Umair Haque just asked “Is Etsy the next Google?” due, I think, to Etsy’s ability to build a community of artists & makers alongside (inside?) a community of art-, fashion-, and craft-lovers, and facilitate their conversations (social and financial) without getting in the way too obtrusively.

Etsy, for those who haven’t heard of it yet, is an online marketplace for buying & selling all things handmade - artwork, clothes, crafts. A niche eBay for artists, but with a much more innovative angle on creating and sustaining conversations between buyers and sellers (AKA community-building).

Economically, it’s an aggregation site launched in 2005 connecting 60,000 - 100,000 specialist creators with their niche markets, charging a micro-fee (20 US cents) to list each item for up to 4 months, and taking a 3.5% cut of the sale price.

In their own words:

Our mission is to enable people to make a living making things, and to reconnect makers with buyers.

I think Etsy should probably open up its platform a bit, but that’s just the developer in me wanting to get my hands dirty with code. It does provide Etsy Mini - widgets for displaying your artwork on external sites (javascript versions for blogs & websites, flash versions for MySpace and other social networking sites).

Etsy could conceivably expand & innovate in a lot of different areas—a context-sensitive ad network for art & crafts sold on Etsy, Etsy-Books as a new outlet for self-publishing, Etsy-music—it’s difficult to predict which direction they’ll take.

I signed up for an Etsy shop yesterday to see how it goes. I think it might be interesting.

Oh yeah, here’s Technorati’s graph showing the rising buzz on blogs about Etsy:

Kentucky-based collage artist Randel Plowman launched a new project back in March 2006. The project—called A Collage A Day—was ambitious to say the least.

He committed himself to producing a new 4″ × 4″ collage every day and putting it up for sale on a specially created blog. Each collage is offered for sale at $25.00, which includes 8″ × 8″ archival gallery matting, documentation and free shipping within the United States (or $10 outside the US).

I ordered one of Randel’s collages back in November last year. It’s the one illustrated right here—it’s called Once Again—and here’s Randel’s the blog post featuring it.

It arrived promptly a week or so later: an original well-made, hinge-mounted 4″ × 4″ collage, complete with a signed document of authenticity, which now has pride of place on my wall (next to a postcard of Lee Miller).

Randel’s idea works so well because everything is made easy for the customer. The collages are great, the blog format is easy to navigate, the images and details of the collages are clearly available, and payment is made via PayPal. Equally importantly, he has priced the collages very well, so that just about anyone can afford one, and shipping costs are minimal (and non-existent within the US).

Let’s examine Randel’s strategy in terms of Kevin Kelly’s eight generatives—“categories of intangible value” that must be “generated, grown, cultivated, [or] nurtured” that make the non-free version better than the free version—comparing the free digital images of the collages to the collage I received in the post. After all, why should I spend even $25 on a collage when the digital image of it is available free on his blog?

Here’s the generatives that I think add value to Randel’s collages, making the non-free physical version better than the free digital version:

• Authenticity - the signed document of authenticity really nails this one - this is the guarantee that this is a one-of-a-kind original.
• Accessibility - a non-digital version means I can carry this around, and put it on whatever wall I want.
• Embodiment - The physical collage is the ultimate in embodiment. Apart from the textural qualities of the collage materials, Randel uses a nice chunky mount to add solidity to the artwork (turning it from an image into an object).
• Patronage - Kevin says that “It is my belief that audiences WANT to pay creators” - I completely agree, and at $25 a go, most people can afford to pay Randel.

Of these four, I think Embodiment is the crucial quality that made me buy one of Randel’s collages, followed in second place by Patronage (both of which are preceded by the fact that I liked his collages on an aesthetic level, of course - without that, any other values are moot since I’m not buying as a financial investment to make money). This is no real surprise with a hand-made physical piece of visual artwork which is unique—or scarce—by its very nature (or at least limited, in the case of a print) compared to the abundant multiplicity of the digital image.

