ringtones); performances can be enjoyed anywhere (over the air video and song downloads); and even merch can be provisioned on impulse (mobile payments). There is no other application better suited than music to take advantage of mobile.

It’s fine for labels to make whatever money they can from ringtones today. But the greater promise of mobile for the music industry lies in its ability to be part of a much more holistic approach to the musical experience. One hopes that the hard lessons of the shift from physical to internet distribution will provide insight to the industry that allows it to take advantage of, rather than fight, the beautiful mess of the emerging new mobile economy.

Measuring Value in an Advertising-Supported Industry

There are many competing theories of value in economics, but the neoclassical assignment of value to an object or service based on the price it would bring in an open and competitive market is fairly widespread.

This definition of value, unfortunately, requires rather significant tweaking to work in an advertising-supported market. With “free to consumer” products such as web sites, newspapers, and broadcast television, the consumer product’s “price” is paid indirectly by advertisers. (The advertisers ostensibly are leading the consumer to some other product which itself has value.)

To model the value of an advertiser-supported product based on the price paid for the advertising opportunity is about the best valuation we can hope for. In the fluid economy of internet advertising, we have something very close to the “open and competitive market” required. Unfortunately, unlike in the examples of newspapers and television programs, there exists no clear one-to-one mapping between the consumer product offered and the advertising opportunity actually paid for. Various attempts to map one on the other have proven clumsy, forcing us into unnatural analyses such as treating individual “page views” as consumer products.

Yet try we must. The value of the products and services we offer is, in aggregate, defined to be the amount of advertising money we bring in. It is sometimes useful to assign a value that is based on the number of customers. The average value of our service is simply the advertising revenue divided by the number of customers (visitors to our website) in any given period. Having an average measure of value like this allows us to examine and optimize our service’s value to users independently of growth patterns.

It’s important to remember that what we are measuring is the value of our service to users, not the value of our website or company as a whole. Measuring that is a far more complicated matter, as it depends heavily on one’s perception of our potential to grow our service’s value to our users. This speculative assignment of value for a web site or company can be seen every day in investments and acquisitions in the internet economy.

Toward a Myxer Economy

These are complicated times in the mobile industry. Unlike in years past, there is no unambiguous, multi-tiered value chain that neatly describes how each company in the industry relates to the others. In 2004, it was clear how content platforms were operated by aggregators to interface between content owners and carriers. It was clear how device manufacturers relied on network operators (carriers) for retail distribution and demand generation.

Above all, it was clear how carriers exclusively owned the relationship with consumers.

Today, things are very different. Apple sells hardware through their retail outlets. Google is launching an open device platform. After failing as a virtual carrier, ESPN emerges with a direct to consumer web offering. It’s going to get progressively harder for everyone to figure out where to set up their booths at CTIA and 3GSM in the coming years.

It is the power of the internet, and the internet economy, that is driving this change. Based on open protocols and unrestricted access, the internet does not allow for redundancy or inefficiency in the value chain between service/content provider and consumer. In stark contrast to the mobile industry, the internet makes it possible for anyone to reach everyone and everyone to reach anyone. And while far from being stable, the large free-market economy of the internet seeks out and rewards value, and punishes inefficiency harshly.

If you don’t provide value in the internet economy, you disappear. The internet economy will “route around” you, as the internet protocols themselves will route around damaged nodes.

And so as the internet continues its inexorable spread into the mobile industry, previously comfortable (and therefore lazy) companies find the threat of disintermediation around every corner.

Myxer has been a pioneer in applying internet economics in the mobile industry, even as the establishment claimed our approach was impossible, and even as one hurdle after another was placed in front of us. Our stubborn persistence and faith that the openness of the internet would prevail in the mobile industry has finally been vindicated. And we find ourselves today in the enviable position of serving an audience of millions with a differentiated service offering in an exciting and dynamic time.

We have an advertising-supported business model that is dependent on extremely high volumes of low-margin transactions to support it. In order to insure we continue to generate the high volume of transactions required for our success, it’s not enough for us to turn inward and focus on our operations. Scale, redundancy, and new opportunities are all dependant on fostering the development of a supportive ecosystem - not only of consumers, but also content partners, advertisers, affiliates, and others. Each of the players in this community must be given motivation – a compelling value proposition – that directly or indirectly supports our success.

