Friday, September 18, 2009

The Capitalist Struggle With The Internet's Socialist Soul.

The original culture of the Internet has always struck me as predominantly socialist. Consider the concept of ‘open source’ programming and you’ll see what I mean. While socialism is a dirty word in our healthcare debate, it’s an important consideration as capitalism continues to integrate with the Internet. WIRED recently ran an entire article on the ‘new socialism’ though I think they left out some important aspects.

Of particular interest is the Social Web (or Web 2.0) which I find more left leaning than Web 1.0 ever was. From the name on down, social media is all about collectivism and sharing. But if Web 2.0 is to grow up, my belief is it will need to follow the trail of Web 1.0. That means making some concessions to capitalism. The reason is innovation, pure and simple.

Socialism has historically proven limited in its ability to facilitate sustained innovation and the widespread distribution of continually improved-upon tools and services.

The USSR surprised the world when the Berlin Wall collapsed. Behind the iron curtain, the Soviet Union was decaying from the inside out and its industrial apparatus was decades behind other first world economies. China didn’t begin its ascent onto the world economic stage until it adopted some capitalist trappings. More hardline socialist nations North Korea, Cuba, and Venezuela struggle on the global stage today. Even nations with strong socialist programs that are noted for innovation, like Norway, pay for it via the money from taxes generated through an aggressive capitalist marketplace.

Capitalism facilitates innovation by rewarding hardwork and efficiency in a way socialism does not.

The Internet is a curious place. Many of it’s inventors start with lofty and selfless ambitions to make the world a better place (or at least to offer people some cool opportunities to do interesting things). However, to take these inventions from a niche fringe or early adopters to the masses usually requires infrastructure, people and a means of paying for these two. The aim remains socialist (improvement for all people) but the means is necessarily capitalist. Here’s why:

Most people want some type of personal benefit in exchange for their efforts. You may find a handful of selfless people willing to work for free, but its hard to staff a floor of accountants or managers or customer support staff with selfless do-gooders say nothing for material costs.

I believe much of the tension online among ad agencies, marketers, businesses, and investors is due to incompatibilities between the internet’s socialist soul and the capitalist methodologies necessary to see innovation reach a widely dispersed online audience. This isn’t just my thought, it’s rather old in fact. The Cluetrain Manifesto expressed anticipation of some of this friction a decade ago. Here are some of the friction points I see today that are undermining the integration of capitalist-driven sustainability with altruistic socialism online.

Friction point #1: Free isn’t free.

Inventors are often driven by sheer curiosity, lofty desires to make the world a better place or baser desires like sharing music with friends, make their inventions available for free. Early adopters glom onto these tools and free becomes a viral accelerator. The problem, as any businessman knows, is free isn’t really free. At infancy an inventor may be able to build his tool by investing purely through sweat equity. Success however means wider awareness and demand. This traditionally results in one of two scenarios. One is that a threatened entity or industry stomps the innovation into oblivion (as the music industry did to Napster).

The other outcome is a realization that to grow, one must acquire staff and infrastructure. This in turn takes capital. The choice then is either to become beholden to investors or to stick to your guns and deal with the consequences. Either way, there is a price tag for ‘free’  be it a tiresome battle with the incumbents (as with Napster), sacrificing some degree of freedom (as with taking on shareholders) or struggling against diminishing returns (as with refusing to adapt while competitors invest in innovation advantages).

Friction point #2: There’s no historical precedent.

Web 1.0 had a much easier transition from socialism to capitalism. Though it felt revolutionary at the time, in many ways businesses took a tried and true construct of capitalism – purchase transactions – and simply moved it online. Voila! e-commerce was born and it became easier to cleanly map old world business practices like advertising revenue and shopping carts to the Internet.

