Value chains and new media

LECTURER

Gwenaëlle Bauvois. Doctor of Sociology.

## GENERAL INFORMATION

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Objectives of the course:

The course provides students with an understanding and knowledge of the latest ways of generating revenue streams in the particular field of new and interactive media with a perspective rooted in social sciences.

Course outline:

Weekly online course and weekly assignments (reading articles, writing small essays). Join iCampus and post your assignments in "Value chains and new media" group:[1]. Final assessment: essay.

Learning outcomes:

On completion of the course, the students will be able to understand the latest concepts and business models in the field of new and interactive media. The students will have the necessary conceptual tools to comprehend the current challenges in this constantly evolving area. They will be aware of the latest ways to generate revenue and will be able to have a more critical and constructive approach on new media.

Requirements for participation:

Completion of 70% of the assignments. Each week students will be given an assignment with a specified deadline. The overall grade will be based on these weekly assignments and on one final essay at the end of the course.

Schedule & content of studies:

Schedule: February 8, 2010 – April 19, 2010

Content

Topics of the lecture:

Detail of the topics

Compulsory literature:

Anderson Chris, The Long Tail: Why the Future of Business Is Selling Less of More, Hyperion, 2006.

Lietsala Katri and Sirkkunen Esa, Social media. Introduction to the tools and processes of participatory economy, University of Tampere, 2008[2].

O’Sullivan Dan, Wikipedia. A new community of practice?, Ashgate, 2009.

Compensatory literature:

Lister, M., New media. A critical introduction, 2003.(available in Tallinn University Library)

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## Course 1: Introduction to the key concepts and goals of the course “Value Chains in New Media

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February 8-14.2010

This course will provide an understanding and knowledge of the latest ways of generating revenue streams in the particular field of new and interactive media with a perspective rooted in social sciences. The theoretical framework will be closely overviewed and the concepts will be applied to concrete examples from Finnish and international media ecosystems. This course will focus on the analysis of the media value chains and study some specific cases from the world of new media.

Before we really tackle the issues related to the revenue streams in new interactive media, an introduction is needed to clarify the concepts that will be used in the course “Value chains in new media”. The concepts of media, media studies, media economics, media ecosystems, value chains and participatory economy are crucial here and constitute the theoretical frameworks that will be applied to the study cases from the new media field.

Media

It is a fact that there is not ONE definition of ‘media’, media sciences is such a broad academic field that each approach will look media from a different angle. But we can agree on the basic definition of media as a technological medium which stores and transmit information for various purposes, and influences the perception of the world of its users. Different research fields focus on studying media but according to the discipline the interest focus may vary. For instance, an economist or a journalist is more likely to be interested in mass media issues, while a sociologist in addition to mass media will also look deeper into the different social and cultural aspects of media. A researcher with a background in philosophy or literature is more likely to concentrate on the symbolical dimension of media, and an engineer on the technological aspects. Media can be looked from many different point of view which are all valid and relevant without any hierarchy between them. It is very beneficial to study media from a multi-disciplinary approach which combines several lawyers of understanding. This course will focus on a socio-economical approach on new and interactive media and shed light on the latest and upcoming ways to generated revenues in this particular field.

Media studies

Media studies as an academic discipline can have very different theoretical and methodological focus. Obviously in this course, we will concentrate more on the study of the production process as the content of the course is dealing with value chains in media ecosystems. But this course we will also focus on the social dimension of media. These two aspects far from being opposed are actually intertwined. It is difficult to understand the market, the value chains, the users behaviour without looking at the social and cultural factors, without looking at the ideologies behind the scene. In the past few years, media studies had to acknowledge the changes that the Internet and interactive new media have brought to the field. As the sociologist and media theorist David Gauntlett has shown in his research, 'audiences' and 'producers' cannot be separated anymore and this has lead to the advent of the ‘produsage’, concept coined and developed by Axel Bruns[ http://produsage.org/about]. As technology is developing drastically, the importance of media studies will keep on growing and researchers have to take into account the deep changes that have occurred recently and that will still occur in a very near future. All the changes that technology have initiated in the media in only few years are major and some are still under study at this point. The media ecosystems have been deeply modified and the value chains, the ways to stream revenues and to create added value, has been modified too. New chains have been created, new chains are been created right now and at this point we cannot know yet how efficient they will be. We cannot predict how things will turn out, this is the reason why media studies are crucial in order to understand the present situation.

Media economics

In this course dealing with value chains in new interactive media, the concept of media economics is of course central. Beginning in the 1970’s, the field of media economics really developed in the 1980’s. The journal of reference, The Journal of Media Economics, began its publication in 1988, edited by one of the most acclaimed researcher in the field, Robert G. Picard. The more ‘traditional’ media economics focus on the different economical aspects of one media such as television, radio, written press or the Internet. But we should use here a broader definition because nowadays media economics does not only refer to economical implications but also to social and cultural ones. A purely economical investigation would be too restrictive, especially nowadays with the new social and digital media. We will overview in this course different aspects of the media in order to get a bigger picture. Media economics in a broader definition deals with all the practical and theoretical questions related to media of all types. Media economics cover a very wide range of themes and is not only linked to the purely economical dimension. What is important here is that the definition of media economics cannot be anymore reduce to the study of one single media like the economics of the television or the economics of the press, which focus only on one layer of the media.

Media ecosystems

Another concept which is important in this course is the media ecosystem. Here, by media ecosystem, we mean all the different types of media (traditional media like newspapers as well as new digital media) functioning together in our society. We could talk in a more general way and use the term of ‘media system’ or ‘media world’. Sometimes you might encounter the concept of media ecosystem defined as the relations between blogs and traditional journalism, if this definition is not false it is obviously too narrow. There are many issues that can be addressed through the concept of media ecosystem, for instance: the relations between professional and non professional journalism (how users are creating their own content and how to apprehend these new forms of content), the complex relations between a user who becomes a content creator and how information is shared.

Value chains & participatory economy

This leads us to the concept which is of course central in this course: the concept of value chains. It refers to a chain of activities: a product passes through all activities of the chain and at each activity the product gains more value. The concept of value chains has been developed by Michael Porter[3] in Competitive Advantage: Creating and Sustaining Superior Performance (1985). In this course the concept of value chains is applied from the business management to the new media environment and we will especially analyse how the development of the new media and social media has deeply changed the value chains within this environment. Analysing the value chains means looking how users consume different forms of media and how their consummation has an effect on stream revenues. We are looking especially how the new forms of media such as social media and interactive media have changed the habits of users and how the values have transforms themselves according to these new ways of creating, diffusing and accessing media content. To understand what are the latest value chains in new and interactive media, the model of participatory economy is also absolutely crucial: it means that users can gain use-value as the result of their participation and actions. It helps us to understand the new earning models in the world of media, which is exactly the goal of this course. New ways of making revenues have been created recently and some are created right now and we do not know yet what the future is made of. With the changes that occurred with the rise of new media, it is obvious that yesterday’s value chain is becoming more and more irrelevant. The rules of the game have changed.

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References

Chris Anderson,’The Long Tail’, Wired magazine, October 2004.

Chris Anderson, The Long Tail: Why the Future of Business Is Selling Less of More, Hyperion, 2006.

Axel Bruns, Blogs, Wikipedia, Second Life, and Beyond: From Production to Produsage, Peter Lang, 2008.

David Gauntlett 'Media Studies 2.0', 2007.

Michael Porter, Competitive Advantage: Creating and Sustaining Superior Performance, 1985.

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Assignment

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## Course 2: Media Economics: Past and Current Challenges

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February 15-22.2010

As we mentioned in course 1, the concept of Media economics is very important in this course dealing with value chains and new interactive media. For some years already, the field of media economics has become increasingly important, first of all because the technology has evolved dramatically since the advent of the Web 2.0 and this revolution have produced rapid and monumental changes in the media field in general. Secondly, the development of new and interactive media has introduced new ways of generating revenues and consequently multiple economical challenges have to faced.

In the beginning, the field media economics was merely seen as a subfield of media and economics but nowadays it must be considered as a field of its own. The idea of media economics referring only to financial operations of various media is clearly outdated and an multidisciplinary approach is needed. The field of study has known drastic changes and developments since the last three decades and the amount of research and studies based on media economics concepts and methodologies has increased in a major way. Nowadays in the economy of new media, only a broader definition of media economics is really making sense.

What issues are media economics addressing?

The disciplines concerned with media economics are various and broad, it includes: journalism, film production, print, broadcast, entertainment production, mobile communications, advertising, public relations and of course social media, new media and interactive media. The issues tackled by the media economics are also very diverse and are related for instance to the media ownership, the media companies activities, the intellectual property rights (very important issue in the new media field), the deregulation of media, but also social policies, business strategy, audiences behaviours and usage of diverse forms of media. So we can see that media economics covers a very wide range of issues and is not only linked to the purely economical dimension but also to the social aspects of media.