I spent my last post looking at Publishers, ebooks and what successful strategies could be used to make money. I want to return to that briefly, as I’ve just read in the Sunday Times that two publishers have got it completely wrong.

Random House and Hachette, which together control just over 30% of the British book market, are to offer downloadable versions of titles by authors ranging from Delia Smith to Ian McEwan and Michael Parkinson. Every other major publisher is drawing up plans to follow suit, pitching the books at just below the price of a hardback.

The bold emphasis is mine - to highlight the catastrophic error of history repeating itself (when the recording industry finally started trying to sell MP3s online, greed got the better of them too. They priced the files far too high. Now, their profits devastated by their rapacious pricing strategy, they’ve been forced to accept more realistic—i.e. much lower—prices).  Let’s make this clear: you’ve only got a viable business strategy if your ebook version costs less than your paperback version.

Another alarm bell rings when Fionnuala Duggan, head of the digital division at Random House, makes a passing comment:

“We hope that there will be inter-operability,” said Duggan, “in other words, that the ebook will work on any device.”

It’s simple, Ms Duggan: don’t release them in proprietary ebook formats and/or shackle them with DRM.

A PDF with a simple digital watermarking system (to be able to trace any “pirated” copy of an ebook to its “pirate”) is enough to fulfil all your requirements. You will only have inter-operability problems if you choose a proprietary ebook format and/or DRM.

With Chris Anderson’s next book “Free” due to be previewed on the front cover of Wired magazine next week, there’s a lot of chatter about how the way to make money in the future is to give stuff away. That’s a gross simplification of the “economics of free“, but it basically sums it up.

Kevin Kelly argues that since the internet makes it easy to copy digital content (whether that’s writing, music or anything else) then you can no longer rely on charging for that content (or, to be more precise, you can no longer charge purely for the content). That’s certainly something that the majority of the music industry has been finding out for the past few years (although the RIAA refuses to accept it, and is trying to build a business model out of suing music fans).

Kevin proposes eight areas (he calls them generatives) where you can make a living if your content is free (I won’t explain them in detail here - he does a much better job on his blog post).

The whole theory behind this is that since digital content can be copied and redistributed an infinite number of times at a near-zero cost then trying to charge for it is increasingly futile. In the words of the new economists, there is an abundance of digital content, and when you have something in abundance then its financial value approaches zero - you can only make money out of scarcity.

Everyone usually uses the music industry as an example, but I’m going to use the (book) publishing industry instead. Firstly because I’m contrary, and secondly because that’s where my day job is.

In the dim and distant past (by which I mean the 1980s and earlier) book publishing companies converted type-written manuscripts into neatly arranged, carefully edited, professionally typeset words on paper, bound them between two covers, and used expensive printing machinery to mass-produce their books. The process and materials cost a lot, so they had to spend even more money on marketing (brochures, getting well-placed reviews etc.) to recoup the costs, make a living and pay the original author.

Once exposed to modern technology, that scarcity is removed - an ebook can be infinitely copied and distributed.

Publishers have tried to artificially impose scarcity by shackling the ebook files with DRM (and trying to forget the inconvenient fact that every variety of DRM gets cracked within a couple of weeks by a bored 15-year-old).

The alternative tactic was to refuse to create an ebook version of a book, in order to prevent the book becoming digital content in the first place. This tactic has been slightly more successful than the music industry’s attempts, since creating an ebook of a book was much more time-consuming than creating a set of MP3 files from a CD. I say “was” because a work colleague sent me a link to a news item earlier today about a book ripper that will convert a 500-page paper book to an ebook in about an hour. Sure, the technology costs $3600 at the moment, but as my colleague commented, that’ll drop rapidly over a couple of years.

So, faced with their content becoming infinitely abundant, how can book publishers make money?

