How I would monetize YouTube

Mark Cuban has a blog post, in which he discusses YouTube monetization. He talks about how much it costs for Google to operate YouTube (just upoading, downloading, storing costs), and thinks that it might be significant. I don’t know the numbers, but I am sure Google spends a lot of money to this free service now that they have to do some screening (of porn and piracy) as well.

I have criticized the extreme version of ‘freekonomics’ before, in which it is argued that a lot of online service including contents like YouTube should be free because the marginal cost is almost zero. See:

• Is free special?
• Wrong - Paul Krugman, Chris Anderson, Lawrence Lessig, Mike Arrington. Contents should not always be free.
• Internet is not free
• In addition to free (Part 1: Free is not a cure-all) (and later parts)

The marginal costs can go very low, but never to zero. And there are other costs that may not be directly marginal, but very real. They are fixed costs and upfront investments. You can read my posts above if you are interested.

So, how should YouTube monetize? At the moment, they are doing all kinds of advertisings. OK, do that. But I think they are missing more direct opportunities. Here are my ideas.

Charge viewing over certain amount

I suggest this, because I sometimes feel sorry to YouTube. I enjoy YouTube a lot, and sometimes use it as a background music player not even watching the video.

They can charge some dollars above certain threshold, and that will be reasonable to everyone. I am sure they have done some analysis, and my bet is that 80/20 applies here (a small % of users consume a significant % of the network and storage).

Enable priced contents

Again, I am suggesting this because I feel sorry to the content creators. I watch (or listen) music videos a lot, but I don’t think I pay back to the creators in any way.

So, give the content owners the option of making a content priced. YouTube can share certain % margin for this option. I have experienced some music videos disappearing, and I guess some of this may have to do with copyright issues. Right now, the only options for the content owner are either making it available for free or making it unavailable. I think if YouTube gives another option of making it available for a price, there will be more good contents.

Charge embedding copyrighted content

Some YouTube videos have embedding disabled. I don’t know for sure, but I guess they do this to preclude copyright infringement. But often they were the contents that I wanted to share. So, how do you make this work? Let me do it, but at a price.

There are some different ways to do this. First is to charge me (the embedder) directly. YouTube can charge a fixed fee, or they can invoice based on viewership.

Another way to do this is to charge the viewers. This needs integration with the priced-content model that I suggested above. Basically, YouTube can use me as the content retailer. In this case, I may be free to embed or even be paid to do it.

That’s about it now. I don’t know if Google has not thought about these direct models or not. But I hope Google to do now.

Good luck.

If everyone free-rides, free market may free-ride, too

A post at Marginal Revolution covered an interesting issue: http://www.marginalrevolution.com/marginalrevolution/2008/12/a-remarkable-qu.html

Here is a related question I have been thinking about the art market.

If people buy an artwork as a speculation, to sell later at a higher price, then they must be making the assumption that there will be people who ‘like’ the artwork.

But, if everyone thinks that way, that is they buy based on ‘other people’s preference’, how can the price be determined?

This seems similar to Keynesian beauty contest, in which entrants are asked to choose a set of six faces from photographs of women that were the "most beautiful" and those who picked the most popular face are then eligible for a prize. (source: http://en.wikipedia.org/wiki/Keynesian_beauty_contest)

My hypothesis is that the market will be unstable, prices swinging widly together. Because everyone is waiting for a signal that shows other people’s perception, a tiny fraction of people that moves before other people can influence the great majority. These early movers are buying based on their own aesthetic preference, unlike others. How few these independent buyers are, they are the total sample of the market and their influence can be huge.

Let’s say there is only 1 buyer who really likes a painting, and she is willing to pay $1000. Then the price that a speculative buyer would pay should not be higher than $1000. These are people who would not pay even $100 to buy the painting, without the speculative opportunity.

However, when there are a lot of speculative buyers, it does not seem to work like that. Speculative buyers guess what the price would be, based on their knowledge about people’s preference. Furthermore, it is also possible for some to try to ‘move’ the market.

Then, the voice of ‘real’ demand is mixed up with the voice of these ‘experts’. And the majority of free-riding speculators will put more weight on the experts’ opinion, because the experts represent the market, not just one buyer.

So, when things are good, they overshoot. And there is no ceiling in rising price. B hears from A that the price will go up, and tell C the same thing. C tells A that people are saying the price will go up. And it goes on. When there is few buyers buying for their own enjoying, this bubble grows itself.

When market turns pessimistic, things look opposite. When there is a real buyer, he could stop the decline of the price. He will buy when price has dropped sufficiently. But if there is no real, as opposed to speculative, buyer, there is no natural stopping of the fall. Only until the experts get bullish again.