In what academic field do media economics belong?

The first contributions in the field of media economics began already in the 1950’s but it is only since the 1970’s that regular study of media economic issues really developed. Traditionally there were no courses in media economics in the departments of communication and it was more present in the departments of economics and in business schools. It is only in the 1980’s that the communication schools and departments opened their doors to the discipline and that a new literature emerged. Anyhow the number of scholars interested in these new issues was still relatively small and they were usually located in different departments such as journalism, business, economics, without real connection between them. The establishment of The Journal of Media Economics[4] in 1988, The International Journal on Media Management [5]in 1999 and The Journal of Media Business Studies[6] in 2004 helped to clarify the status of the discipline.

Since the discipline has matured and gained in popularity, hundreds of universities are nowadays offering courses and programmes in media economics. But the location of media economics research in the academic world is still very different from one country to another and depends on the tradition and history of the institutions. In some universities it is located in business schools and in others it is located in communication, media, economics and journalism schools or departments. In Finland for instance, it is possible to study media economics in business schools but also in universities and in universities of applied sciences, in the departments of communication, journalism and economics.

Robert G. Picard forecasts that the field of media economics will keep on getting broader in the next years (cf: article of Picard, Historical trends and patters in Media Economics, Handbook of media management and economics, 2006) .

Media economics and new media?

The advent of new media and interactive media have had a strong impact on media economics in general. The media industry is constantly developing since it relies heavily on technological changes. The digital technology has had consequences on the overall media industry, in every levels.

The results is that the media content can now be modified and disseminated in totally new ways, and the traditional economic boundaries in the media world are now much more unclear.

What are the challenges of media economics nowadays?

According to Robert G. Picard (cf: article of Picard, Historical trends and patters in Media Economics, Handbook of media management and economics, 2006) one of the founding fathers of modern media economics, the latest research in media economics has been driven by the major changes in the nature of communication itself and by the breakdown of the traditional national markets. Most of nowadays research focuses on the changes in technology, markets, services and competition. The advent of new and interactive media has brought new perspectives in the field of media economics and present exciting but sometimes arduous challenges for the scholars and researchers. Numerous questions have to be raised in regards to the access to these new technologies, their diffusion and distribution as well as their social impact on consumer’s habits.

Scholars of media economics and media studies in general recognise the need to develop even further this field of research in order to follow closely the deep and fast changes happening in new and interactive media. The reliance on only purely macroeconomics theories has been challenged and the field of investigation as well as the methods used must be adapted to the new reality. This is a necessity since the media field is changing and developing with an extremely rapid pace and media economics researchers and scholars must be aware of each new idea coming along their way in order to be able to tackle all the new issues.

Changes will still occur in the media industries and the markets will keep on breaking down, according to Robert G. Picard. The implications of all these deep changes are still unclear and the challenges that researchers and scholars in the field of media economics have to face are great. But in the last years, the discipline have developed tremendously and will become more and more important to understand new media in nowadays society.

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References

Alan B. Albarran,Sylvia M. Chan-Olmsted,Michael O. Wirth, Handbook of media management and economics, 2006[7]

Gillian Doyle, Understanding media economics, 2003 [8]

Colin Hoskins,Stuart McFadyen,Adam Finn, Media economics: applying economics to new and traditional media, 2004 [9]

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Assignment

Read chapter 8 "New Media" (p141) of Understanding media economics by Gillian Doyle [10]

Take into consideration the latest technologies in new and interactive media and analyse what impact they have had on the media economical market. Develop 2 or 3 examples. Lenght of the essay: 3-4 pages. Deadline 20-02-2010

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## Course 3: Participatory Economy and New Media I: the revenue sharing model

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February 22-March 1.2010

To analyse the latest ways of generating revenue in the field of new and interactive media, the concept of participatory economy is absolutely crucial. This is a key element in this course that must be studied very closely.

Participatory economics, often abbreviated parecon, is an economic system introduced by political theorist Michael Albert and economist Robin Hahnel in their book: The Political Economy of Participatory Economics published in 1991 by Princeton University Press. Here is the online version of the book [11]

In their book Michael Albert and Robin Hahnel argue for:

“A new alternative based on public ownership and a decentralized planning procedure in which workers and consumers propose and revise their own activities until an equitable, efficient plan is reached. The vision, which we call a participatory economy, strives for equitable consumption and work which integrate conceptual and manual labor so that no participants can skew outcomes in their favor, so that self-motivation plays a growing role as workers manage their own activities, and so that peer pressure and peer esteem provide powerful incentives once excelling and malingering rebound to the advantage and disadvantage of one's work mates”.

Published in a very important moment in history, the collapse of the Soviet block, The Political Economy of Participatory Economics uses participatory decision making like an economic mechanism to guide the consumption, production and allocation of resources in a given society. Albert and Hahnel proposed in their book the creation and organization of consumer and producer’s councils in order to implement the decision making principle. Parecon is based on this decision-making principle which often refers to the idea of ‘self-management’.

Albert Michael continued to develop the concept of participatory economy in his book Moving forward: programme for a participatory economy in 2001. Here is the online version of the book: [12]

This concept of participatory economy is highly important in nowadays media world, especially with the boom of social media and virtual commerce. The economic model of participatory economy helps us to understand the new earning models, the new value chains systems in the world of media, which is exactly the goal of this course. The idea of participatory economy is simple but crucial: it means that users can gain use-value as the result of their participation and their action. For instance, users are participating to a web site, like writing articles or writing reviews, and get a small pay check in return; or users are participating to a website and get in return some reduced prices or services. Of course, participatory economy is often made possible thanks to the Internet activities.

The participatory economy practices are also making their way into the traditional media industry but the pace is still quite slow. In Finland and in most of the countries, the core of journalism and media production is still quite closed and stays in the hands of media professionals. But the business strategies are changing and the distribution of content is more and more open. In the future, a lot of professionally produced content will be available in open channels. For instance, people will use (and they already do) web sites that contains content and widgets from other sites supporting that site. The users can even aggregate the content themselves and enjoy only the newest micro chunks on their feed readers without separate visits to publisher’s sites. This represents quite a change for users for who participatory economy practices are becoming more and more important.

Participatory Media Revenue Models:

Now let’s look concretely at some different revenue models made possible by the participatory economy in the media world.

Advertising and revenue sharing:

One important revenue model in the participatory economy is the ‘revenue sharing’ model. In the context of this course about value chains and new media, it means that website operators which are using this revenue sharing model give to the users a certain percentage of sales revenues generated by the user themselves. Nowadays many online services share the revenues with the users who are generating the content available on these websites.

Video sharing websites have become increasingly popular in the past few years and these type of websites are a very good example of the ‘revenue sharing’ model. Since the content visible of these websites heavily depends on what users are willing to post, these video sharing websites seem more and more willing to share a small part of their revenue with the users who posted the most popular items. Let’s take the example of the video sharing website Revver.com[13] which hosts user-generated content: Revver is actually the first video-sharing website to monetize user-generated content through advertising and share advertisement revenue with the creator of the video shared online. It means that users are putting their own videos on the website and Revver attaches advertising to the video clips and shares all ad revenue 50/50 with the creators. The key technology behind Revver is the RevTag, a tracking tag that is attached to videos that users upload. The RevTag automatically displays a clickable ad at the end of each video. When viewers click on it, the advertiser is charged and the advertising fee is split between the video creator and Revver. In the past, creators were able to restrict what kind of advertisements could be placed at the end of their videos, but it is not possible anymore. However, advertisers may choose to request their advertisements to be shown in videos of certain categories, such as videos that are the most popular on certain websites, allowing them to target their desired demographics. The website has attracted some controversy for providing video content on Zango[14], the adware creator and distributor known for running updates and popups. Videos that are uploaded to Revver are passed on to Zango in exchange for a fee.

YouTube[15] is nowadays also considering sharing revenues with the users who have posted the most successful videos on the website. These users will receive a monetary compensation to thank them for sharing a good product with other users of the site.

Another example of revenue model in the participatory economy are websites using people’s own reviews. For instance, the website Reviewme.com[16] serves the advertisers by hiring bloggers to review products. The website pays bloggers to write reviews of movies, books and services on their own web sites. Bloggers register at the website and provide links to their main page and RSS feed. Advertisers can then solicit the website to provide reviews of their products, paying the blogger through ReviewMe.com once the review is posted to the blog site. User can be paid between 20 and 200 dollars for a review posted on their blog.

