Thursday, June 17, 2010

June 2010 Early Indications II: Book Review of Clay Shirky, Cognitive Surplus: Creativity and Generosity in a Connected Age

To those of us who for a long time have tried to understand the many impacts of the Internet, Clay Shirky stands among a very small group of folks who Get It. Usually without hyperbole and with a sense of both historicity and humor, Shirky has been asking not the obvious questions but the right ones. Explaining first the import then the implications of these questions has led him to topics ranging from pro-anorexia support groups to the Library of Congress cataloging system and flame wars to programming etiquette.

This book continues that useful eclecticism. Examples are both fashionably fresh and honorably historical: Josh Groban and Johannes Gutenberg appear in telling vignettes. Rural India, 18th-century London, Korean boy-band fans, and empty California swimming pools are important for the lessons they can reinforce. The usual cliches -- Amazon, Zappos, Second Life, even Twitter -- are pretty much invisible. As Shirky has done elsewhere, two conventional narratives of various phenomena are both shown to miss the point: in this case, neither "Young people are immoral" nor "Young people are blissfully generous with their possessions" adequately explained the rise in music file sharing.

In a career of writing cogently about what radical changes in connectivity do to people, groups, and institutions, Cognitive Surplus is, I believe, Shirky's best work yet. Not content with explaining how we have come to our peculiar juncture of human attention, organizational possibility, and technological adaptation, in a final chapter Shirky challenges us to do something meaningful -- to civic institutions, for civil liberties, with truth and beauty on the agenda -- with social media, mobility, ubiquitous Internet access, and the rest of our underutilized toolkit. At the same time, he avoids technological utopianism, acknowledging that the tools are morally neutral and can be used as easily for cheating on exams as for the cleanup of Pakistani squalor.

A core premise of the book holds that the Internet allows many people to reallocate their time. Specifically, the amount of time people in many countries spend watching television is so vast that even a nudge in the media landscape opens up some significant possibilities. Wikipedia, for example, is truly encyclopedic in its coverage: comprised of work in more than 240 languages, the effort has accumulated more than a billion edits, all by volunteers. At the time of his analysis, Shirkey noted, the estimated human effort to create Wikipedia was roughly equivalent to the time consumed by the television ads running on one average weekend.

So ample available time exists to do something, as opposed to lying on a coach passively receiving TV messages. What might people do with this "cognitive surplus"? Read War and Peace. Volunteer at a soup kitchen. Join Bob Putnam's bowling league. Thus far, however, people haven't tended, in large numbers, to do these things, even though civic participation is apparently on the rise. Rather, people are connecting with other people on line: the shift from personal computing to social networking (Facebook alone hosts roughly half a billion accounts) is well underway but not yet well understood. Once we can communicate with people, anywhere, anytime, at close to zero economic cost, what do we do?

Here Shirky is inclusive: people help other people write and maintain operating systems, web servers, or browsers. They recaption silly cat pictures with sillier messages. They identify election irregularities, or ethnic discrimination, or needs for public safety and public welfare resources in both Haiti and the streets of London. The state of the technology landscape makes many things possible:

-Individuals do not need to be professionals to publish ideas; to disseminate pictures, music, or words; to have an opinion in the public discourse; or to analyze public data on crime or what have you.

-Based on an emerging subset of behavioral economics, we are discovering that markets are not the optimal organizing and motivational principle for every situation. For many kinds of social interaction, whether in regard to fishing grounds or blood donation, reputation- and community-based solutions work better than a monetary one. At the collective level, belonging to a group we believe in and having a chance to be generous are powerful motivators. For their part, individuals are motivated by autonomy (shaping and solving problems ourselves) and competence (over time, getting better at doing so). In addition, the introduction of money into an interaction may make it impossible for the group to perform as well as before money, even after the financial rules are removed (think of certain Native American tribes as tragic examples here, but day-care parents who come late to pick-up hit closer to home).

-People in groups can organize to achieve some goal, whether it is the pursuit of tissue type registration for organ donation, a boycott of BP, or making car pools scale beyond office-mates.

In sum: amateurs can enter many fields of communication, performing at various levels of quality for free and displacing professionals with credentials who used to be paid more. Low overhead in both technical skill and capital infrastructure opens media businesses to new entrants. Finally, the combination of intrinsic motivation for cognitive work and low coordination costs means that informal organizations can outperform firms along several axes: Linux and Wikipedia stand as vivid, but not isolated, examples here.