The key difference between speculative buyers and real buyers is whether the price one is willing to pay is reasonably fixed or vary widly according to external influences. Not to make this post too long, my conclusion is that unless there are enough real buyers deciding independently the market will be very unstable.

There is another topic related to this, which I would like to write about later. That’s about ownership premium (or call it distributed ownership discount). I think distributed ownership of an asset or a business lowers the value of the asset. A company owned by many small % shareholders will be manages worse than one owned by a few large % shareholders, other things being equal.

I wish Bolt had done his best, for the Olympic 100 meter

I was very excited to see the news that Bolt had set a new record, amazing 9.69 seconds, for the 100 meters. See here.

But when I watched the game, I felt uncomfortable. He was fast, and it was apparent that he was a great athelete. But it was also clear that he did not do his best for the last 20-30 meters. Isn't the spirit of the olympics, and more generally sports, about doing one's best much more than deciding who is better?

I admire him for extending a human limit. I praise him for his speed. But I wish he had done his best, so that I could praise him wholeheartedly.

FirstPagr, your (growing) web sites on a page

Let me introduce our web app FirstPagr, a really simple tool to make a really simple website. It makes a static page that can contain lists. It does not do any automatic aggregation of your contents elsewhere or any interactive feature like commenting or RSS. You, no one or no machine else, enter everything you want on the page manually. Why such a primitive tool?

When you created a blog, you thought it would be your 'homepage'. You may have even bought a domain (yourname.com) and associated it with the blog. But things changed. Now, you may spend more time at Facebook or with Twitter. Even worse(?) you may create another blog, or a tumblog. So, what is your 'home' page? You wonder or you don't care, if you were like me.

A side effect of this is that you stop caring about giving your own domain name to your sites. Either you have no choice of putting a custom domain name (e.g. Facebook) or, even if you did, you are tired of coming up with and buying new domains.

You may have linked sites with each other. Your blog lists all your other sites, and your facebook profile lists all your other sites, and your friendfeed lists... Some people seem to think that(linking) is natural on the web. But in my eyes, that seems like 'over-linking'. (In fact, a recent fashion seems to be copying and pasting contents everywhere. That's ... over-loading.) I don't enjoy looking at all those small icons at a sidebar. It only gives me the impression that this person is another contributor/victim of information overload.

So we created FirstPagr to let us make the simplest site that can link to other sites of yours. You can only have one page. You type in the site name and create lists of your sites (with some descriptions, if you want). That's it.

So far, I am personally very happy as a user. I used to associate www.hyokon.com with my blog, but now with my FirstPagr. Have a look and try yourself.

Insuring high-risk customers.How?

Fred Wilson's 'Making My Personal Health Record Public' is inspirational, though I am not completely agreeing (or disagreeing). Privacy matters aside, I think the insurance issue is a very interesting one. The biggest project I did as a strategy consultant was about insurance, making the first online insurance in Korea (and one of the first globally, as we could not give the clients any success case when they strongly demanded one) and strengthening the existing agent-based insurance business. The project involved auto and life insurances.

This is same in the auto insurance. No one wants to insure a truck or a motorcycle in Korea. So a lot of them go uninsured, or get alloted to insurance companies by some rules (part government, part self regulation).

I have discussed with an exec that there may be a business opportunity to create an insurer who specializes in high-risk vehicles. Fundamentally, insurance exists because there are risks. Unless the risk is systematic (meaning accidents tend to happen together), they are insurable. The problem is, then the price may be quite high.

The other solution is to make an insurance company that says 'we have one price for everyone regardless of the risk profile'. The key will be to pool risks widely and to forego the costly underwriting process (which means they don't investigate your track records). The goal is hassle-free, simple, reasonably-priced insurance. The problem here is there might be adverse-selection. Because they give lower price for high-risk cars, you may attract only high-risk cars. The problem will be especially real when the competing insurer says "you are paying for high-risk motorcycles at that insurance company. Come to us and we will offer lower price." So the key is whether the saved underwriting-process costs of the 'one-price insurer' can be as large as saved claims of the 'discriminating insurer'.

The last solution is the government regulation. The government could create one big monopoly insurance company, or ban private insurance companies to discriminate the insured. I don't think this is a great idea. It will became politics, not business.

My example was about auto insurance, but the same is true for health insurance. And my personal opinion? The first one. The second one is attractive, but I am not very positive the cost saving can justify the claims difference.

In response to Will Prices's "Lost My Voice"

(This is a comment that I made on Will Price's recent blog post http://willprice.blogspot.com/2008/04/lost-my-voice.html)

I would rather think that you should feel free to promote your company in your blog. What needs more caution is when you write about other topics, including what you learned from your management experiences.

In this age of personal broadcasting tools, people broadcast even what needs to be communicated silently between individuals. The world will eventually find new ethics, but right now people seem overshooting. It's not different here in Korea. A politician recently said, "Stop talking to a microphone. Let's meet."