Thanks to the ‘revenue sharing’ model based on participatory economy, users can obviously make some kind of profit by either posting content that they have created or by providing reviews from their own blogs. But on the other hand the creators of the websites can use the willingness to participate and share an online community activities in order to sell services and generate new forms of revenue. Though users can create some monetary benefit for themselves, the outcomes are usually not very high and the ones who are the biggest beneficiaries of this revenue sharing model are more often the owners of the websites. They can access, use and share content that users have willingly accept to give away most of the time entirely for free and sometimes for a very small reward which is often not even monetary (points, virtual money and so on). The development of the new and interactive media has made this type of models based on user’s participation very beneficial and economically interesting.

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References:

Michael Albert and Robin Hahnel, The Political Economy of Participatory Economics, Princeton University Press, 1991.

Albert Michael, Moving forward: programme for a participatory economy, 2001.

Katri Lietsala and Esa Sirkkunen, Social media. Introduction to the tools and processes of participatory economy, University of Tampere, 2008[17].

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Assignment:

Find out 3 examples of new media using the advertising and revenue sharing model and explain how this model is applied. 3 pages. Deadline 26-02-2010.

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## Course 4: Participatory Economy and New Media II: Freemium and Virtual media production & commerce

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March 1 - March 8. 2010

In course 3, we have studied last week one important revenue model in the participatory economy: the ‘revenue sharing’ model. Today we will focus on other revenue models which will help us deepen our understanding of the latest value chains in new and interactive media. First, we will study the ‘Freemium’ model and second the ‘virtual media production & commerce’ model:

Freemium:

One important model in the participatory economy of new media is the ‘Freemium’ business model. The word ‘freemium’ is a portmanteau term created with the combination of two aspects of the business model: ‘free’ and ‘premium’. It is a business model that works by offering basic services for free, while charging for advanced or special features. The ‘freemium’ business model has become increasingly popular with the advent of the Web 2.0 companies and is still currently gaining more and more importance. The Freemium business model was developed in 2006 by Fred Wilson, an American blogger and venture capitalist who invested successfully in start-ups companies and is nowadays one of the investors of major websites such as Delicious, Twitter or Etsy. Wilson described this new business model on his blog in March 2006 and asked his readers for name suggestions and in few hours, more than 30 names were proposed. Wilson selected the one suggested by Jarid Lukin from Alacra, one of Wilson’s portfolio companies. So Lukin is actually the one who coined the term ’freemium’ and it was then adopted by Wilson and the entire community of specialists of new media.

The term has gained popularity and has appeared in Wired magazine and Business 2.0, and has been used by Chris Anderson, the founding father of the Long Tail model (which we will develop in a future lecture) and editor in chied of Wired magazine. The importance of the Freemium model was recognised by Chris Anderson who published in 2009 the book Free: The Future of a Radical Price.

One of the early examples of the freemium model on the Internet is the website Musicmatch Jukebox which went out of business in 2008. This audio-player contained an online music store, an Internet radio and a ripping software, among other features, and was first marketed with a freemium model already in 1999. Most of the users of Musicmatch Jukebox could use the basic free version, but they had to pay an extra $19.99 in order to get some extra features such as supertagging and faster ripping and burning.

If we look at some of the most successfully websites right now, such as Pandora, Flickr, LinkedIn, and Skype, the freemium model is already used. Flickr users can pays $24.95 a year for storing an unlimited amount of photos and for receiving no advertisements. Xing users can pay €71.40 a year for adding some reach options and directly chatting with other members of the site. FreeDigitalPhotos.net offers low resolution and space for storing photos free of charge but the site takes a small charge for higher resolution versions of the photos which is revenue-shared with the photographer. It should be noted that FreeDigitalPhotos.net used advertising revenue to support its freemium model. Facebook is also considering adopting the freemium model according to Yuri Milner, the CEO of DST, a Facebook investor. According to The New York Times in May 2009, (http://www.nytimes.com/2009/05/25/technology/start-ups/25startup.html?_r=1) Freemium has become “the most popular business model among Web start-ups”.

Virtual media production & commerce:

Another very important revenue model in the participatory economy is the virtual production & commerce, or v.commerce, that is found in virtual worlds and networking websites.

The MMOG:s (Massively Multiplayer Online Games) are one of the best examples of virtual media production. MMOG:s are video games which can support up to thousands of players at once. The MMORPG:s (Massively Multiplayer Online Role Playing Games) are one of the sub-genre of MMOG:s that pioneered this category of virtual games and have become one of its most popular forms. Commercial MMORPG:s became really successful since the late 1980’s and grew more and more popular. MMOG:s have recently begun to break into the mobile phone market but there were for a long time mostly confined to the computer game market until the sixth-generation consoles.

The first MNOG was Samurai Romanesque released in 2001 and set in feudal Japan but it is not before 2003 that MMOG:s became a mainstream phenomenon instead of a restricted community practice. The main MMOG nowadays is World of Warcraft, it represents alone more than 60% of the subscribing player base with its 12 million monthly subscribers. World of Warcraft has generated over $2.2 billion since 2005 thanks to the subscriptions to its site.

What makes these MMOG:s interesting is that a majority of them use a virtual currency, meaning that users can earn, save and spend virtual money as they wish while playing. This virtual currency has created what is called a ’virtual economy’: a new kind of economy existing in a virtual world, usually exchanging virtual goods and currency in the context of an online activity. The uses for such virtual currency are numerous and vary from game to game, they are also use on the context of virtual worlds and online social networking websites. The virtual economies created within MMOG:s, as well as in virtual worlds and online social networking websites, often blur the pre-existing borders between ‘real’ and ‘virtual’ worlds and between ‘virtual’ and ‘real’ economy.

The importance of having a working virtual economy within an MMOG is increasing as they develop. Users who enter to these virtual economies do it mostly for pure entertainment rather than economical necessity, which means that virtual economies lack the aspects of a real economy. However, some people do interact with virtual economies for ‘real’ economical benefit. Real money commerce in virtual market has grown to become a multi billion dollar industry. This can obviously cause problems and we can notice that kind of issues through the example of World of Warcraft, the most successful virtual game ever. In World of Warcraft, players can buy or sell gold and this practice has created some controversy: on February 21, 2008, Blizzard, the company which created World of Warcraft, released a statement (http://www.wow-europe.com/en/info/faq/antigoldselling.html) pointing out the dangers of buying and selling gold. There is according to them an "alarmingly high" amount of gold which comes from "hacked" accounts, in other words the virtual gold is stolen from players and is then sold to other players who can buy this currency with real money.

Some users are also selling their own accounts to other players, for instance on eBay, in exchange for real money. The highest amount paid for a World of Warcraft account was €7000 in September 2007. In World of Warcraft, more the characters progress, more they become valuable and this generates a real life market for virtual characters.

This virtual gold attracts also adware companies who send advertising spams to players. In May 2007, Blizzard filed a complaint against In Game Dollar LLC in the US federal court. In February 2008, In Game Dollar agreed to stop using World of Warcraft community site to advertise any business or services.

In conclusion, we do understand that the implications of the virtual economy in the so called ‘real’ economy are nowadays major and have to be taken into account while studying new and interactive media. Brand new value chains and innovative ways of generating revenues have been created in few years the past and will keep on developing. Next week, we will keep on emphasising the importance of virtual media production and commerce; and explore other current ways to generate revenues in new and interactive media field.

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References:

Chris Anderson, Free: The Future of a Radical Price, Hyperion Books, 2009.

The New York Times, May 25. 2009, http://www.nytimes.com/2009/05/25/technology/start-ups/25startup.html?_r=1

Fred Wilson’s blog: http://www.avc.com/

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Assignment:

What do you think will be the new ways of generating revenue in new and interactive media in the next few years? Develop 3 ideas.

This assignment will be based on course 4 AND upcoming course 5. Deadline Friday March 12. 2010.

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## Course 5: Participatory Economy and New Media III: Virtual media production & commerce

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March 8-15.2010

Last week, we have discussed the virtual media production and commerce issues and developed the example of World of Warcraft.

This week, we will mention other examples of revenue streaming within the virtual media production: Second Life, Gaia online and Habbo Hotel. We will also look at the development of the virtual gifts business which is becoming more and more lucrative nowadays.

Virtual worlds: Second Life, Gaia & Habbo Hotel

Some virtual world websites have become increasingly popular and one the most successful is Second Life, a virtual world created by Linden Labs in 2003 which has reached great recognition since then. The numbers related to the usage of this virtual world are quite impressive: in January 2008, residents spent a total of 28,274,505 hours inside Second Life and in October 2009, over 16 million accounts were registered.

Like in most virtual communities, there is no actual charge to create a Second Life account but a Premium membership provides technical support and a stipend of 300 Linden dollar per week. Like World of Warcraft has their own ‘gold’, Second Life has also an internal virtual currency: the Linden dollar (L$). People can even become ‘Linden dollars millionaires’, the first millionaire was nominated in November 2006. Linden dollar can be purchased using real US Dollars and other currencies. Linden dollar can be used to buy, sell, rent or trade land or goods and services with other users. Virtual goods include buildings, vehicles, devices of all kinds, animations, clothing, skin, hair, jewellery, flora and fauna, and works of art.

