Archive for September, 2006

Why microtransactions are vital for physical+virtual product sellers

Saturday, September 16th, 2006

Online payment systems have been around since 1994, when the first generation micropayment systems appeared. Micropayment can be defined as an electronic transaction consisting of the transfer of a very small sum of money. The first such systems were eCash, MilliCent and CyberCoin and all of them disappeared slowly in the late 1990s. The current generation of micropayment systems appeared around dot-com boom in 1999-2000 to enable e-business.

Good micropayment system behind a business that sells information products can drive the growth of a company to a new trajectory. A good example of this is Apple. In their Q2/2006 financial results they report revenue growth of 34% and earnings increase of 41%. Their latest entrance to the music business (consisting of iTunes music store and iPod music player hardware) accounted for slightly more than half of Apple’s quarterly revenues of $4.36 billion with $2.199 billion — and considerably more than the $1.7 billion from computer sales. In February 2006 Apple announced that the iTunes Music Store had sold 1 billion songs. In march 2006 iTunes customers were buying about 1 million videos a week alone. Apple is not the only one driving a traditional market to a micropayment-based information product business.

Among the other successful players are Amazon (publishing), Skype (telecommunications), eBay (auctions), NetFlix (DVD rental) and Google (advertising) to name a few. The same can be done for every major industry. It’s clear that Apple is not really making profit with music players but to drive growth in their information product-based online music store, where the profit margins are much better in the long term and the system is easily scalable. It’s also evident, that the demand for music players will go down, as no one has really sold 8.5 million music players in a quarter before. When the market gets saturated by low-cost copy-cats manufactured in Asia, Apple will most likely focus on iTunes, where demand for low-cost information-based products will never decline.

They are utilizing their traditional business model and strong position in selling beautiful computer hardware to drive revenue growth in their new business area of information-based products. This is achieved by first making iTunes a consistent part of their hardware offering. First iTunes will drive growth in the physical product business but as the margins drop due to fierce competition, iTunes will take the lead.

It’s likely, this strategy will be implemented by several hybrid actors (hardware + information products) on the market: first drive physical product sales with an added-value online transaction system and when the time is right, use the existing business of physical products to drive sales of user-generated immaterial and digital products where the margins will be much better. Based on this value proposition, selecting the right strategy for online payments based on micropayment systems is critical. In Finland and maybe in the whole world, Sulake Labs has the most advanced micropayment system tailored for around eleven local markets. Physical product sellers could learn a thing or two from one of the leading interactive entertainment providers.

Tagging your way to success

Friday, September 15th, 2006

This post is based on some research I did with Antti Vähäkotamäki. We asked the question: why it appears that the latest trend in Web 2.0 to tag almost everything is a much better strategy for an individual and the whole to generate value from the bottom-up compared to controlled top-down approach. Our conclusion is that it just helps everyone of us to participate in knowledge working processes much more effectively and in the end, it just benefits us all through selfish acts.

Prof. Clay Shirky, a writer, consultant and teacher from the New York University on the social and economic effects of Internet technologies writes:

It’s all dependent on human context. This is what we’re starting to see with Del.icio.us, with Flickr, with systems that are allowing for and aggregating tags. The signal benefit of these systems is that they don’t recreate the structured, hierarchical categorization so often forced onto us by our physical systems. Instead, we’re dealing with a significant break — by letting users tag URLs and then aggregating those tags, we’re going to be able to build alternate organizational systems, systems that, like the Web itself, do a better job of letting individuals create value for one another, often without realizing it.”

Tagging represent a novel approach to organize information. The term refers to the use of keywords (“tags”) emerging from the uncontrolled user-centric activity to categorize, identify and find resources in a non-hierarchical shared information space, which is called a “folksonomy” (folk/user generated taxonomy).

Tags offer the individuals a way to organize resources both inside and outside the system using a cognitively familiar way of attaching keywords to resources. In traditional metadata-driven systems based on controlled taxonomies the history has shown that individuals are reluctant to fill objects with metadata if the vocabulary has been designed by others, as it introduces additional cognitive load and labour to fill the objects correctly.