The various interactions between Myxer and these other companies together make up what we call The Myxer Economy. We model the Myxer economy in a conceptual framework that highlights the important currencies exchanged between various constituents, allowing us to understand our partners’ motivations and efficiently address them.

One of the most important conclusions that comes from a consideration of The Myxer Economy is that, ultimately, all of our value comes from the size and quality of our user community.  The people who visit our properties form an audience for our advertisers, who pay us money in exchange for the opportunity to reach them. In this way, we are like any other advertising-supported business, such as newspapers, television networks, and other websites.

And like these other ad-supported businesses, our continued success depends on us delivering compelling content and services to our user community. When we deliver a good experience to our users, we are rewarded not only with their continued patronage, but with user growth as a result of word of mouth recommendations and other viral effects. Many advertising-supported businesses have low overhead and need only maintain their existing user community, but our business plan is relatively capital intensive and requires compounding growth rates for success. Only viral growth from within our user community can deliver that.

So providing a great user experience is absolutely fundamental to the success of our business. Everyone from artist recruitment to the CEO needs to vigilantly work to insure that our users are engaged, happy, and have incentive to “tell their friends” about us.

If you can read this, I just earned $0.00001

So. We’re ramping up advertising ’round here in MyxerLand. It started, like all buzz-kills, with the suits. Somebody invited a finance guy into the office the other day, and he spent the whole time he was here looking at one of those funny pieces of paper with all the numbers in a grid, and muttering something about zero being “an awfully small number.”

“No, no,” I tried to reassure him. “Look at all those really big numbers — the pretty red ones in parenthesis! That’s good, right?”

* * *

If you’re a regular visitor to MyxerTones, you’ve probably noticed that lately it looks like vandals have broken in and scattered Flash-formatted graffiti randomly on our pages. Hopefully you weren’t on the site during The Smiley Horror Trilogy (starting with the somewhat humorous but unwelcome “The Smiley Incident”, followed by the obligatory “Son of Smiley”, and rounding out with “Smiley’s Revenge”). I’ll have more to say about the Smiley people later, but for now let me just say that it is absolutely amazing how much money is poured into Smileys advertisements. It’s like, more then…umm…ringtone advertisements.

The good news is that we’re actually earning some money now. Weird. The bad news is that, even with the Smiley Guys banished, the ad quality is, well, terrible. There is apparently an irrational amount of venture capital being poured into companies with “spokeschickens,” and they seem to really like hanging around our website. Funny thing: we’re currently working on implementing a new UI for MyxerTones, and we’re working off of Photoshop mockups from the graphic designer. For the ad placements, he used really cool iTunes banners with black backgrounds and emotive subject matter, which really make the layout look sweet. With the chickens in the ad placements…not so much.

(Incidentally, I’ve heard that the Smiley people are so keen for you to download their “free smileys” because the download actually infects your machine with spyware, and the spyware shows you ads even when you’re not online (which presumably also infect your machine with their own spyware, and so on and so forth). I’m not sure if that’s true, and I’m also curious about the vulnerability of bloggers to libel lawsuits for repeating stuff they’ve overheard, especially given the obvious resources Smiley Inc. could bring to bear against me if they wanted…)

* * *

So we have to start this whole advertising bit up to get our revenue number to be, well, less small than zero. Just in case you’re not familiar with the way internet advertising works, allow me to present a really quick summary:

1. Get a web site. If you don’t have a good original idea, don’t worry. Just pick a name that sounds like another successful website our there, and hire a college kid to register “your” domain name and put a simple home page up.
2. Generate a lot of page views. You can do this by having a really useful website that people like to use and visit, or you can just rent a botnet and aim it at your web site. Either way, be sure to collect the demographics or your “users,” because that will be Really Valuable Information when you need to…
3. “Partner” with the Ad Networks. The obvious first step is to sign up with Google so that they can deliver crappy “contextual” ads on your pages. There are other companies that can get you different - but equally crappy - ads, and you should sign up with as many of them as possible. The most important criteria to consider is SPM (Smileys Per thousand impressions), which is a rough but effective measure of the throughput that a given ad network has between your site and Smiley Central. Believe it or not, some of these networks can actually exceed SPM’s of 1,000, displaying more than one Smiley per ad impression.
4. Retire.