It makes it very easy for users of Second Life to spend a lot of money but on the other hand users can also earn some money by selling virtual items to other users. Though only a relatively small number of users can actually earn a good amount of money from the virtual world.

According to numbers published by Linden Lab in February 2009: around 64 000 users of Second Life made some type of profit, over half for an amount of less of 10 US$, while 233 earned more than 5000 US$. These profits are made mainly by selling virtual goods but the individual users are not really the ones making real profit. The ones who are able to generate revenues are the third party companies who provide services for the users of Second Life, for instance Languagelife.com, Rivers Run Red, BNT Holdings and Beta Technologies. Some of these Second Life entrepreneurs have seen their profit exceed 1 million US$ per year in 2009.

Another example of this virtual economy is Gaia online, an online social networking site with forums where people create their own animated avatar. Founded in 2003, Gaia is nowadays visited by 7 million unique users each month and a million posts are posted daily.

Like in World of Warcraft or Second Life, the users of the site, known as Gaians, can purchase items using a virtual currency called gaia gold. In July 2007, Gaia released 'Gaia Cash', which is a virtual currency that may be bought using actual money for instance at Wal-Mart, 7-11 or directly from Gaia website. Monthly Collectibles can be also bought with real money meant to support Gaia’s maintenance and costs.

Another good example of this virtual media production and commerce comes from Finland: Habbo Hotel. It is a social networking and virtual world website created by Sampo Karjalainen and Aapo Kyrölä. It has know a large success worldwide reaching the 100 millionth avatar in June 2008.

Like in the other virtual worlds, there is a virtual currency available for the registered users of Habbo Hotel. There are two types of currency: first, the Credits which are used to buy virtual furniture for the hotels rooms, and then the Pixels. Habbo Currency can be also be transferred from real money to habbo money.

This money, virtual or not, does not always attract well intentioned people. In 2007 a Dutch teenager has been accused of stealing 4000 euros worth of virtual habbo furniture. Six other teenagers have been suspected of moving the stolen goods into their own Habbo rooms. It was considered as a ‘real’ theft because the furniture was paid with ‘real’ money. This case is interesting because it really shows that the boundaries between virtual and traditional economy become more and more blurred. Another issue has been the subject of controversy with Habbo Hotel when in 2004, a 34 years old British man was sent to prison after using Habbo to lure a 13 years old girl to his apartment and was sent to prison.

Virtual gifts:

Another aspect of this virtual economy is the virtual gifts, called also VG:s. According to The New York Times, customers worldwide spend about $1.5 billion a year on virtual goods. (http://www.nytimes.com/2008/12/08/technology/internet/08virtual.html) The market of virtual gifts have grown rapidly in couple of years, for instance the Americans users are very fond of virtual gifts and have spent several hundred million dollar last year. The Asian market is also very keen on spending large sums of money on these virtual gifts, making them very attractive for the websites developers, the advertisers and third parties developers.

For instance, the company Viximo, launched in 2007, provides a virtual store of gifts and personal accessories for many websites and helps them to target their audiences. Viximo is generating most of its revenue from dating sites, online social networks and game sites, even better than in virtual worlds such as Second Life. Virtual gifts have developed outside the virtual worlds to conquer much larger websites. Facebook is a good example of a networking website which added successfully virtual gifts to its services and other online social media companies rapidly understood how efficient these little gifts were to supplement the ad revenue. Facebook virtual gifts have been a very successful business: users receive one free gift and each additional gift costs US$ 1. The initial selection of gifts was for Valentine’s Day 2007 and 50% of the proceeds were donated to a charity but after February, the donation stopped. In November 2008, Facebook changed the $1 per gift model to a micro-payment model of 100 points per $1. Valentine’s Day is still a very good time for selling these virtual gifts on social networking websites. Theses virtual gifts are very profitable for the websites because the profit margins can go up to 90 % since they do not cost much to be produced.

The VG business model is a big business and is growing rapidly. Let’s take again the example of Gaia Online, where approximately 7 million visitors per month come to play or connect with friends. The entertainment site began selling virtual gifts early on, their most popular items being for instance Elvis’ blue suede shoes and Paris Hilton’s pet Chihuahua. These and other similar items boosted Gaia’s sales by nearly 20%. Some people also collect the so called ‘limited editions luxury’ virtual gifts: in 2008, one ‘out-of-production’ item, a Gaia golden halo, was sold for $6000 on eBay.

In fact, the virtual gift industry is so lucrative that non profit organisations such as the American Red Cross are also using virtual worlds in unique ways. The ARC has for instance held a fundraising auction of virtual gifts in Second Life. On the website MyYearbook.com users, usually teenagers, can support their favourite charity by buying virtual gifts.

All the examples help us to understand that many forms of generating revenues have emerged in the past few years and will keep on being growing. The development of new media and interactive media have stimulated a different type of economy where the frontiers between virtual and real are more and more challenged.

* * *

References:

Wagner James Au, The Making of Second Life: Notes from the New World, Harpers Collins, 2008.

Stephanie Olsen, Storefronts in Virtual Worlds Bringing in Real Money, The New York Times, December 2, 2008, http://www.nytimes.com/2008/12/08/technology/internet/08virtual.html

J. M. Balkin, Beth Simone Noveck, The state of play: law, games, and virtual worlds, New York University Press, 2006.

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Assignment:

What do you think will be the new ways of generating revenue in new and interactive media in the next few years? Develop 3 examples.

This assignment is based on course 4 AND 5. Deadline Friday March 12.2010.

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## Course 6: The Long Tail model and Media I

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March 15-22. 2010

Another very important way to generate revenue in the participatory media economy is the Long Tail model. Most of you must have hear about this concept, some of you might even be familiar with it but today we will refresh our memory on the origins and impact of this crucial concept, before applying it to the field of new and interactive media.

The Long Tail is a concept originally developed by Chris Anderson in an October 2004 Wired magazine article which described the niche strategy of businesses that sell a large number of unique items, each in relatively small quantities. Then Anderson elaborated the Long Tail concept in his famous book The Long Tail: Why the Future of Business Is Selling Less of More published in 2006 (http://books.google.com/books?id=O2k0K1w_bJIC&printsec=frontcover). The term Long Tail is a used in online business, mass media, micro-finance (Grameen Bank, for example), user-driven innovation and social network mechanisms (e.g., crowdsourcing, crowdcasting, Peer-to-peer), economic models and marketing (especially viral marketing). This makes this concept crucial for anyone studying new media in general.

The phrase the ‘Long Tail’ is definitely linked to Chris Anderson who claims to be the first to coined the term. Here is his article on the subject: http://longtail.typepad.com/the_long_tail/2005/05/the_origins_of_.html. But the origins of the concept come partly from previous research of other writers. The concept drew in part from a February 2003 essay by Clay Shirky: "Power Laws, Weblogs and Inequality" (here is Shirky’s article: http://www.shirky.com/writings/powerlaw_weblog.html), which noted that:

“A persistent theme among people writing about the social aspects of weblogging is to note (and usually lament) the rise of an A-list, a small set of webloggers who account for a majority of the traffic in the weblog world” and ”In systems where many people are free to choose between many options, a small subset of the whole will get a disproportionate amount of traffic (or attention, or income), even if no members of the system actively work towards such an outcome.”

Anyhow, Anderson is the one who really developed the concept of Long Tail. He first began to introduce his ideas in a series of conferences in early 2004 and then published his Wired article in October 2004. In this article where he described the effects of the Long Tail on business models, Anderson shows that low demand or low sales volume products can, when put together, exceeds the best-sellers and blockbusters which are actually few in number. The Long Tail is a potential market and, as the examples illustrate, the distribution and sales channel opportunities created by the Internet often enable businesses to tap that market successfully.

It means simply that the total volume items which are not so popular and which do not sale so much can exceed the volume of items which are highly popular but less numerous. This summarizes very well the general demand for cultural products in general. Wherever we talk about books, music, movies, only a few best-sellers and blockbusters make most of the profit but then the demand falls down rapidly and concerns the less popular items. However, demand does not drop to zero and the tail keeps on elongating itself. The products found in the Long Tail are less popular, less trendy but there are still interesting in a way that they cover a niche market which can be extremely lucrative when considered in the global way.