If we look at how the human brain works by semantically associating and connecting information, tagging represents an approach similar to how the human brain works in favouring strong connections over weak connections. When one looks at an image of an apple, one can come up with a set of strong associations like red, tree, fruit and sweet. There could be weak associations like shopping, pie and recipe. The approach of tagging with words that come into mind rather than using a taxonomy to classify objects is both more satisfying and easier.

The success of Del.icio.us and other tagging-based services compared to traditional metadata-driven services suggest that the threshold for individuals to contribute metadata is low enough for individuals to devote time and effort for this activity. This success can partly be attributed to the lower cognitive processing required for tagging an object and the freedom to choose how extensively an object will be described. I’m not aware of any success stories where a great number of third-parties have voluntarily devoted time to tag resources with traditional controlled metadata. But as Clay Shirky notes, by forgoing formal classification, tags enable a huge amount of user-produced organizational value, at vanishingly small cost.

This bottom-up approach of classification emerging from individuals will benefit each individual more than a top-down approach of classification designed by a committee. The description of objects with associations introduced by an individual enables the same individual to find the same information later, as the associations often work the other way around for search purposes. The same searchability of personal objects is not guaranteed with taxonomies provided top-down.

While tagging, the individual can make use of the prior decisions of others through tag recommendation systems to further ease the process. The associations on valuable resources can also be shared with other individuals working on the same domains, creating a potential for synergy.

In addition to actively organizing the resources for personal use, individuals can benefit from tagging done by others by browsing for resources relating to personal interests (like events, projects, products, companies, other interested individuals and other areas of interest). Being able to limit the browsing to tags issued only by certain group of people is also valuable since individuals tend to value more such information that they get from a source they perceive as credible or like-minded.

Once browsed and found to be of value, a certain set of search criteria can also be subscribed through RSS so that the individual receives information each time a new piece of information is tagged to comply with the criteria. For example a user might want to be notified each time somebody in a group of individuals tag a resource with keywords “market research” or a wiki page gets tagged with “needs_cleaning”.

Tags can also be used by individual knowledge workers to recognize manageable patterns in the chaos of information overload. Joe Lamantia elaborates:

Tagging or social bookmarking is one potential way for the community of social metadata system users to confront problems of individual and group information overload, via a collective and nominally unhierarchical approach to the emergent problem of information management across common resources.”

Tags provide different cuts through the information system depending of what tags you use as a search. Services like Technorati utilize tags to join tag-based search results across various tools like Flickr, Del.icio.us and Technorati together in a single view. As services implement tags and make their APIs open, we will be able to approach problems at hand with highly contextual search results.

Further introducing Yahoo My Web 2.0 kind of concepts for limiting tag searches to people you trust, we enter into a trust accumulating system where we get much more value out of the system than what we contributed in the first hand in the long term. As I contribute by tagging resources my friends will find interesting I will help them to achieve their goals and as a return they will tag useful resources that interest me. These social benefits will hook us as regular users and we will see no reason to go back.

In order to receive information, tags can also be used to send information about resources to colleagues or any other people. For example an individual can apply tags to her blog entry in order to give a hint to her readers to evaluate whether the entry interests them or not without reading the whole entry. Certain agreed tags can also be used among colleagues to identify resources that others have found worthy of reading or determined as a waste of time.

A group of people with a common goal can support each other by tagging resources with words they collectively find useful. This is common practice in tagging-based services, for example public conferences often announce certain tags that are recommended for participants to be used in various web services to enable the discoverability of resources later on. The same logic can be applied inside an organization where there are more commonalities between individuals.

In addition to using the tags to find, organize or tell about resources, individuals can gather data on the current trends by looking at the recent tag distribution
. Excellent tools for this include “tag clouds” which are designed to convey a large set of tags with varying ways to distinguish the relative importance. The importance (or frequency of usage) of a tag in a cloud is often illustrated with increasing size of font or increasing intensity of colour.

india Tagging your way to success

Tagging of almost everything tends to follow the same distribution of how often certain words are used in a language. Tag usage distribution often follows a power law curve similar to language, where 1/5 of keywords (the head) are most often used and the curve looks flat for the remaining 4/5 of keywords (the tail). This is often referred as the long tail effect.

long tail mini Tagging your way to success

Research has shown that the deeper into the tag list you go, the less stable the tags and order are. This suggests that groups have simple consensus views but highly varied overall views of a particular resource.