OK, well, that’s what I was led to believe anyhow. A funny thing happened on the way to step (4)…

* * *

It turns out that when you use these ad networks to serve ads on your site, you generally don’t earn That Much Money. It’s really hard to give hard numbers for what you can earn (the networks are intentionally vague about it, and many even contractually forbid publishers from discussing their earnings!), but on a general purpose site with reasonable ad placements I would be fairly surprised to see an effective CPM of anything over $0.50. (Some types of sites actually can do better than this, and many do worse, so there’s a lot of fudge in that factor).
(I used the term effective CPM above. Effective CPM (eCPM) is a common way of measuring advertising earnings as a function of ad impressions. It’s useful to discuss earnings in eCPM because often times the ad networks pay publishers (websites) based on how many clicks ads get (”CPC”), or how many users the advertisers acquire (”CPA”), as opposed to how many times the banner is actually displayed (”CPM”). Regardless of the actual payment trigger, all of these other metrics can be converted into an eCPM value, which makes it easier to compare and optimize.)

So the first thing you will do after you hook up these ad networks and start looking at the stats is…Try to figure out what’s Plan B. ‘Cos you’re not going to retire on $0.00001 a page view if you’ve got 20 mouths to feed. See, these ad networks are generally only good for dealing with what’s called remnant inventory. Remnant inventory is a fancy way of saying “ad slots we couldn’t sell.” Ad networks are in the same basic category as the ad serving platform (like DoubleClick, Atlas, 24/7, etc.) — they’re essentially required infrastructure for an advertising-supported business, but a business they do not make. The eCPM you get when you fill with these networks is generally only going to make you profitable if you’re a part time operation.

To increase eCPM, there are several things you can do. First and foremost, you need to sell directly to advertisers to cut out all of the middlemen (sorry, Googuys!). But what happens at this point is that you realize that, umm, you have to talk to people. And you need to sell to them. So you have to hire people to do those things for you, because you are, after all, a technogeek who is much more comfortable behind a keyboard than in a sales call and has a notorious weakness for telling the truth. And so you hire people that know how to communicate with these alien advertisers. And then, according to my experience so far, the next thing that will happen is that you will be asked to quantitatively assert that:

1. Yes, we have a huge population of 18-24 year old males on our site, and
2. No, we have no potentially offensive content on our site.

Now, I’m not going to get back into the whole potentially offensive content discussion at this point, but I will reprise my earlier observation that an advertiser with no stomach for possibly having their banners on the same page as “potentially offensive” content in the form of butts-in-thongs or whatever has no absolutely business trying to reach 18-24 year old males. OK, I’m done.

See, people who sell internet advertising think that it’s really important to have a good handle on a site’s Demographics, because certain advertisers are interested in reaching certain groups of people, and they will Pay a Premium for the Privilege (read: higher eCPMs). You need to know, they say, the age, gender, and geographic location of every user of your site, and if you can extract information about income, marital status, bank account balances, key vices, etc., that would be swell, too. But the most important information is summed up by the handy ZAG acronym (”zipcode, age, gender”) that is apparently part of the parlance.

The easiest way to get this data from users, of course, is to simply require that every user enter the information when registering for your site. Well, that’s true assuming what you really want to do is:

1. piss off those of your visitors that are protective of their personal information;
2. lose another slice of users because they don’t want to fill out a long form;
3. get fake information from the rest of them.

But, hey, fake information is better than no information, right?