Let’s concretely see how the Long Tail works:

If we take the simple example of a record shop: this shop has to carefully decide what products to include in their inventories. Retailers have to figure out which records are going to sell and which ones are not. And even if they choose carefully, most retailers can only notice that at the end only 20% of their inventory will make 80% of their total sales. This is called the 80% - 20% rule also known as the Pareto’s principle (after Vilfredo Pareto, an Italian economist who coined the concept in 1906). It simply means that the most popular books, biggest music hits and blockbuster movies represent 80% of the sales but only 20% of the stock. For brick and mortar establishments, such as traditional music stores or book stores, this has been an ongoing reality. The main reason for this 80% - 20% repartition in the inventory of brick and mortar shops is of course the lack of space. Traditional shops are forced to radically shorten the tail of items available in their inventory simply because they cannot afford storing unpopular books, CDs or DVDs. They cannot offer a large panel of options to the customers: there are hundred of thousands possible books, movies and CDs in the global market but only few thousand are actually available in brick and mortar establishments. The fact that only 20% of the inventory of traditional shops will make 80% of their total sales is actually a consequence of shortening the tail due to the inevitable lack of space. The tail ends at the exact point where inventory ends: when they are no more products in stock, the traditional brick and mortar shops cannot sale anything anymore and obviously items which are not available in stock cannot be sold at all despite the demand.

But nowadays with the development of the Internet and online business activities, the inventory constraints have become totally obsolete. Online retailers can have in stock as much items and products as they want because they do not have to keep the products in inventory or put them out on display racks. Whether you are looking for the latest releases or for an old song from the 1940’s, you will find them.

One may wonder what consequences this change have had? The consequences are major, the fact that so much more products have become available has totally changed the 80% - 20% rule and something amazing has happened: the traditional 80% - 20% rule does not apply anymore but it is now closer to 50% - 50%. It means that the most popular items are not representing anymore 80% of the sales like in brick and mortar shops but only 50% of overall sales. The remaining 50% now consists of an accumulation of a variety of items maybe not considered as so popular. For instance, the older songs or older books that are not so famous do not sell very much, maybe just couple of items a month but they anyway sell and it does not cost anything to store them. In a traditional shop, you could not find them at all because the retailer does not have the space to stock these less popular items. On the Internet, you can sell them because even if they do not sell much, they still generate some revenue anyway without additional stock costs. The fact that the Long Tail of products is not limited by space means that the tail extends to the right until the very last part of the sales chart. The Long Tail because it is not cut off at any physical and palpable limit, can get longer and longer all the time. That is the reason why the 80% - 20% rule is not effective anymore with the online business and new media in general.

We understand how crucial is this model and what impact it has had on the field of new and interactive media. The rules of the game have changed drastically and the value chains of new and interactive have been deeply modified. Next week, we will develop further the concept of Long Tail.

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References:

Chris Anderson’s blog: The Long Tail (http://www.thelongtail.com/)

Chris Anderson, “The Long Tail”, Wired magazine, October 2004 (http://www.wired.com/wired/archive/12.10/tail.html)

Clay Shirky, "Power Laws, Weblogs and Inequality", February 8, 2003 (http://www.shirky.com/writings/powerlaw_weblog.html).

Erik Brynjolfsson , Jeffrey Yu Hu, and Duncan Simester, "Goodbye Pareto Principle, Hello Long Tail: The Effect of Search Costs on the Concentration of Product Sales", 2006 (http://papers.ssrn.com/sol3/papers.cfm?abstract_id=953587)

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Assignment:

Find out 2 examples of the Long Tail model in new and interactive media. Analyse how the Long Tail model is applied and developed.

Deadline Friday 19.03.2010

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## Course 7: The Long Tail model and Media II

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March 22-27.2010

As we already mentioned last week, thanks to the advent of the Long Tail, the pool of choices available to the customers has become incredibly huge. In this week course, we will explore some relevant examples of the Long Tail that we can encounter on the Net.

One of the first examples that comes to mind is Amazon. Compared to the traditional bookstores, you can find any book you want on Amazon, whether it is old, out of print, totally unknown or totally unpopular. Founded by Jeff Bezos in 1994, Amazon is nowadays America’s largest online retailer. As a company Amazon grew rather slowly and the stockholders actually were complaining of the development pace in the beginning. However when the dot-com bubble bursted, Amazon persevered while many e-companies went out of business, and finally turned its first profit of $5 million in 2001. After that, the revenues kept ongrowing to reach $10.7 billion in 2006.

Amazon started as an on-line bookstore but has branched into retail sales of CDs, videotapes and DVDs, and many other items such as toys, sporting goods, gourmet food, jewellery, beauty products and so on. However, the main activity of the company is still the online book selling. While regular large brick-and-mortar bookstores and mail-order catalogues for books might offer around 200 000 titles, an on-line bookstore can offer much more for its customers. By selling used books Amazon has made it almost as easy to find and buy a second-hand book as it is a new one. Since online stores do not need any geographical location to store the books, networks like Amazon have boosted the general demand for used books, opening up a very dynamic market for that type of product. Combined that with the cheaper and cheaper costs of print-on-demand technologies, it is clear that now any book is available at any time. That is why already in the mid years 2000, we have been witnessing a blurring of the line between ’in’ and ’out of print’. Nowadays, we can easily forecast that the meaning of ’out of print’ will become more and more outdated.

Another example of the Long Tail is Netfilx, the online DVD rental service in the USA. Established in 1997, it has nowadays a collection of over 100 000 titles and around 10 million subscribers. The company has more than 55 million discs and ships around 1.9 million DVDs to customers everyday day. Netflix announced its billionth DVD delivery on 25th of February 2007 and two years later its two billionth.

In the USA, a regular brick and mortar DVD store such as Blockbuster has about 3000 movies in stock. Netflix, without a brick and mortar inventory limitation, can have over 40 000. Netflix inventory is over 10 times larger than a regular brick and mortar DVD store and yet all of their titles will eventually be rented by someone, even just a few times per month. Christopher Null in his article “How Netflix is fixing Hollywood by finding a market for niche titles” in the magazine Bussiness 2.0 in 2003 : states that: “On any given day, in fact, 98 percent of the 15,000 titles in Netflix’s inventory are in circulation with customers” and ”3 million discs are in the hands of customers at any given time”. Because Netflix stocks movies in centralized warehouses, its storage costs are far lower and its distribution costs are the same for a popular or an unpopular movie: Netflix can stock much more movies than a regular movie rental store. This is a great example of the Long Tail: actually the “unpopular” movies are rented more than ”popular” movies. Netflix is an amazing place for nice products: a lot of genres and subgenres of movies are not available in traditional stores because they do not sell enough but they do represent a large part of Netflix rentals.

Google AdWorks is also a good example of the Long Tail. What is Google AdWorks strategy? The all idea was to find and monetize the Long Tail of both ‘advertisers’ and ‘publishers’, making the business very lucrative for Google. These advertisers include millions of small companies and individuals worldwide who did not always have the opportunity to pay an advertisement for their businesses. But Google AdWorks proposed services that are self-service, cheap and performance based (such as Pay-Per-Click / PPC), which makes it very easy to use. Google AdWorks help all these advertisers to connect themselves to all the possible ‘publishers’, meaning individuals writing blogs or having niche commercial sites. This is again all based on the niche market idea. Eric Schmidt, Google’s CEO, became very aware of this fact and declared: “The surprising thing about The Long Tail is just how long the tail is, and how many businesses haven’t been served by traditional advertising sales”.

eBay is also mostly Long Tail as well. What make eBay special, compared to a brick and mortar shop, is that the goods sold cannot be found in a traditional shop, and most of the people selling these goods are not traditional retailers. Instead, eBay is, as Anderson put it, both the Long Tail of products and the Long Tail of merchants. Like Amazon, eBay is merely providing a Web site which helps buyers and sellers to meet and negotiate. eBay inventory costs are non-existent and since it is a self-service model, eBay does not need to pay for packaging and mailing. eBay has managed to build its huge business with very few employees: for eBay the revenue per employee is about $5 million, almost 30 times higher than for Wal-Mart’s employees.

But according to Chris Anderson, eBay is not the perfect Long Tail example because one of the problems is that eBay does not have advanced filters like Amazon does, to help people making their choice thanks to recommendations, reviews or ratings. The issue is that eBay in fact does not know what is being sold on its site most of the time. You can know who is selling what and who is buying what, but the products are sold by the sellers themselves and each seller describes their own product differently so it is nearly impossible to control what is actually sold. Obviously Amazon does not have this problem since it knows better what products are sold and this downside makes eBay’s more vulnerable than Amazon.