A tag cloud representing tags used over time is not very useful for search because the most popular tags provide little insight to personal interests in the fringe, but a tag cloud of the previous week or month provide useful insight on the latest trends in the area of interest. When tag clouds are combined with classifying tags into buckets (for example combining all customer names as one bucket or country names as second bucket once people have used those tags) to enable faceted search, tag clouds prove to be important tools for organizing and following collective action.

People-centric tagging is also a way of self-expression and building of an online identity. Over time, what you tag, defines who you are and what you are interested in. This enables new possibilities for social networking, if the technology enables an individual to find people who use almost the same tags. Last.fm compares your listening habits to what other people in the system are listen to, helping you to find people who like similar music. Tags are no different in the level of interests.

Tagging should not be confused with traditional controlled metadata/vocabulary/taxonomy, as the success stories of Del.icio.us and Flickr clearly suggest that free-form tagging works much better with parties who are not paid for describing resources to generate value up-stream. Tagging cleverly harnesses selfish acts and directs users to generate something that benefits us all. That’s collective creativity.

WidSets Beta

Saturday, September 9th, 2006

WidSets Beta looks promising client to access your favorite blogs, RSS feeds and whatever from your phone. You install a piece of software on your phone and then manage “widsets” from the web interface that are available on your phone. Third parties can create new widsets. It seems their implementation is not limited to RSS feeds only.

Greetings from the API jungle

Friday, September 1st, 2006

Recently I’ve been quite busy at work, doing lots of interesting social software related projects with various customers. In the middle developing non-technical methods, I have sticked my fingers back into tech side by implementing some nifty Web 2.0 blogging APIs into our Dicole Knowledge Work Environment software. Dicole now supports Blogger API, MetaWeblog API and MovableType API, which are all XML-RPC based. This opens up great possibilities in the organizations I work with, including mobile blogging and one-click publishing.

During that process I tested over 50 client software components (on platforms like Windows, Mac OS X, Linux, Pocket PC, Palm OS, Java, Web services etc.) that support the mentioned APIs. My review must have been the most extensive to date done by anyone. I took notes while I progressed so I might release a paper later on the various tools and my experiences with them.

Regarding the APIs, I have to say it’s a total mess. Blogger API was first, then it was extended by MetaWeblog API, which was further extended by MovableType API. The design of those later APIs is just to patch the previous API, rather than fixing the problems for good.

One serious problem is return error codes. If an API call fails, there is no consistent way for a client software to take action based on the error codes, as there is no standard set defined anywhere.

Another is appkeys (for tracking API usage) introduced by Blogger API. As other APIs build on top of Blogger API and ignore this feature, the way you call the API is highly inconsistent.

Uploading media through the API encodes the data with Base64. This makes the upload about 30% larger than with binary uploads would be.

The APIs are also lacking some fundamental features that would enable creation of much more powerful client tools.

Because of these and many other reasons, the client software products often interacted inconsistently with the APIs. Some supported UTF-8, some didn’t. In some tools you could select multiple categories, in some only one. Some had support for HTTPS connections, most didn’t. Rarest was support for server authentication methods.

There is also one fundamental problem that also plagues almost every other Web 2.0 API out there, and that is proper authorization. Often username and password go over the wire in plaintext, easy to interpret and steal by anyone. Often these access credentials also give full access to the software through a web interface. There are no temporary access keys. There is no limited API access. It’s all or nothing and the APIs implement no calls to check for available methods (expect MovableType API, but I believe the feature is not implemented by many client implementations). If I use third-party web services like Flickr to access my blog, I can’t authorize Flickr for access only once, it’s all or nothing. My password will be in their database. I can’t block or limit Flickr from the API side as there is no way authenticating the service provider accessing the API.

Despite their flaws and hackish nature, these APIs open up the gates to innovation, service provider interoperability, usability, productivity, even indepence as you can change the provider while your working interface remains the same. For me it means I can just hit F8 and start typing, even offline, and then choose where this post goes in the twenty blogs I contribute to. Right now I work over an unstable 3G connection through my mobile phone, so I wouldn’t trust any web interface for this text, but I can trust my client software.