* * *

What’s really funny to me is that this whole ZAG thing, while apparently universally accepted as a great way to allow Targeting (and, ultimately, elevated eCPMs), seems terribly inefficient. Start at the beginning: a company has a product or service, and wants to reach people who are likely to be interested in said product or service. So, they hire some consulting firm to do a study to find out what are the Key Demographics of the users who are likely to be interested in the product. (Obviously, this step comes before product development in a lot of cases). The consulting firm comes back and breaks things down to, effectively, this ZAG group and that ZAG group is likely to respond well to products of this type, based on sampling and statistical analysis, etc.

Thence follows the demand for ZAG statistics from web publishers, which leads to required personal information fields on web registrations, which lead to pissed off users, reduced registration rates, and decreased accuracy of data.

But what if instead of asking people to supply us with their personal ZAG information, and using that to target campaigns for advertisers, we just cut right to the chase and simply ask “what types of products and services are you interested in?” Just come clean and say, hey, this is an advertising supported site, and we will indeed subject you to advertising. If you’d be so kind as to tick the boxes next to the topics you find most interesting, we will try to deliver ads that are most relevant to you. I mean, if my company sells jewelry, wouldn’t it be great to be able to buy targeted advertising that reaches users who have proactively indicated that, yes, they are interested in jewelry? That’s a first order correlation, unlike the significantly more removed ZAG data.

I call this approach the ZIG (”Zero personal Information Gathered”) approach. Instead of requiring personal information such as gender and age from users, we allow them to tell us which class of advertisements they would like to see. The visitor is happier because they don’t give out personal information (other than interests), and advertisers have the potential to reach a hyper-targeted audience that has professed to be receptive to their products and services. So, advertisers get better results, which justifies higher retail pricing of advertising inventory on our site, which (gasp!) increases eCPM.

* * *

So we’re going to be working on this advertising problem for a long time, trying to increase our eCPM as much and as quickly as possible while always maintaining a deep respect for our users’ personal information, and looking for ways that we can actually provide better options for advertisers than they might know exist. All the while, slaying Smileys and enduring spokeschickens and the rest of their ilk.

Sunrise

I got up early today and decided to bike down to the beach to watch the sunrise before work. It’s really convenient that our office is actually at the beach, because I get to do this more than just about anyone else I know. Except, I guess, the people I work with…

I’m going to sound like a crazy hippie here for a minute, but every time I watch the sun lift up over the ocean, when the sound of that warm salty breeze mixes with the subtly crashing waves, I feel like the world becomes a mirror possessed of the ability to simplify and refactor and strip to the essence any problems or worries incident upon it. It presents an austere but elegant reflection to an observer that accentuates that what is important and discards that what is trivial.

I told you I’d sound like a hippie.

So this morning, I went to the beach looking to clear my mind of some heavy thoughts related to work. The whole reason I was up at 5AM in the first place was because of said heavy thoughts, so it’s a good thing for me that the sun rises in the morning when I needed it!

Redux: The whole point of mVisible and MyxerTones is to radically simplify mobile content and services. Over the past two years that we’ve been operating, we’ve basically lumped the factors contributing to the complexity of developing mobile content and services into two camps: technical challenges and bureaucratic hurdles. What I’ve come to understand is that the technical challenges, while real, are really just engineering exercises. Not to belittle the scope of the technical challenge, but the fact is, you can (and we have) put together a competent team of engineers and build a platform that is technically capable of delivering content to just about any device on the planet.

And while we’ve framed the other class of problems as bureaucratic in the past, I think I have to now reclassify them as institutional. It’s not, as I’ve believed in the past, simply a matter of going through all of the required mating dances with the mobile carriers and the sea of companies in the so-called “value chain” beneath them. Yes, you certainly have to do the dance. But No, that doesn’t solve all the problems of complexity.

It turns out that the mobile industry as a whole has a tremendous amount of inertia behind the notion that delivering mobile content and services should remain complicated.

Carriers like Verizon force device manufacturers to cripple the phones they distribute to prevent consumers from using their full capabilities. They intentionally break existing applications with firmware “upgrades” not requested by subscribers. They take 50% of the revenue from any purchase made through their premium SMS channels - and at the same time contractually forbid partners from using any other competitive payment processors. Even if you don’t call it larceny, it’s an ugly oligarchy to be sure.