Books can come with additional online supplementary resources. There are a multitude of ways in which these resources can be made to generate money, including (but not limited to) subscription charges, ad revenue, and licensing. The supplemental online resources model is most visible with textbooks, but even a novel could come with online extras (an author’s blog, background on “the making of” the book, etc.) supported by ads.

Another, more traditional, answer is in hardback books (or cloth-bound books, as they’re called in the US). Given that the hardback version of a book usually costs twice as much as the paperback, why on earth do people buy hardbacks? Why does putting 300 pages between two sheets of thick card cost £15.99, when the same 300 pages sandwiched in thin card costs just £7.99?

One answer is immediacy. The hardback binding of a book is frequently published before the paperback binding, and customers who really want that book as soon as possible are prepared to pay the premium. However, when the “book ripper” technology mentioned above becomes cheap and abundant, then the immediacy value of the hardback binding will cease.

Another reason for the increased value of hardback bindings is what Kevin Kelly calls embodiment:

PDFs are fine, but sometimes it is delicious to have the same words printed on bright white cottony paper, bound in leather. Feels so good.

As an artist who has a fascination with texture, tactility and books as artwork (altered books, handmade art books, etc.) I can immediately understand this. While a typical hardback binding of a book isn’t bound in gilded leather, its weight and solidity makes it feel somehow more special.

I’m wondering whether expensively tooled and gilded book-bindings will make a comeback when the written content becomes infinitely abundant. It reminds me of a passage from a (wonderful) book by Gene Wolfe called The Shadow of the Torturer where the protagonist Severian is listening to the reminiscences of the old blind Librarian, Master Ultan:

“I was sitting there, as I said, and had been for several watches, when I came to me that I was reading no longer. For some time I was hard put to say what I had been doing. When I tried, I could only think of certain odors and textures and colors that seemed to have no connection with anything discussed in the volume I held. At last I realized that instead of reading it, I had been observing it as a physical object. The red I recalled came from the ribbon sewn to the headband so that I might mark my place. The texture that tickled my fingers still was that of the paper in which the book was printed. The smell in my nostrils was old leather, still wearing the traces of birch oil. It was only then, when I saw the books themselves, when I began to understand their care.”

His grip on my shoulder tightened. “We have books here bound in the hides of echidnes, krakens, and beasts so long extinct that those whose studies they are, are for the most part of the opinion that no trace of them survives unfossilized. We have books bound wholly in metals of unknown alloy, and books whose bindings are covered with the thickest gems. We have books cased in perfumed woods shipped across the inconceivable gulf between creations—books doubly precious because no one on Urth can read them.”

And so, Ultan’s blindness (which creeps up on him later in his narrative) proves no obstacle to his profession of caring for the books (and therefore the understanding of their value), which does not require the ability to read them, but rather an appreciation of the book as a tactile objet d’art.

Marginalia: literature fans will recognise that the blind Master Librarian Ultan is a reference to Umberto Eco’s blind librarian Jorge of Burgos from The Name of the Rose, who in turn is a reference to the Argentinian writer Jorge Luis Borges. But I digress…

Books bound in kraken-skin or cased in exotic alien woods are, unfortunately, somewhat beyond the means of publishing companies at the moment, but a return to the application of tactile aesthetics to book packaging may well come soon (note also the increase in the analogous use of textured cardstock Digipaks in audio CD packaging).

However, the main worry for publishers would be whether the sales of these much more expensive bindings would compensate for the explosion of free digital content (free content which would satisfy most of the customers who currently pay for the cheaper paperback bindings).

The answer is “probably not”, although I think there would still be a market for paperbacks for some time. Tim O’Reilly’s seminal blogpost Piracy is Progressive Taxation.. seems to agree:

The availability of free online copies is sometimes used to promote a topic or author (as books such as The Cathedral and the Bazaar or The Cluetrain Manifesto became bestsellers in print as a result of the wide exposure it received online). We make available substantial portions of all of our books online, as a way for potential readers to sample what they contain.