The going will be harder for Web 2.0. One problem is that there is no old world model to work from. Conforming these tools of collectivism to capitalist markets has not been tried before. Ratings, reviews, comments and forums are all becoming standard features on business websites, that is true. They empower consumers like good socialist media and therefore are enjoying huge demand. But like email and instant messaging before them, they also don’t directly generate revenue making them harder for capitalists to work into their value calculations. This has lead to rampant experimentation – some successful, some not so much. Rampant, baseless experimentation is an expensive way to move forward. In the quantifiable world of capitalism its hard to get behind the mushy world of social media. Even with its sizeable traffic the metrics of measurement do not align clearly with capitalist needs. How many comments equal a sale and how much does it cost to create those comments? This is an exacerbated extension of the problem marketers have always faced. What is the value of a positive brand perception and how much does it cost to make? Over a half century into modern advertising those answers remain allusive. There’s no reason to expect social media will be able to provide satisfactory answers any time soon either.

Could community applications lie Twitter, Facebook and Skype be headed for the same status as email and instant messaging? Could they become must-have features that no consumer is willing to pay for? That would be bad for capitalist investors who bet millions that these socialist tools could be bent to serve capitalist needs. But if you can’t get someone to pay for a service, you can at least serve them ads through it right?

Friction point #3: Advertising is breaking down online.

The most obvious way to bend the socialist Web to the capitalist will is to monetize the traffic through advertising.  This worked reasonably well with Web 1.0 even if it took the advertising agencies a bit longer to pick up on it. It’s getting hard now though. One problem is that since Web 1.0, the model has moved from impressions (pay per view) to actions (pay per clicks), and that means lower volumes and higher costs, especially since click through rates have been trending downward almost since day one.

Another dilemma is the increasingly important question of how much advertising we can pack into our environment. Forget people even clicking on ads, with so many of them out there, we’re having an ever harder time recalling any of them – let alone acting on them.

Worse still, social media itself throws wrenches in the centuries-old methods of marketing by adding a readily available layer of untethered consumer feedback into mix.

Somewhat ironically, companies today pay for the very social media applications on their sites that lead to the flaming, complaining and ‘outing’ that often costs them their own customers. True, it works in the inverse too, and good ratings mean better sales but the reality is, negative travels faster and is more compelling. Think of the stories that make press headlines…

In addition, because consumer commentary is both plentiful and accessible, it undermines the efficacy of any advertising message. Suddenly the content that costs so much to make (advertising) isn’t worth as much as the stuff consumers write as comments to that content. That’s a capitalist nightmare. Worse still, companies can’t really control what consumers say. Instead they must invest more and more to make every experience flawless lest they wind up the number one search term on Twitter for all the wrong reasons.

If anything, in gross aggregate I’d wager that social media thus far has cost capitalists more than it has earned them.

Why can’t we all get along?

Is social media incompatible with capitalism? Is it less a market gainer than a necessary market defense? Do the sales it creates offset the costs it requires?

Social media gathers people better than any technology in history. Ironically it also undermines many of the traditional ways capitalists have made money from these aggregated groups. But social media and online communities need capitalists as much as the capitalists need the communities.

Capitalism provides the motivation for sustained innovation just as socialism provides The People with a collective voice that allows them to keep from being exploited.

A lot of digital ink is rightly committed to discussing the imperative of business to be transparent. Less ink is offered up on the responsibilities of the consumer in this symbiotic relationship. This is not to say we must begin to click on banners to support corporations. We should however re-evaluate our expectation that everything be free. We should view ourselves as contributing to innovation every time we write a positive review or recommend a product to a peer. Ranting and ripping some company a new one might be a lot of fun, and is necessary at times. But so is the flip side.

The system works best when both sides benefit.



Interestingly Web 3.0, the Semantic Web, may in fact have an easier time reconciling itself to capitalism. Of course if it works really well, none of us will actually know it as it will be com pletely invisible even as it delivers a more individually customized online experience.

The inherent benefits of semantic intelligence are right in line with the holy grail of business – connecting products and services precisely to the people who want them right then and there. In hindsight, Web 2.0 might be a bump in the road. Right now, its a battleground as socialism and capitalism come to terms with each other in an uncomfortable dance.

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