Speaking of ugly oligarchies. The recording industry, for its part, has apparently determined that its best chance of self-preservation is in assembling an assortment of extortionists, fear-mongers, and racketeers to harass and intimidate the very same people to which they market their limited catalogs of plastic pop stars and on whose computers they install spyware rootkits.

It must be a really weird thing to work in an industry that has harbors such blatant disgust for its own customers.

So what’s happened is that we, as MyxerTones, went into this whole “simplify mobile” endeavour bright-eyed and bushy-tailed, taking as common sense the notion that the easier you make it for anyone to offer their own content and services for mobile phones, the more value there will be in the entire ecosystem. Rising tide lifts all boats, that sort of thing. Anyone who has taken even a casual interest in understanding the history of the internet knows that every billion-dollar internet company (as well as the aggregate trillions in small companies doing business on the internet) is directly and unequivocally indebted to the uncompromising openness built into the network.

To think that mobile phones are anything but an extension of the internet is to embrace a legacy mindset. So to think that what’s best for the mobile industry is anything different than what’s been proven to be best for the internet in general is either arrogance or ignorance, neither of which is likely to bring longevity.

And what’s happened is that we’ve gotten caught up in the machine a little too much. We’ve started making product decisions based on who might sue us as opposed to what would bring the best value to our customers and to society as a whole. That’s what the sunrise made clear to me, and that’s why I’m so glad I watched it this morning, because I’m now 100% refocused on what it is we have to do.

There was a recent incident involving Digg a couple of weeks ago that you may have heard off. Turns out some super-secret magic decoding ring for DVD copy protection was figured out by some hacker somewhere. (Probably the Ukraine. They’ve got a lot of crazy number-smart people out there. ) So people started posting the magic decoder ring to Digg. Digg apparently gets served with a cease-and-desist or some such thing, and yanks references to the key. The users basically revolt, until Digg’s founder, Kevin Rose, eventually overrules their own lawyers and says screw it, we are a service, we are by and for the people, and we will not get in the way of what the people want to do.

Gutsy move. I mean, wow. It’s still not clear what the ramifications are for that. When Kevin refers to “a bigger company” in his post, he’s potentially guilty of a felony understatement.

This is my point: I, like Kevin Rose, believe that the pendulum has swung waaaaay too far toward the special interests and entrenched oligarchists, and away from The People. The entire reason I am involved with computers in the first place is because I was inspired by the early hackers who saw the great potential for individual empowerment through information. (Oh, and video games. I really loved video games.) So I’m going to make sure that when we’re building features into MyxerTones, we’re always thinking about enabling, and we’re going to stop spending so much of our time worrying about this guy or that guy suing us or whatever.

Mobile phones are the first exposure to the internet for most of the world’s population, and it would be a lost opportunity of unparalleled scale if the openness of the internet didn’t follow to the new devices. Like, lost opportunity akin to losing the recipe for penicillin on the way home from the lab.

Lighten up, Myk. It’s just bloody ringtones.

No. No, it isn’t. The whole bloody reason people think mobile content and services is just Madonna ringtones and the Pope’s “Thought of the Day” is because the platform has been locked up so tightly, with so few people able to address it. It’s only when the barriers to entry are removed that we will start to see the truly innovative applications arrive.

I don’t pretend that there aren’t issues to be confronted by opening the mobile internet airwaves to anyone to share and sell anything they want, but I believe the issues need to be be framed in a larger frame of discourse than the narrow-minded worlds of the mobile industry or the music industry. Our society still has a very long way to go before it has a mature understanding of how best to balance individual rights with those of rights holders, and the way things are right now it’s clear to me that society would be much better served if companies like MyxerTones was less timid and more focused on enabling rather than restricting.

Board of Directors Presentation 2007Q1 - Part 2/3

Continued from part 1 (vision)…

My next title is Chief Technology Officer. So let’s talk about technology.

First of all, we are unabashedly a technology-focused company. We make no apology for that, and we will continue to be a technology-focused company for as long we exist. We rely on our technological savvy to enable us to build the kind of compelling products we’re becoming known for. The novelty, reliability, simplicity, and sheer power of our products is dependent wholly on our technology.