One field where the Long Tail is very efficient is the music industry. Chris Anderson himself is quoting the example of Rhapsody, a subscription-based streaming music service. Anderson used data from this website since 2004 and completed his observations in 2006. The demand curve on Rhapsody is quite similar to any record store: people are first attracted by major hits but once you dig below the top 40 000 tracks, the Rhapsody demand keeps going while the traditional stores cannot provide the necessary products to meet this demand. On Rhapsody, each track added, ANY track added, will eventually find an audience, even if it is just a few people per month, as the statistics proves it. Any product will find a customer looking for that particular product, whatever this product is and whatever unpopular it may be.

eMusic is another good example of the Long Tail model in the field of music. eMusic is a free, independent music-oriented site which does not contain any major label music but is the world’s largest retailer of independent music with 5 millions tracks. There has been some critics about the Long Tail model regarding music on the Internet: a UK study conducted in 2008 was claiming that of the 13 million songs on the internet, 10 million did not sell a single copy. This criticism was putting into jeopardy the all idea of the Long Tail and the theory of Anderson. But as Anderson himself explained on his blog in January 2009, another study proved that actually 75% of eMusic tracks sold at least once during 2008. eMusic is an example which proves the reality of the Long Tail. So it means that the Long Tail really works and that the majority of items proposed are sold at least once to some customer. One of the reasons of this high percentage is that eMusic proposes only independent music that cannot be found in traditional stores and the site attracts a community made of enthusiastic and passionate users.

The examples of the Long Tail on the Internet are numerous and prove how important this model has become in the past few years. Of course, some of the critics showing that the Long Tail is not as efficient as some might hope and that its future is still uncertain, are in some extend valid. But it cannot be denied that the Long Tail model is very appealing and that in many cases it does work in a very impressive manner. One thing is sure, the Long Tail model nowadays needs to be considered as a major one and has proved its efficacy in many ways.

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References:

Ellen Lewis, The Ebay Phenomenon: The Story of a Brand That Taught Millions of Strangers to Trust One Another, Marshall Cavendish Corporation, 2009.

Chris Anderson's blog The Long Tail: http://www.thelongtail.com/

Nate Anderson, Making money selling music without DRM: the rise of eMusic: http://arstechnica.com/gadgets/news/2006/05/emusic.ars

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Assignment:

According to what you have been studying in course 6 & 7, how would you forecast the future of the Long Tail model in the field of new media? Deadline Friday 26.3.2010. big

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## Course 8: Web 2.0 rhetoric

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March 29-April 5. 2010

When studying new and interactive media, there are two very important concepts that need to be considered with great care: Web 2.0 and social media. Though these terms seem to be nowadays an obvious part of our vocabulary, they are actually fairly young, at least in the way we understand and use them presently. Their importance is not to be demonstrated here, anyone interested in new and interactive media is familiar with these concepts, but looking back at their roots can very beneficial as well as at their present and future applications.

This week we will look at the origins of the Web 2.0 rhetoric and what kind of changes have occurred since its advent in the world of new and interactive media. Next week we will study the concept of social media and the new ways of generating revenue through this new form of media.

The term ‘social media’ is very well know nowadays but it is actually quite a recent one. It is one of the many buzz words that came along with the Web 2.0 rhetoric between 2005 and 2006. What exactly is the Web 2.0 rhetoric?

As usually it is rather difficult to give one single and everlasting definition of what is the Web 2.0 rhetoric. It is more appropriate to identify several characteristics which help us to recognize, identify and define what relates to the Web 2.0 services. We can all agree that first of all the Web 2.0 refers to services that are user-centered: in the Web 2.0, the web design is created in order to fulfill all the needs of the end user. It allows the user to customize the design in a certain extend. These user-centered designs are easy for the users to navigate into. For instance, iGoogle is one good example of a user-centered design on the web.

One of the other characteristic the Web 2.0 is the crowd-sourcing: this is an important concept and it refers to the fact that each contribution, even very small, has an impact and an importance to a Web 2.0 service. More contributions there is more relevant and efficient the website will be.

Another characteristic is that the Web 2.0 facilitates the collaboration on the Internet: it allows the user to make valuable and lasting contribution. One of the main example is of course Wikipedia and wikis in general which are significant collaborative works on the web.

Web 2.0 allows also the power decentralization: it gives the users the possibility to use a self service model since earlier most of the services were administered and not automated. For instance, with Google Adsense, users can publish their own advertisement without having to rely on an administrator. Social bookmarking which have become increasingly important in the past few years also work on the same idea that the power is no longer centralized but rather in the hands of the users themselves.

The Web 2.0 has facilitated the advent of many new forms of web services and changed the way users can create, share and aggregate content on the Internet, and the way users can communicate, socialize and collaborate. What are the best examples of Web 2.0? We can mention for instance:

\- mashups: data mashups, enterprise mashups and especially consumer mashups such as Wikimediavision.

\- social-networking sites: Facebook, Myspace, Friendster.

\- video-sharing sites: youTube, Dailymotion, Flicker, Rewer

\- blogs.

\- wikis: the most relevant being Wikipedia.

\- folksonomies / collaborative / social tagging: Folksonomy is a portmanteau of folk and taxonomy. The term became popular around 2004 to describe social software applications like social bookmarking. In folksonomies / collaborative / social tagging users are collaborating to annotate and categorize content such as in Delicious.

A Web 2.0 site allows its users to interact with other users or to change website content, in contrast to non-interactive websites where users are limited to the passive viewing of information that is provided to them. For O’reilly, Web 2.0 is ”all about harnessing collective intelligence” (http://www.web2summit.com/web2009/public/schedule/detail/10194).

The term Web 2.0 is know to be coined in 1999 by Darcy DiNucci in her article, ”Fragmented Future” (http://www.cdinucci.com/Darcy2/articles/Print/Printarticle7.html). She explained that: ” The Web will be understood, not as screenfuls of text and graphics but as a transport mechanism, the ether through which interactivity happens.” The idea of interactivity beign central. The way DiNucci used the concept of Web 2.0 was mainly linked to the web design itself, later on the term with evolved towards the meaning that we know nowadays.

In 2003, some researchers began to reuse this idea and adpat it. But the term became really mainstream in 2006 with Tim O'Reilly, the founder of the media company O'Reilly Media (formerly O'Reilly & Associates). O’Reilly Media is well know for organizing important conferences since 1997 and it is during the Media Web 2.0 conference in 2005 that the term Web 2.0 was created. Now the Web 2.0 conference is called the Web 2.0 submit, this event takes place every year and is the opportunity for specialists of the field to discuss all the new issues related to the Internet and media industries. The next one will take place on November 15-17th 2010 and will be present: Google co founder Sergey Brin, foursquare CEO Denis Crowley, Newscorp Digital CEO Jon Miller, Adobe CEO Shantanu Narayen and Intel CEO Paul Otellini.

Now researchers even talking about the Web 3.0. After the Web 1.0 came the Web 2.0 so what is coming next? Can we talk of a Web 3.0 and what is this Web 3.0? As Tim O’Reilly puts it: ”Is it the semantic web? The sentient web? Is it the social web? The mobile web? Is it some form of virtual reality? It is all of those, and more” (http://www.web2summit.com/web2009/public/schedule/detail/10194).

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References:

Tim O’Reilly “What is Web 2.0. Design Patterns and business models for the next generation of software”: http://oreilly.com/web2/archive/what-is-web-20.html

Tim O’Reilly and John Battelle, 2009, ”Web Squared: Web 2.0 Five Years On”: http://www.web2summit.com/web2009/public/schedule/detail/10194

Darcy DiNucci, 1999, "Fragmented Future": http://www.cdinucci.com/Darcy2/articles/Print/Printarticle7.html

Thomas Lukasiewicz and Umberto Straccia, 2008, "Managing uncertainty and vagueness in description logics for the Semantic Web" http://www.sciencedirect.com/science?_ob=ArticleURL&_udi=B758F-4SPSPKW-1&_user=147018&_coverDate=11/30/2008&_rdoc=1&_fmt=&_orig=search&_sort=d&_docanchor=&view=c&_acct=C000012179&_version=1&_urlVersion=0&_userid=147018&md5=8123c273189b1148cadb12f95b87a5ef

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Assignment:

Read Tim O’Reilly and John Battelle’s article (2009): ”Web Squared: Web 2.0 Five Years On”: http://www.web2summit.com/web2009/public/schedule/detail/10194

Deadline April 2. 2010

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## Course 9: Social media and value chains I

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April 6-12. 2010

The term social media is one of the numerous buzz words linked to the Web 2.0 rhetoric and being such a new concept, there is not one strict and everlasting definition of the term ‘social media’. However we can agree that social media is a term used nowadays to describe web services that receive most of the content from their users and / or that aggregate the content from other sites. Theses sites rely on the social networking and on the willingness of the participants of the social community or communities.

The term ‘social media’ as we understand it today is often considered as coined in 2004 by Chris Shipley who is a writer and Global Research Director for Guidewire Group (http://guidewiregroup.com/). Shipley and Guidewire Group used the term ‘social media’ some months before the 2004 BlogOn conference which focused on the ‘business of social media’ (http://www.blogonevent.com/blogon2004/) and where was discussed the emergence of wikis, social networks and blogging related technologies into a new kind of participatory media.