… Interestingly, some of our most successful print/online hybrids have come about where we present the same material in different ways for the print and online contexts. For example, much of the content of our bestselling book Programming Perl (more than 600,000 copies in print) is available online as part of the standard Perl documentation. But the entire package—not to mention the convenience of a paper copy, and the aesthetic pleasure of the strongly branded packaging—is only available in print. Multiple ways to present the same information and the same product increase the overall size and richness of the market.

But eventually, as ebook-readers become better (think full-colour e-ink displays) and more commonplace, I think the paperback market will start to decline.

Mike Masnick’s Grand Unified Theory On The Economics Of Free states that you should “set the infinite components free” (in my example, the words of the book) and realign your business model to “charge for the scarce components”. In Masnick’s example of music, the infinite (-ly reproducible, and therefore abundant) component is the MP3 file. The value of scarce components will rise:

Concert tickets are more valuable. Access to the band is more valuable. Getting the band to write a special song (sponsorship?) is more valuable. Merchandise is more valuable.

So returning to my example of book publishing, author events—readings and signings—should rise in value and (if authors catch on) will be far more ubiquitous in bookshops around the country. I’m sure other scarce components could be identified.

One mistake I hope the publishing industry doesn’t make is the disingenuous “calculation” made by the music industry’s army of lawyers: that every free mp3 file downloaded is a “lost” sale.

People are far less discriminating when consumption is free. If every show on television was pay-per-view then I wouldn’t automatically switch it on when I got home from work - my viewing would be far more discriminatory (and massively reduced). Similarly file-sharers report that their downloading of pirated MP3 files isn’t happening instead of them buying CDs, but rather in addition to their music purchases - they’re trying before they buy, free-sampling a much wider range of possible purchases before choosing those for which they are prepared to pay for an embodiment in the form of a CD (with its physicality, cover-packaging and booklets).

So, an abundance of free ebooks should vastly increase the potential market for the added-value paid-for scarce components. But this will only work if the publishing companies (and the authors) have positioned themselves to make money out of those generatives.

I’m trying to alternate theory with practical examples, and it’s time for a practical example again, this time from my own practice in the world of visual art.

If you’re in the business of creating large pieces of artwork that cost more than the average person earns in a week then making your first sale is going to be difficult, whether online or in an exhibition. You’re asking people to spend a lot of money, to make a large commitment.

Making that sale online is even harder, because your potential customer is at a disadvantage:

• they can’t view the work at full size,
• they can’t see the work from all angles (and this applies to paintings as well as 3D work),
• they can’t fully appreciate texture and tactile qualities,
• they can’t talk to you to get a better understanding of the work,
• and most importantly, they will probably have to pay shipping charges (and shipping insurance) on top of the price of the artwork itself.

It’s not impossible, but it’s difficult. But there are a number of ways you can make things easier.

I’ve had quite a few enquiries from potential customers in the US about buying my assemblages. All went well in the email exchange: they liked the artwork and were comfortable with the price I was asking, even with the weakness of the dollar making my work quite expensive for American customers. But when I calculated the shipping for these heavy, bulky pieces of artwork (they’re mounted on heavy wood for stability and measure, on average, 24″ x 18″) the sale went dead.

The problem was that trans-Atlantic shipping and insurance costs more than doubled my asking price for the work - and this was the sticking point at which I lost the sale every time. And unfortunately this wasn’t just the case for international orders - even domestic shipping put too much on the overall price.

On the other hand, I have lots of friends, acquaintances and complete strangers telling me that they liked my artwork, but the concept of buying it never entered their minds - in their minds they weren’t “the type of people who bought artwork”. They were struggling for cash, or making ends meet but certainly couldn’t afford to spend a three figure sum on a piece of artwork.

I was discouraged, but not completely. I’d obviously done some things right - I was presenting my artwork correctly, I was doing my promotion well enough to attract people who liked my artwork to my website, and the various areas for interaction on my site (the discussion forum, and ample opportunities to contact me by email) were a viable alternative for the experience of talking to the artist face-to-face at an exhibition.