We have a tagline on the bottom of our Myxer web pages that says “the technology is mVisible.” That’s a shorthand way of saying, yes, there’s a hell of a lot going on under the covers, but you don’t have to worry about that. We’ve welded the hood shut. Punch in your phone number and click “send to my phone” and we’ll do the rest. It’s invisible.

We’ve got a platform that can ingest content in virtually any existing audio, image, or video format, chew it up, and spit it out in a nice little package delivered to the doorstep of just about any phone on any carrier out there. We’ve got huge tracts of really cool technology that allow us to automatically identify the phone model of a requesting user and the carrier they’re with, we’ve got a database of phone characteristics that’s plugged into an automated feedback loop so that it stays constantly updated with new information, we have multiple messaging gateways giving us redundancy and flexibility, we basically have this whole content preparation and delivery thing down. That is soooo last year.

We leverage web services extensively in our platform, and intend to do so even more in the future. Already we depend on Amazon S3 for storage and backup, mBlox web services for delivering premium content, Google Maps for geocoding, RSS feeds from Blogger for our news capability, and I’m sure I left off a couple in there somewhere.

We believe that companies that embrace the loosely-coupled, scalable nature of cloud computing are going to have tremendous advantages over companies that fail to take advantage of them. And that advantage is coming a lot sooner than some people may think.

We work with what’s there, in terms of software. Forcing a local installation of software on a user’s PC is a definite disadvantage for any company, and requiring special software on the phone is about 10x worse. Aside from the logistics of actually developing the software and testing it on all supported platforms, there’s the huge hurdle of getting users to actually install it successfully. It’s just not worth it. See point #1.

In our short history, we’ve already created an impressive track record of innovation. Building on the core Myxer platform, we’ve developed innovative technologies like MyxerTags, allowing our users to effectively host their own ringtones from their website or MySpace profile page; MyxerCodes, allowing automatic shared use of the MYXER shortcode for mobile originated content purchases; dynamic delivery, providing the possibility for ultra-personalized content to be delivered through our system by our partners; and most recently MyxerMagic, which promises to make all web content just one click away from being mobile content.

We’re just now rolling out core support for video delivery, the technological challenges for which are mainly architectural (spreading the CPU load efficiently, storing and caching files, etc.) in nature rather than innovative. I expect the next jaw-dropping technological advancement we’ll make is when we delivery the MyxerMagic + MyxerFlix technology that will let anyone with MyxerMagic send any video they see online directly to their mobile phone.

We’ve filed for patent protection with claims covering aspects such as the core architecture and the (really smart) way we harvest metadata about a song unknowingly contributed by one user and use it to improve the experience of subsequent users that use the same song. Most recently, we’ve crafted claims around the recent MyxerMagic and dynamic delivery inventions.

We have a regularly scheduled process with our IP legal team when we file provisional applications that cover our newest innovations, and convert previous provisional applications to full-fledged utility applications when appropriate.

So from a core technology point of view, we rock. We have probably one of the most robust mobile content delivery platforms available anywhere; we have unique technologies that take full advantage of the internet; and we have a group of awesome engineers churning out a lot of really cool stuff every day just waiting for the right time to spring out of the labs.

Inventions and the core technology that power our platform are only part of my concern as chief technology officer. High on my list of priorities is the scalability and reliability of our platform. Operating a website is serious business, especially when it gets the kind of traffic that Myxer is now getting.

Our website scaling plan is built to support the business model we’ve developed. The business model has conservative growth estimates that require the website to support ten times the current user load in the next year. That’s ten times as many visitors to the site, ten times as many ringtones delivered, ten times as many SMS messages sent, ten times as many files to store, ten times everything. And because the business plan estimates are conservative, we’re very likely to need even more capacity than that.