This new order of things complicates matters for incumbents: record-label executives, newspaper reporters, and travel agents can all testify to being on the wrong side of a disruptive force. It also raises questions that can trouble some people:

-"Who will preserve cultural quality?"
Without proper editors guarding access to the publishing machinery, lots of bad ideas might see an audience. (The problem is not new: before movable type, every published book was a masterpiece, while afterward, we eventually got dime novels.)

-"What happens if that knowledge falls into the wrong hands?"
Previous mechanisms of cultural authority, such as those attached to a physician or politician, might be undermined.

-"Where do you find the time?"
Excessive exposure to electronic games, virtual communities, or the universally suspect "chat rooms" might crowd out normal behavior, most likely including American Idol, Oprah, or NCIS.

In sum, as Shirky crystallizes the objections, "Shared, unmanaged effort might be fine for picnics and bowling leagues, but serious work is done for money, by people who work in proper organizations, with managers directing their work." (p. 162)

These, then, are the stakes. Just as the limited liability joint stock corporation was a historically specific convenience that solved many problems relating to industrial finance, so too are new organizational models becoming viable to address today's problems and possibilities. At the same time, they challenge the cognitive infrastructure that coevolved with industrial capitalism.

That infrastructure, in broad outline, builds on the following:

-Individuals are not equipped to determine their own contributions to a larger group or entity.

-Money is a widely useful yardstick.

-Material consumption is good for psychic and economic reasons.

-Organizations are more powerful than disorganized individuals, and the larger the organization, the more powerful it is.

If each of those pillars is, if not demolished, at least shown to be wobbly, what comes next? In the book's final chapter, Shirky moves beyond analysis to prescription, arguing that with surplus time and massive low-cost infrastructure at our disposal, we owe it to each other and to our children to create something more challenging and beneficial than the best of what's out there: "Creating a participatory culture with wider benefits for society is harder than sharing amusing photos." (p. 185), Ushahidi, and Responsible Citizens each represent a start rather than an acme. Digital society awaits, in short, its Gutenbergs, its Jeffersons, its Nightingales, its Ghandis. Shirky's concrete list of how-tos is likely to inform the blueprint utilized by this upcoming generation of innovators, reformers, and entrepreneurs. As a result, Cognitive Surplus is valuable for anyone needing to understand the potential ramifications of our historical moment.

Friday, June 11, 2010

Early Indications June 2010: World Cup special on sports brand equity

It's a familiar business school discussion.  "Let's talk about
powerful brands," begins the professor.  "Who comes to mind?"  Usual
suspects emerge: Coke, Visa, Kleenex. "OK," asks the prof, "what brand
is so influential that people tattoo it on their arms?"  The answer is
of course Harley-Davidson.

There is of course another category of what we might call "tattoo
brands," however: sports teams.  Measuring sporting allegiance as a
form of brand equity is both difficult and worth thinking about.

For a brief definition up front, Wikipedia's well-footnoted statement will do:

"Brand equity refers to the marketing effects or outcomes that accrue
to a product with its brand name compared with those that would accrue
if the same product did not have the brand name."

That is, people think more highly of one product than another because
of such factors as word of mouth, customer satisfaction, image
creation and management, track record, and a range of tangible and
intangible benefits of using or associating with the product.

The discussion is timely on two fronts.  First, the sporting world's
eyes are on the World Cup, and several European soccer clubs are
widely reckoned as power brands on the global level.  Domestically,
the pending shifts in college athletic conferences have everything to
do with brand equity: the University of Texas, a key prize, is one of
a handful of programs that make money, in part because of intense fan
devotion (one estimate puts football revenues alone at $88 million).

Our focus today will be limited to professional sports franchises, but
many of the arguments can be abstracted, in qualitative terms, to
collegiate athletics as well.  If we consider the revenue streams of a
professional sports franchise, three top the list:

-television revenues
-ticket sales and in-stadium advertising
-licensing for shirts, caps, and other memorabilia.