Since I’ve frequently lived almost hand-to-mouth, I could completely empathise with people being put off (or just simply excluded) by the price of buying my artwork. I didn’t want to abandon my assemblage work, but that didn’t mean I couldn’t do something to complement it. I needed something that was very affordable, didn’t weigh a lot (so it didn’t incur huge shipping charges), and worked alongside my assemblages allowing me to try out new ideas which I probably wouldn’t have the time (or confidence) to attempt in a larger piece of work.

Obviously the heavy wood that the assemblages were built on would have to go. Paper would be too flimsy, so I looked around the art shops and found several packs of 9″ x 12″ Bockingford Board - meant for watercolours, but solid enough to stand a few layers of varnish and glue, and small enough to fit into a standard padded envelope.

I had an idea for some collages loosely based on the Principia Discordia (the “sacred text” of the Discordian religion written by Greg Hill and Kerry Thornley as a parody of organised religion). I got out my varnish, glue and collections of photographs, drawings, and found objects and set to work, soon finishing 6 collages on the Bockingford Board (incidentally finding I could experiment with ideas far more quickly and freely at this smaller scale.).

After creating the first six I packaged one up and took it along to the Post Office to get weighed and priced up - the shipping cost would be under £1 in the UK, around £1.50 to continental Europe, just over £2 to the US/Canada and nearly £3 to Australia.

After costing up the board and other materials (including the mailing envelope!), I came to a price of £12.50 (about $25 US at the current exchange rate) for a single collage including shipping to anywhere in the world. I would be selling the collages at only a £1 or so above cost price - not getting any real money for my time (but not losing any money on materials or shipping), but that fitted with my longer term plan. I had decided that just about anyone could afford £12.50 - it wasn’t a financial commitment that people had to weigh up: it could easily be an impulse buy - which opened up the possibility of selling my artwork to people who didn’t see themselves as “the type of people who bought artwork”.

And so my Principia Discordia series of collages was born.

There were a number of other decisions I made. I decided to sell sight-unseen: a risky strategy, but one that made it easy to use a basic PayPal ecommerce system - the customer ordered a collage and then I made it, with no need for me to quickly edit web-pages to show that a particular collage had been sold. I also included a certificate of authenticity which each collage, and recorded the name of the purchaser of each collage in the gallery. I set up a thread on my discussion forum dedicated to the series, where potential customers could ask questions (and check on the progress of their collage). I emailed several websites and blogs which specialised in collages and a (surprisingly) large number agreed to repost my “press release” (now I understand that this blogging business can be hard work - when someone emails you to hand you a blogpost on a plate which is highly relevant to your blog’s subject area, then I can completely understand why so many kind people were happy to post my news on their blogs for me!)

So, how did it go? Well, it’s still going. I’ve sold 55 of the collages over a period of two-and-a-bit years. Many were sold to friends and regulars on my discussion forum (several of whom had not bought artwork before), but a large number were sold to complete strangers.

Stupidly, I failed to create a section in the PayPal order form where I asked how they had heard about my collages - I’ll fix that mistake next time. Most surprisingly (to me, at least) was that many people were buying multiple collages. One person ordered 10 collages!

What I’ve ended up with (apart from the money, and the great satisfaction of selling my artwork) is a number of benefits. I’ve found a way to experiment quickly and affordably with new artistic ideas which works in parallel with my larger assemblages. I’ve also now got a small-but-growing global email database of people who have paid for my artwork, who, having already invested a very small amount of money in my art, might be interested in doing so again - either another small purchase or, having had the positive experience of a safely completed financial transaction with an unknown artist, perhaps something slightly more expensive.

I’m considering a new series of artwork. It’ll still be small and lightweight, but probably slightly larger than the Principia Discordia collages, and each piece taking a bit more time and materials, maybe costing around £30 each. But this time I have a database of customers - people who have already bought my artwork - who I can notify as soon as I’m ready, which makes selling this new series just that bit easier.