Actually the term ‘social media’ has been also used previously in 1997 by Tina Sharkey but in a different meaning, Sharkey used it to describe Internet content that is driven by a community, which is a more restrictive definition compared to the one we use nowadays. The term social media has been also already used in 1995 Darrell Berry, a social media researcher and software developer. Again, Berry uses the world ‘social media’ in a more restrictive manner, for him ‘social media’ refers to any kind of software systems which facilitate the building of a community and which helps to create this feeling of sharing experienced by users on the Internet. Berry is calling that type of systems ‘social media architectures’. But the way we use the term nowadays is really from 2004 and the definition used by Chris Shipley.

Even if it is difficult to find one single definition of what is ‘social media’, we can anyway agree on some basic points. In their highly interesting book, Social media. Introduction to the tools and processes of participatory economy, Katri Lietsala and Esa Sirkkunen suggest to use social media as:

“an umbrella term under which one can find various and very different cultural practices related to the online content and people who are involves with that content”

This is a very relevant suggestion since the term social media refers nowadays to many different types of media. Social media cannot be taken as a whole, there are several layers which need to be taken into account.

Characteristics of social media

How do we recognize social media among media in general? Katri Lietsala and Esa Sirkkunen give 5 main characteristics and 5 secondary non obligatory characteristics which help us to recognize social media among other forms of media:

\- There is a space to share the content (so it means interactive web applications).

\- Participants in this space create, share and/or evaluate all or most of the content themselves (It means that people are willing to collaborate).

\- It is based on social interaction.

\- All content have an URL to link it to the external network.

\- All actively participating members of the site have their own profile page to link to other people, to the content, to the platform itself and to the possible applications.

There are also 5 other secondary non obligatory characteristics of social media that are found:

\- It feels like a community.

\- People contribute for free. (It means that people are willing to participate without excepting a salary but there can be some small reward anyway)

\- There is a tagging system that allows folksonomy (People are collaborating to annote and categorize content).

\- Content is distributed with feed in and out of the site.

\- The platforms and tools are in the development phase and are changed on the run.

The monetary side of social media

Nowadays, when the participatory economy is based on social media, the role of the users and audiences have drastically changed. Using this new users and audience has turned into a very profitable business. One reason is that people are paying for subscriptions but also because they provide, usually free of cost, new ideas and produce content which are a very valuable resource for the new media industry. This issue has been developed by Yochai Benkler in his famous book The wealth of network. How Social Production Transforms Markets and Freedom (http://cyber.law.harvard.edu/wealth_of_networks/Main_Page). Benkler argues that these new extensive forms of collaboration online may have transformative consequences for economy and society in general.

The interest of most of social media sites based on participatory economy is to create revenue and are actually owned by commercial web 2.0 companies and traditional media companies. There are very few cases of social media websites which are not owned my companies. Thought one of the most famous social media website worldwide is not owned by any company: Wikipedia. It is in fact owned by a non-profit charitable organisation called the Wikipedia Foundation. The creation of the foundation was officially announced on June 20, 2003 by Wikipedia co-founder Jimmy Wales. The goal of this foundation is to offer open content to everyone free of charge and it relies on public contributions and grants to fund its mission. Wikipedia is a very rare example because most of the social media websites are here to generate revenue not to do charity work and they usually depend on venture capitalists and have to follow a business plan. Dan O’Sullivan has published an interesting research on the Wikipedia case: Wikipedia. A new community of practice?. This book proposes a socio-historical approach and argues that Wikipedia does not actually announce a new way of sharing existing knowledge, since earlier encyclopaedias already had the same role, but that it has totally changed the knowledge itself making it ‘participatory’.

One may wonder how do these social media websites are actually generating revenue and how they are financially viable. The past situation have shown that one the only business models available for social media websites is to get venture capitalists involved and hope that one big search engine companies such Yahoo would eventually invest in the website or even buy it. In that respect You tube is a good example: Chad Hurley, Steve Chen and Jawed Karim founded YouTube in February 2005 and sold it to Google for 1,65 billion dollars in November 2006. However not many websites founders have been able to sell their creations for such huge sums of money and with the burst of the dot-com bubble numerous social media sites have be financially struggling.

The social media market being still very young, new business models had to be created. Social media in general has been quite problematic for advertisers because the traditional mass scale ads are not possible anymore in their former forms. Next week, we will study what are actually the most important current business model of social media and what will be the best sources of revenues in the future.

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References

Katri Lietsala and Esa Sirkkunen, Social media. Introduction to the tools and processes of participatory economy, University of Tampere, 2008. http://tampub.uta.fi/tup/978-951-44-7320-3.pdf

Dan O’Sullivan, Wikipedia. A new community of practice?, Ashgate, 2009.

Wiki of Yochai Benkler’s: The Wealth of Networks: How Social Production Transforms Markets and Freedom, Yale University Press, 2006.http://cyber.law.harvard.edu/wealth_of_networks/Main_Page

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Assignment

Assignment for course 9 and upcoming course 10 “Social media and value chains I-II”.

Which business models are the most likely to be successful in the future in regards to social media? Choose 2 examples and develop your argumentation. 3-4 pages.

Deadline April 16.2010.

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## Course 10: Social Media and new value chains II

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April 12-16.2010

The advent and development of new media and especially social media have changed the rule of the game on the Internet and the former business models cannot be applied any more in the same manner. The fact that on the Internet the content has become increasingly user created, what is called UCC (User Created Content), has motivated the creation of new value chains and new business strategies.

In order to understand what are these new value chains and business model, it is very beneficial to refer to the very interesting report published by the OECD in October 2007: Participative web: user created content: web 2.0, Wikis and social networking. http://www.oecd.org/document/40/0,3343,en_2649_34223_39428648_1_1_1_1,00.html

In general this report shows that one of the most important business models for social media is advertising. Through several examples, the OECD report demonstrates that the UCC platforms represent already for couple of years the major part of the advertising revenue. The chapter 5 of this report deals exactly about how UCC has created new value chains and business models. The report acknowledges the importance of UCC and lists the main approaches to generate revenue such as advertising-based models, voluntary donations, charging viewers for services and licensing to 3rd parties.

Advertising-based models

Of course in social media we can find still rather traditional advertising methods such as banners or videos where the user can click and access the webpage of the company. There are anyhow new forms of adversting used nowadays. If we look for instance at social network websites, there are several new business models that are currently applied in order to generate revenue through advertisement:

\- the most obvious is the display ads, the two major ways are CPC (cost per click) and CPA (cost per action or acquisition). For instance, on Facebook an application is proposed to the user, then the user is clicking on the ad and fills a form. The advertiser will pay the Facebook developer each time a user fills out the form.

\- A new business model is the CPS (cost per share) which means that big brands can use the space offered by social media to make user talk about their products through applications, for instance on Facebook. These brands are paying several dollars or euros each time a loyal customer shares the brand application. In that way the product is told about in a very large scale and this is more cost efficient for the brand that to pay for a simple banner that would be click on only by a limited amount of possible customers. Sharing revenues with the user who create the content is one of the new way used by the websites to generate awareness and bring revenue.

Voluntary donations

Another business model is the voluntary donations which means that the developers of the site are hoping for users to contribute financially to support the activities or the products provided by the site. The example of Radiohead is often quoted: in 2007 the band have left their fans pay as much as they wanted for their 7th album In Rainbows. The website Gigwise.com reported that the album had sold 1.2 million copies by the day of its release. According to an Internet survey conducted by Record of the Day, the average price paid for the album was around £4 and 1/3 of people paid nothing at all. Anyhow, the pre-release sales were more important than the total amount from Hail to the Thief’s sales, Radiohead’s previous album. In an interview by The Observer, the band members told that between 60,000 and 80,000 discboxes were sold. But it remains difficult to evaluate how successful was the operation, especially since the campaign did not last long, and in many similar cases the numbers can vary greatly according to different sources.

Charging for content and services

Another way to get revenue with UCC is charging the viewers for content and services. There are many websites that are charging the users usually for getting an upgraded service or a more advanced content. For instance, a web site hosting photographs can offer more space to stock your pictures or a better quality of images for an additional cost. This is a very common way for these websites to generate revenue nowadays.

If we look more specifically at social network websites, there are several new business models that are currently applied in order to generate revenue:

\- Virtual currency: this model is used in many social media. Within a majority of the MMOs created, there is a virtual currency where the player can earn and accumulate money. The game developers are generating a lot of revenue since people are ready to spend real money in order to save time while developing for instance their own virtual world such as in Second Life.