Of these, ticket sales are relatively finite: a team with a powerful
brand will presumably have more fans than can logistically or
financially attend games.  Prices can and do rise, but for a quality
franchise, the point is to build a fan network beyond the arena.
Television is traditionally the prime way to do this.  National and
now global TV contracts turn viewership into advertising revenue for
partners up and down the value chain from the leagues and clubs
themselves.  That Manchester United and the New York Yankees can have
fan bases in China, Japan, or Brazil testifies to the power of
television and, increasingly, various facets of the Internet in

Sports fandom exhibits peculiar economic characteristics.  Compared
to, say, house- or car-buying, fans do not research various
alternatives before making a presumably "rational" consumption
decision: team allegiance is not a "considered purchase."  If you are
a Boston Red Sox fan, your enthusiasm may or may not be relevant to
mine: network effects and peer pressure can come into play (as at a
sports bar), but are less pronounced than in telecom, for example. If
I am a Cleveland Cavaliers fan, I am probably not a New York Knicks
fan: a choice in one league generally precludes other teams in season.
 Geography matters, but not decisively: one can comfortably cheer for
San Antonio in basketball, Green Bay in football, and St. Louis in
baseball.   At the same time, choice is not completely independent of
place, particularly for ticket-buying (as compared to hat-buying).

Finally, switching costs are generally psychic and only mildly
economic (as in having to purchase additional cable TV tiers to see an
out-of-region team, for example).  Those psychic costs are not to be
underestimated: just because someone lives in London with access to
several soccer clubs, allegiances are not determined by the low-price
or high-quality provider on an annual basis.  Allegiance also does not
typically switch for reasons of performance: someone in Akron who has
cheered, in vain, for the Cleveland Browns is not likely to switch to
Pittsburgh even though the Steelers have a far superior championship

Given the vast reach of today's various communications channels, it
would seem that successful sports brands could have a global brand
equity that exceeds the club's ability to monetize those feelings.  I
took five of the franchises ranked highest on the Forbes 2010 list of most valuable sports brands and calculated the ratio of the estimated brand equity to the club's revenues.  If the club were able to capture more fan allegiance than it could realize in cash inflows, that ratio should be greater than one. Given the approximations I used, that is not the case.

For a benchmark, I also consulted Interbrand's list of the top global
commercial brands and their value to see how often a company's image
was worth more than its annual sales.  I chose six companies from a
variety of consumer-facing sectors (so long IBM, SAP,  and Cisco), and
the company had to be roughly the same as the brand (the Gillette
brand is not the parent company of P&G).

Three points should be made before discussing the results.  First, any
calculation of brand equity is a rough estimate: no auditable figures
or scientific calculations can generate these lists (see here). Second, Forbes and Interbrand used
different methodologies.  We will see the consequences of these
differences shortly.  Finally, corporate revenues often accrued from
more brands than just the flagship: people buy Minute Maid apart from
the Coca Cola brand, but the juice revenues are counted in the
corporate ratio.  All told, this is NOT a scientific exercise but
rather a surprising thought-starter.

The stunning 8:1 ratio of brand equity to revenues at Louis Vuitton is
in part a consequence of Interbrand's methodology, which overweights
luxury items.  Even so, six conclusions and suggestions for further
investigation emerge:

1) The two scales do not align.  The New York Yankees, the most
valuable sports brand in the world, is worth 1/24 that of Amazon.  One
or both of those numbers is funny.

2) Innovation runs counter to brand power.  New Coke remains a
textbook failure, while Apple's brand is only worth about a third of
its revenue.  Harley-Davidson draws its cachet from its retrograde
features and styling, the antithesis of innovativeness.

3) Geography is not destiny for sports teams.  Apart from New York and
Madrid, Dallas, Manchester, and Boston (not included here but with two
teams in Forbes' top ten) are not global megaplexes or media centers;
London, Rome, and Los Angeles are all absent.

4) Soccer is the world's game, as measured by brand: five of the ten
most valuable names belong to European football teams.  The NFL has
two entries and Major League Baseball three to round out the top ten
list.  Despite the presence of more international stars than American
football, and their being from a wider range of countries than MLB's
feeders, basketball and hockey are absent from the Forbes top ten.

5) Assuming for the sake of argument that the Interbrand list is
overvalued and therefore that the Forbes list is more accurate, the
sports teams' relatively close ratio of brand equity to revenues would
suggest that teams are monetizing a large fraction of fan feeling.

6) Alternatively, if the Forbes list is undervalued, sports teams have
done an effective job of creating fan awareness and passion well
beyond the reach of the home stadium.  Going back to our original
assumption, if tattoos are a proxy for brand equity, this is more
likely the case.  The question then becomes, what happens next?

As more of the world comes on line, as media becomes more
participatory, and as the sums involved for salaries, transfer fees,
and broadcast rights at some point hit limits (as may be happening in
the NBA), the pie will continue to be reallocated.  The intersection
of fandom and economics, as we have seen, is anything but rational, so
expect some surprises in this most emotionally charged of markets.