I’m not proposing this strategy as the one true way of selling art online. It’s just one strategy that worked for me - I sold multiple pieces of artwork, gained a lot of traffic (visitors to my site, looking at my artwork), and I’ve got a list of customers from all over the world who have crossed the hardest threshold - they’ve made their first purchase from me. Now it’s time for me to build on that.

For those of you who haven’t come into contact with it before, OpenID is an open-source single-login that works on many websites. In their own words “OpenID eliminates the need for multiple usernames across different websites, simplifying your online experience.”. And it does.

Some time ago, I set up the main domain of this website as an OpenID delegate (I use MyOpenID as my OpenID server), which basically means that I can put my own website’s URL into any OpenID login on another OpenID-enabled website, enter my OpenID password when asked for it, and be logged into that website, enabling me to comment on a blog without having to create yet another login for a blog I was unlikely to ever comment on again.

Up until now, OpenID hasn’t had many big players apart from the teen-angst-fest that is LiveJournal - it’s been mainly geek sites such as 37signals and Six Apart (although it’s also available as a plug-in for WordPress and Drupal - I have an OpenID login for this blog, which is built with WordPress).

So yesterday’s announcement that Google, IBM, Microsoft, VeriSign, and Yahoo! have joined the board of the OpenID Foundation is hugely important. To get a couple of those companies joining would have been big. To get all five of them is enormous.

So, if all five of these behemoths implemented OpenID then what would things be like? Well, the prospect of using the same ID (in my case, my personal website’s URL, which I can usually be relied on to remember!) to login to Google Analytics, Google Sitemaster Tools, YouTube, Yahoo! Instant Messenger and Flickr, would make my life much easier.

Admittedly both Google and Yahoo! had already made moves towards OpenID - last month Yahoo announced that YahooIDs would become OpenIDs (effectively tripling the number of OpenID accounts by adding the 248 million Yahoo! IDs to OpenID’s existing 120 million accounts).

Google swiftly followed suit a couple of days later by announcing that it’s blogging platform Blogger would allow users to use their blog’s URL as an OpenID URL (so long as it was hosted on BlogSpot).

This is stage one - now any BlogSpot-hosted blogger, Flickr-user or anyone with a Yahoo! login will be able to login to external sites that use OpenID. That’s a huge advancement.

But hopefully this latest announcement will take Google and yahoo one step further. At the moment the two search giants are still only providers of OpenID (they turn your existing account into an OpenID account), but they won’t accept OpenIDs as logins (although you can login to comment at Blogger using OpenID).

This hope of mine is strengthened by a comment yesterday by Yahoo!’s Jeremy Zawodny:

“Oh, and before anyone jumps on me about this not being “full” (meaning bi-directional) OpenID support, I’m quite aware of that. Consuming OpenID is a different beast that can’t happen overnight. Give it some time. I’m optimistic that we’ll get there.”

Tomorrow MySpace opens up its platform to developers. While MySpace have inferred that they’ve learnt from Facebook’s mistakes, in that their platform will be more resilient to spamming issues, I still can’t think of a single useful or interesting application (either for MySpace or Facebook).

Maybe it’s just that the whole social network app-development isn’t mature yet. Or maybe it’s because the current crop of social networking sites are just pointless and inane, so any application built on them is doomed to be pointless and inane as well.

I’m sure this isn’t just because I’m an anti-social bastard, but it seems like the big social networks have absolutely no purpose to an individual user. The signal-to-noise ratio is ridiculous - it’s just marketers (whether they be bands or brands) hitting you incessantly with really bad marketing. It reminds me so much of UseNet in the late 1990s it hurts. It’s like being forced to listen to Barry Scott shouting at you about the benefits of Cillit Bang, on a continuous loop.