Late in the year, it became obvious that disk storage was a real bottleneck for us. We didn’t have enough local storage to hold onto the hundreds of gigabytes of files we needed to operate the site, and every time we needed to expand the amount of storage it required physical changes to our production facility. So, embracing the web, we built our own hierarchical file system based on Amazon’s S3 storage solution, to effectively give us infinite disk storage scalability at extremely reasonable rates. Following our commitment to automate everything automatable, this new system will basically operate on autopilot from now on; as local disk storage becomes sparse, files that haven’t been touched in a long time are simply deleted. If they are needed again in the future, they are retrieved from Amazon’s servers over the backbone without anyone ever knowing what happened. It’s really cool stuff.

What’s even cooler is that we built the system so that it can recover from a complete local disk failure, or even an obliteration of our production facility. If, for example, the great state of Texas (where our production facility is located) is swallowed up by a giant rabid sinkhole, we can bring up a new web server, point it at a backup database server, and the new web server’s local disk will be populated with all the files it needs from Amazon, as it needs them. We haven’t tested the bit about swallowing up the production facility yet, but the other stuff seems pretty solid.

Other scalability growing pains will come in the areas of page serving and transcoding CPU. The next few months will see us bringing up our web capacity with additional web servers and potentially a dedicated transcoding server or two to handle the CPU-intensive tasks of translating input media into the various output formats needed by our target devices. We’re also planning to mirror our front end web servers for extra capacity as well as fault tolerance.

Continued in Part 3 (Products)…

Transparency

Now is the time in the calendar quarter when I’m supposed to have my presentation for the Board of Directors of mVisible Technologies, Inc. ready for binding and distribution to the other board members. Of course, I haven’t even started this yet.

This quarter, I’ve decided that I’m going to do something different. I’m going to make my presentation not just to the board, but to the whole world. While most companies consider the kind of internal information I present to be highly confidential and all that, I am a firm believer in transparency in my business. I have two primary reasons for this.

First, I believe our success is dependent almost entirely on our ability to execute as opposed to protect. Our execution is not hurt at all by exposing to the world what it is that we’re trying to do, what we’re doing well, and what we’re having problems with. In fact, I think going open kimono keeps you focused on the important goals, and insures that there is never discord between the company’s publicly-stated goals and those of internal operations.

Second, I believe that the mobile industry (in which we mainly operate), is doing a disservice to itself and to consumers by operating in such a short-sighted and protectionist manner. It’s been going on for a long time, but I’m reminded daily (see Verizon’s latest round of intentionally crippling their phones) of how the carriers practices are retarding the growth of a healthy industry. We’re committed to bucking that trend. The mobile industry needs to be dragged - kicking and screaming, most likely - into the internet age of open, free market competition based on merit rather than history.

Anyhow, I’m getting a little sidetracked. Hell, why wait til I’m done with the next presentation. I’m going to follow up this post by publishing my presentation from last quarter’s meeting to see how it’s received. It would be really cool if this kind of thing started to be the norm for businesses in our space. I think it would help us to advance the industry for the benefit of all.

Pricing of mobile content

I had an interesting discussion yesterday with Lucas Hrabovsky, CTO of Amie Street.  If you don’t know Amie Street, they’re a new independent music store that has a rather unique pricing scheme.  Songs start out free, but gradually rise in price as their popularity increases.  It’s a pretty nifty algorithm, and a hook that’s gotten them plenty of press.

I was talking to Lucas because we’re working on a way for MyxerTones and Amie Street to work together to provide the same kind of variable pricing scheme for mobile content (ringtones) as is currently provided for full track desktop downloads.

In a world where Steve Jobs all but set the global retail price of a digital full track download at $0.99 (oh, he’s just added a $1.29 option for DRM-free tracks…more on this later!), the variable pricing model of Amie Street offers quite a contrast.  But, as I pondered pricing issues with mobile content (thanks to Lucas for a follow-up email that piqued my interest),  I realized that neither the fixed price model of iTunes nor the variable price model of Amie Street really allows the artist any control over the retail pricing of their products.  While I have heard justifications offered up for why fixed pricing is a Good Thing for the Consumer and the Industry, none have been really compelling, and I think it’s really a regrettable accident that isn’t helping anyone.