\- Virtual gifts: as we have already mentioned earlier, this is also very beneficial for virtual worlds developers and the market of virtual gifts is constantly growing.

Licensing to 3rd parties

The content and the technology are more and more licensed to 3rd parties nowadays. These 3rd parties are really one of the main topic regarding value chains in new media. What are these parties? What are their role? What kind of revenue are they making? How do they use personal information from users? It is a fact that the content displayed and shared in new media in general and social media in particular is raising a lot of interest since it can be a real ‘gold mine’ for advertisers.

Creative Commons or CC is a very relevant example concerning of licensing of content to 3rd parties. CC is a US non profit organization founded in 2001 releasing copyright licenses for free. Wikipedia is the most well know example of website using a CC copyright license. CC is nowadays included in many social media websites. The idea of CC is to make it easier for users to create content and share without having to use the traditional “all rights reserved” copyright model. The user can select the licenses which is the most relevant to the content they decide to share. Most of the CC licensed works available are permitting the content to be used only for non-commercial profit. In some extend, CC is based on the same basic idea than the donation since the users are willing to create content free of charge and share it to support a common project. But it is still difficult to know if the content is eventually not used in some commercial projects and if the authors are not paid for the work they did.

With the huge success of Facebook, people are getting also more and more aware of what is done or what could be done with their personal information. The licensing of content to 3rd parties can be in that respect quite controversial. How can the user be sure that his or her personal information and content are not used for commercial purposes? This is obviously an issue dealing at the same time with privacy and copyright which applies to all social media in general. The way the personal information is used by sites concerns many users, this information can be sometimes an important source of revenue for the sites which decide to sell them away to advertisers, at times without the explicit consent of the users.

In conclusion, we can say that many of these business models are still developing and need more tuning in order to be more efficient. Some of these business models will probably evolve greatly in next few years and it is very likely that few will become quickly obsolete since the technology is changing on the run. But one thing is sure: new and interactive media is still relying heavily on advertising however new models are needed right now in order to adapt to this always evolving field, for the sake of both users and advertisers. But at this stage, it is still too early to know which ones of the new ways of creating revenues will be the most successful in the next five years.

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References

OECD report, Participative web: user created content: web 2.0, Wikis and social networking, October 2007:. http://www.oecd.org/document/40/0,3343,en_2649_34223_39428648_1_1_1_1,00.html

Giles Moss, "On the “Creative Commons”: a critique of the commons without commonalty", Free Software Magazine, 2005: http://www.freesoftwaremagazine.com/articles/commons_without_commonality

SMART report, User-Created-Content: Supporting a participative Information Society, 2007-2008: http://ec.europa.eu/information_society/eeurope/i2010/docs/studies/ucc-final_report.pdf

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Assignment

Assignment for course 9 and course 10 “Social media and value chains I-II”.

Which business models are the most likely to be successful in the future in regards to social media? Choose 2 examples and develop your argumentation. 3-4 pages

Deadline April 16.2010.

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Final exam

\- Take the example of the media field in which you are studying and / or working (IT/media/online media companies, TV broadcasting…).

\- Describe and analyse what are the most common value chains in use in that field (what are the different ways of generating revenues? Their implementation, their target groups, their efficency…).

\- Forecast what will be the upcoming value chains in that field.

4-5 pages. Essay to be returned on Icampus on Friday April 23. 2010.

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## Course 11: Produsage and recent developments in the field of new media

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April 19. 2010

Let us conclude this course by exploring the highly interesting concept of ‘produsage’ and the recent developments in the field of new media that this concept enlightens.

Produsage:

Produsage is a term that you may have heard, let us clarify what does this concept exactly mean. Axel Burn coined the term in his book: Blogs, Wikipedia, Second Life, and Beyond: From Production to Produsage published in 2008. This concept is probably one of the most interesting in the recent development in the media field. Burn defines the produsage as:

”the collaborative and continuous building and extending of existing content in pursuit of further improvement”.

In the new participatory economy and collaborative online actives, as we have studied it in our previous lectures, the status of the content creator has drastically changed.

Axel Burn defines the 4 key principles of produsage that are the preconditions and can be applied in most domains of new media:

1\. Open Participation, Communal Evaluation

The participants to a collaborative work are participating and evaluating the work together. Produsage is based on the principle of open participation. The annotations, the additions, the contributions, whatever their scales (major or minor changes) are improving the quality of the final work. The evaluation is communal and the community is not hierarchy based. Each contributor plays an equally important role in the achievement of the common goal.

2\. Fluid Heterarchy, Ad Hoc Meritocracy

According to Burn, all produsage activities must be based on the principle of equipotentiality which means that even if all the participants do not have the same capacities to contribute to the communal work, their contributions are anyhow equally valuable. Therefore the value of their contribution will be based on its quality and not of the hierarchical position of the contributor. Produsage communities rely on ad hoc structures hence the idea of ad hoc meritocracy on which produsage stands on.

3\. Unfinished Artefacts, Continuing Process

By nature the work based on produsage is necessarily unfinished and in continuous process since contributions can be smaller or bigger, can be made by regular or occasional contributors, or can be of various quality. The aim is not to produce a final content but to continuously improve this content through a communal work. Poor quality contributions cannot be avoided but in the longer run produsage relies to the fact that poorer contributions will be spotted and that the overall quality will improve.

4\. Common Property, Individual Rewards

The produsage of content is based on the idea that the content produced communally will be available for the next participant since it is an ongoing process and an unfinished work. Since the size of the undertaken projects and the number of participant can be very large, it is obviously difficult to implement an individual reward system. Anyhow, the intrinsic motivation of participants is usually more based on the desire to participate to a communal project than on individual reward. We have mentioned last week the Common Creative license, the idea here is the same: the content is not supposed to be used for commercial purpose but rather for common use without any financial implications. Anyhow rewarding the participants can enhance their motivation.

Let us take some examples of produsage projects based on open participation and communal evaluation. For instance, Google has implemented several open participation projects such as the Google Highly Open Participation Contest that introduced high school students to open source software development. Run between 2007 and 2008, the project allowed students worldwide to produce a variety of open source code, documentation, training materials and user experience research. Google rewarded the participants up to 500 dollars.

We can also mention the GNOME project. It provides two elements: The GNOME desktop environment and the GNOME development platform, a framework for building applications for this desktop. The GNOME project is based on a community of volunteers who contribute in a variety of activities, for instance the accessibility of the software, the testing of bugs, the development of applications, the translation, the documentation and even journalism.

Another example is the MoinMoin project which is developing a popular wiki engine in Python, the high level programming language. The MoinMoin is based on the free license software, GNU General Public License. Many groups like Apache, Ubuntu, Debian, Fedora, Xen, KernelNewbies are using MoinMoin to keep in contact with their users and developers. The technique used by MoinMoin wiki is very simple and allows the participants of the community to edit, manipulate and revise the content with great ease.

We can also mention the Moodle project that a lot of students are familiar with nowadays. As you probably know Moodle is a open-source community based tool for online learning. Moodle is designed to help teachers and facilitate communities of learners. Moodle is widely used around the world by universities, schools and companies. The users can contribute in many ways in the community on moodle.org, such as in GNOME, by debating, testing, documenting, bug fixing and feature writing. Moodle has currently 238 developers who are doing translation, development, management, feedback maintenance and testing work. Like many of similar projects, Moodle has a donation system where users can donate money for the development of the site. Moodle has been growing rapidly and has nowadays 50164 currently active sites that have registered from 210 countries.

We will conclude this course with this concept of produsage that exemplifies one of the most interesting developments in the field of new media in the last couple of years. Produsage is emerging not only in open source development and wikis but in many differents domains such as in social bookmarking, blogging, geotagging and content sharing, among others. Produsage is introducing a new value chains in the field of media: the content is now created by the user who is at the same time a producer and becoming a ‘produser’. This phenomenon is modifying deeply the way content is produced, shared and developed online and this profound change has an effect in general on the way knowledge is nowadays perceived and assimilated. The traditional chains have been broken and are blurring the lines between commercial purposes and non profit.

Thanks for attending this course!

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References

Axel Burn, Wikipedia, Second Life, and Beyond: From Production to Produsage, Peter Lang publishing, 2008.

The Google Highly Open Participation Contest: http://code.google.com/opensource/ghop/2007-8/

GNOME project: http://live.gnome.org/JoinGnome

MoinMoin wiki engine: http://moinmo.in/

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Final exam

\- Take the example of the media field in which you are studying and / or working (IT/media/online media companies, TV broadcasting…).

\- Describe and analyse what are the most common value chains in use in that field (what are the different ways of generating revenues? Their implementation, their target groups, their efficency…).

\- Forecast what will be the upcoming value chains in that field.

4-5 pages. Essay to be returned on Icampus on Friday April 23. 2010.