You see, social networking shouldn’t be the raison d’être of a site. It’s a feature. Add social networking to a site that already has a purpose and you might add value to that site.

One site that got it right is deviantART. To explain briefly, deviantART is an art site where you can create an account and upload your artwork/poetry (or just browse through other people’s artwork). You can organise your gallery with a brief profile and an updatable journal - so far so unexpected. The reason it works, though, is that the social networking is just a feature, albeit an important one.

You can browse round other people’s artwork and add pieces you like to your favourites. You can also leave a comment underneath someone’s piece of artwork (or on their profile). If you’re really impressed by someone’s art then you can watch them. Watching someone is like adding them as a friend in any other social networking site, but it has a purpose beyond popularity contests. Whenever someone you’re watching uploads some new artwork then you get alerted via a thumbnail preview of it.

In addition to this, there’s the expected discussion forum, chat application, etc. - but it all makes sense because it has a purpose. I’ve been a member of deviantART since November 2002 - you can see my gallery here - and there’s the difference: you’re not just looking at a page listing my likes & dislikes and how many zombies/pirates I’ve killed, you’re looking at a profile which is firmly centred around something - in this case, a gallery of artwork.

The very fact that I’ve been active on deviantART for over five years says a lot about its ability to retain my goldfish-like attention. The fact that last year I upgraded to a paid subscription (£15.18 per year, which allows you more customisable features and no adverts - and I’ll definitely be renewing that subscription) speaks volumes.

Now, if deviantART opened up its platform to application developers then that would be interesting - because once you have a platform with a purpose, then you can build something exciting and worthwhile.

There’s already been a lot of comment about Microsoft’s recent hostile takeover bid for Yahoo (not least from Google itself).

Google’s objections are based around arguments against Microsoft’s monopoly (hardly a threat when Google’s share of the search market is bigger than Microsoft’s and Yahoo’s combined). David Drummond, Google’s Senior Vice President, asked:

Could Microsoft now attempt to exert the same sort of inappropriate and illegal influence over the Internet that it did with the PC? While the Internet rewards competitive innovation, Microsoft has frequently sought to establish proprietary monopolies — and then leverage its dominance into new, adjacent markets.

Could the acquisition of Yahoo! allow Microsoft — despite its legacy of serious legal and regulatory offenses — to extend unfair practices from browsers and operating systems to the Internet?

While I agree with Drummond’s synopsis of Microsoft’s strategy of creating proprietary monopolies I don’t think this is going to be a problem here.

Firstly, Microsoft will certainly pursue this strategy when they already dominate a market, but when faced with competition they can be forced to “play nice”.

Take the rise of Firefox - since Mozilla’s standards-compliant browser gained 20% or so of the market, Microsoft have started building standards-compliance into Internet Explorer. Admittedly, the latest announcement about IE8’s arse-about-face browser versioning metadata shows that their proposed implementation is terrible, but there’s no doubting that IE7 is more standards-compliant than IE6 was, and the news that IE8 passes the Acid2 test is very encouraging indeed.

So, when faced with a significant competitor who are fighting on an “open/standards-compliant” ticket, Microsoft will tow the line.

Secondly, Yahoo’s big problem is that, in order to compete with Google, it needs to become less like Microsoft. If Yahoo is bought by Microsoft then Yahoo will fail - because of all the things that David Drummond mentions. And most fundamentally, as Umair Haque says:

Neither company has the DNA to take on Google (let alone the massive number of startups waiting in the wings). Sure, they might collectively have the resources.

But DNA will always constrain YahooSoft from utilizing those resources in ways that create value.

Bill Gates might be thinking that if he buys Yahoo then he can add their 20% of the search market to Microsoft’s 12% to make a combined 32% against Google’s 54% share, but given a Microsoftization of Yahoo, the chances are that Yahoo’s users will jump ship to Google, giving Google a worrying 74% market share.