At MyxerTones, we have a fixed retail price for each ringtone or other mobile content item, but we’ve always let artists choose what that retail price should be.  Let’s call it artist-controlled pricing.   Artists can either give away their content for free, or they can choose to charge between $0.99 and $2.99 per download.  We did this because, well, we had no idea what the right price for an arbitrary piece of mobile content should be, and we suspected different content was worth a different amount of money, so we figured we’d let the artist do whatever they thought was best.

What do they choose?  Well, perhaps not surprisingly, the majority of the content available from the MyxerTones catalog is made available at no charge, as this pacman chart shows:

This means most of the ringtones are used as promotional content; artists create them, then send out MyxerTags in bulletins to their fans on MySpace, or give out MyxerCodes at their shows, so that their fans can load them onto their phones in a show of support.  It’s a great use of mobile technology to connect bands with their fans, and we’re happy to provide these delivery services for free, based on on ad-supported model.  There’s probably similarly poised PacMan chart on some MySpace presentation somewhere, that shows how many bands are chosing to give away their songs as downloads from their profile pages.

But a relatively large percentage of our artists choose to monetize their works by charging for the ringtones they offer . Of this premium (non-free) content hosted by MyxerTones, the distribution of retail prices (chosen by artists) looks like this:

So we see that, more than half the time, artists are chosing the lowest (non-free) price for their content, which is $0.99.  Second in line is $1.99, probably owing to the popularity of that price point for ringtones on the mobile operator’s deck.  Together, those two prices make up more than three quarters of all items; the rest are variously priced up to $2.99.

What’s interesting is that when you look at the actual transactions taking place on MyxerTones, the items being purchased by consumers don’t match up with this pricing distribution at all.  In fact, more items are sold at $1.99 than at any other price point, despite the fact that far more less-expensive content is available on the site:

(Note that this pie chart sizes each slice based on the total number of transactions at the given price point, not based on the total value of those transactions.  This data is from the first three months of 2007.)

You can see the discrepency between what artists are most often asking for their ringtones and what consumers are actually paying when you look at a histogram that compares the two side-by-side:

Despite having only half as many items priced at $1.99 than at $0.99, there were more sales at this higher price point than at the lower. There’s a bit of hypothesizing going on here, but I think what this data means is that, for those people willing to pay for premium mobile content, the difference between $0.99 and $1.99 is relatively unimportant. Presumably, the higher priced content is more desirable in some way (higher quality, more established artist, etc.), but prior to this analysis, it wasn’t clear to me that people would be willing to shell out two bucks for something they really want, even when they can probably get something they just want for half the price (and tons of other stuff completely free on the same site!).

It also leads me to believe that a lot of MyxerTones artists could do better, revenue-wise, if they chose a higher price point (such as $1.99), for their mobile content.

Of course, there are lies, damn lies, and statistics, so one has to be careful about jumping to any firm conclusions with this data.  But what strikes me is that this quick and simple analysis I’ve just done on MyxerTones mobile content pricing and resultant consumer behavior is possible only because we allow artists to set their own prices, and cannot be effectively performed on the dominant pricing models for full-track downloads.  Whereas I was able to take a half hour of work and come up with an optimized trajectory for revenue generation (”encourage more artists to charge $1.99 for their content instead of $0.99 and it should increase their (and our) total revenues”), the music industry is handcuffed and blinded by their existing pricing model.  It certainly seems careless of them.

I’m no economist, but I think a healthy, reactive free market in which prices can float and adjust based on the wisdom (or whim) of crowds, including half-baked analysis like this - will ultimately benefit the industry more than any pricing structure enforced from the top down.

Of course, fixed pricing is probably far from the biggest problem preventing the music industry from continuing its download spiral into lower and lower sales numbers.  The biggest problem is DRM, and it looks like that problem’s finally going to get some attention.  Hopefully I’ll be able to give it some attention here shortly.

For now, Amie Street’s variable pricing is novel and has a lot of benefits, especially for emerging artists.  It isn’t quite a free market, and the feedback loop is rather limited, but it’s certainly a great experiment and I’m looking forward to working with them and others, and playing our part in evolving the economics of mobile content.