Crash of the longtail and the attention economy, and the solutions

I have about 20 rss feed subscriptions. That's how I get information about what's going on around the world. But it's hard to keep up with the pace of information coming out of them. In terms of writing, I have this blog, which I don't regularly write posts.

Amazingly, there are people who actively manage, in addition to reading and writing blogs much more than I do, all sorts of other web app accounts (Facebook, Twitter, Friendfeed, and so on). The result is that they produce and consume more and more information. And it seems that they are beginning to feel the pain to keep up.

I expected this crash of the longtail and the attention economy was coming. In plain words, it is a conflict of increasing variety and the scarcity of our mental capacity. I have a slide that I have been using for 2 years, which you can see here (note that the chapter itself is a mess and to be written and organized).

The long tail itself is a good thing. We'll have more choices. However, like all changes in human life, it brings some negatives as well. When you have more choices, you have to use your brain more to process the information and you have to make more decisions on what to consume and what to discard. And that can be very very painful.

The pain of decision making is so severe that the human society created a full-time job for decision making, the CEO (and other leadership positions at organizations). So, how should we deal with this growing pain? How should we handle variety overload (information overload being the most immediate for the Internet community)?

There are three solutions, as you see in my slide.

The first is to fractionize the consumption unit. That is, make the unit of consumption smaller. It happened in music (from CD albums to MP3 singles) and in video (from 2-hour movies to 2-minute YouTube videos). Though less apparent, it seems happening around the book (from 300-page books to 1-page blog posts to 1-line twitter messages). The purpose is for you to consume more variety, just like a buffet restaurant. We will see this happening in much more categories.

The second is to improve filtering. Google and Amazon use algorithms for filtering, and there are attempts to make even better algorithms. However, as we have more and more variety, people will look for more human filtering. Digg and Delicious are more human filters, and, more narrowly, crowd filters. Yet, another form of filtering will be also needed, which is the expert filtering. I often read only Techcrunch among web2.0 blogs and news, when I don't have much time. When I do so, I am trusting that TC must have done a good job of selecting the right news.

This is a bit strange. The information is increasing exponentially so that any individual expert could never compete with algorithms or crowds. But the reality is that overwhemled by information overload, people seem looking for experts more. Though they can always find the best books about innovation, I am very often asked to recommend books about innovation.

The two solutions above help people be more productive. They make you enjoy more variety and filter out less important things. Wouldn't these two be enough, especially now that contents are getting smaller and smaller and there are many new approaches in filtering? No, I don't think so.

The ultimate solution will be simply to slow down. As a human being, your brain have certain limits no matter what tools you use. You will realize this sooner or later, and then have to rethink what your focus area should be.

I think the reason why many people try to keep up with a lot of information is that we have not adjusted to the variety economy yet. Our economic life in 20th century was governed by the Mass Production model. We did not have much variety in products and information. In this age, an educated person was supposed to know 'all that's important'. If you were a college-educated professional, you were expected to know the headline news of the day, to have read the best-selling book that other professionals all seem to have read, and to have watched the movies of the year.

A lot of tech leaders, as Alexander van Elsas wrote, may be the best examples of this symptom. They seem to think they should know whatever is being said in the tech world. They are living the web2.0 longtail world with the mentality of 20th century professionals. I don't mean they are doing wrong things. Their paranoid makes them good human expert filters right now. I just mean that they represent stressed 20th century info worker adopting to 21st century variety economy. I feel that, too. I try to calm myself down saying that I am normal. But inside of me, I often feel I am not doing the homework.

But sooner or later, all these busy bloggers will have to redefine their coverage if information increases at this pace. You just cannot keep up. To help people to define coverage narrowly, I predict that there will be more niche aggregators. At the moment, we have a lot of general aggregators, equipped with powerful filters. You start at Google or Yahoo, and try to read all the important news there, and search and browse to your areas of interests. But if you already know that you are interested in Japanese Manga, why not start at an aggregator specialized in Manga?

There is another (and the last) reason why we should slow down. By slowing down, we will recover depth. At the moment, information is like disposable cameras. They are consumed once and forgotten (by the writer as well as readers). This is too much waste and in a way non-sensical. You write everyday, because people won't read your post a day ago. You produce more, just because you will throw away more. By following that trend, we lose depth. We become shallow and trendy. It is true that the world is changing faster so that the shelf life of information is decreasing. But does it apply to all information? Of course not. But because of this trend, because there are more innovation for fast-pace tools, we seem to treat information that are worth staying longer just like daily news.

This is partly why we started paragraphr and rankrz. They are tools for revision and updates. They are tools for slow writing and reading. We don't know whether and how these will be used, but I am very confident that the world needs to do something for slow and deep writing, reading, and thinking.