I say “worrying” because, while I really like some of the things Google have done, that doesn’t mean that I want them in a position of unquestionable dominance. At the moment they are undoubtedly the largest search engine, but Yahoo are still a visible competitor - an alternative if I want one (particularly for APIs).

Finally it would be a shame to see Yahoo subsumed by Microsoft. I don’t want to log into Flickr with a Microsoft Passport or Windows Live ID (which would surely be the result of a takeover).

While Yahoo are still struggling behind Google, they are doing some good stuff. Their online applications such as Flickr are good, and they actually engage with the web community (they put on good presentations at d.Construct 2006 and @media 2006 in London).

I think all that would end if they were bought by Microsoft.

There’s been a lot of analysis about Radiohead’s “pay what you think it’s worth” new album digital release at the tail end of last year.

Much of the comment was positive - which I’m generally in agreement with because I think Radiohead made a good move.

Most of the handful of detractors (mainly people who had a financial interest in propping up the dying business model of the music industry, it has to be said) made the argument that while this was all very good for Radiohead because they had already benefited from the mass-marketing machine of the music industry - in other words, the buzz required to generate the critical mass of fans prepared to gamble money on a collection of mp3 files (when they could pay nothing if they wanted) could only have been possible because the music industry had already done all the necessary work over the past few years.

This argument is based on a number of false assumptions.

Firstly, it presumes that a “critical mass”of fans is a requisite for this business model. Well, only if you’re still stuck in the world of blockbuster hits being the only indicator of “success”. The music industry requires blockbusters because that’s the only way it can get a return on the phenomenal amount of cash it burns on marketing, because it needs a blockbuster hit… it’s a vicious circle. Of course, if you stop concentrating on trying to manufacture a blockbuster hit and look instead at long tail economics then all this becomes obsolete.

Secondly, the music industry is fixated on marketing product to consumers. What Radiohead did was to offer music to fans and invite them to contribute. That’s not just a pedantic change in terminology, it a fundamental paradigm shift (although not a brand new one - many small bands have been doing this for decades. Buskers rely on it.)

So, after all the focus on Radiohead, let’s look at a small unsigned band who are creating their own business model:

Left Hand Red are a Brighton-based indie-rock quartet (whose bassist happens to be my friend and web-design colleague Barry Bloye) who are trying a number of strategies.

They’re using the obvious tactics - their own website, a MySpace page, discussion forum, permission-based email mailing list, and a selection of free MP3s to download - but Left Hand Red don’t want to remain penniless musicians for ever so they’ve put their 3-track CD Voyeur on sale on their site (using Google Checkout, which doesn’t take too large a cut of micropayment-sized transactions) for £1 plus 80p P&P.

But the ingenious part of this strategy is that:

We’ve agreed to charge for the CD to recoup costs, but to give them away at gigs, as anyone who comes to see us deserves something for their time (and hopefully it will encourage people down). No-one’s mentioned downloads, but as they don’t have any overheads, I will sneak them up on the site free of charge.

Looking at this strategy, the essential calculation that Left Hand Red have made is that a person who comes to a gig is worth investing in (the cost of this investment - a free CD). This comes from three realisations:

• A fan is a customer who has invested their time and attention in you, and you should invest in them.
• A fan is worth more than 100 customers.
• A fan participates in your community (whether that community is a discussion forum or the crowd at your gig) and recommends you to their friends.

There are also some immediate financial benefits to this model. Like most small bands, Left Hand Red get paid to play gigs. If they get paid a fraction of door-takings or bar-takings, then encouraging fans to come to gigs by offering them a free CD when they get there gives the band an increased income due to larger crowds. And then they have the opportunity to turn the people in those crowds into participating fans (much easier when they’re already participating by attending a gig!).

Digital piracy doesn’t disrupt this business model - in fact, the “piracy” of their MP3s is good for the band. If digital copies of their new CD are circulating on P2P networks then that increases the chance that people will hear them and come to a gig, and become participating fans.