Why the Facebook model is not sustainable in the long run

This post was written in 2012–2013 and reflects thinking at the time. For current views and topical discussions, please see recent articles.

"Why Twitter will live and Facebook will die" (and there is also a niche for Friends Reunited!)

Reports of the growing "Facebook fatigue" have been circulating for a couple of years now. This perception has been borne out by the PR disaster that was the IPO. But in my view the causes of that are often misunderstood. It is easy to say that FB has "stopped innovating", or is "resting on its laurels", or "has been too focused on advertising and not enough on user experience". All those things may be true, but they are merely symptomatic of a bigger structural problem.

I think this article ("Why Twitter will live and Facebook will die") on Forbes.com has it about right. In a nutshell, FB has a predominantly internal focus - people (and now also companies) trying to make themselves look cool in the eyes of other "cool kids", therefore it has too many useless and time-wasting features. Eventually, disenchantment is inevitable. Twitter, by contrast, is all about providing fresh information in real time, hence, the reasoning goes, you never tire of it.

You don't have to agree with everything that the author Rocco Pendola says ("You can do everything on Twitter that you do on Facebook, plus stuff that’s actually useful" - well, you can't upload video clips and play games, for instance), nor do you have to be a Twitter obsessive ("I keep my smartphone next to my bed. When I wake up in the middle of the night and, most definitely, when I wake up in the morning, I spend a minimum of five to 10 minutes at a time on Twitter. Then, I am on it all day") to agree with his main contention.

FB is just too much like damn hard work - all the self-embellishment, "friend" management etc - that's the main reason why I never signed up (even before the well-publicised concerns about privacy and information security). This by the way applies to all similar services, from Bebo and LinkedIn (which however has the saving grace of being highly utilitarian) to various country-specific spin-offs (e.g. vkontakte.ru - literally, "in touch"), which is even stylistically similar to FB). There will be always a place for this kind of sites - teenagers and students / young professionals with too much time on their hands and no understanding of how to prioritise their time. But this natural demographic also determines the limits of growth. Besides, young people will always be tempted by anewer, "cooler" places to hang out, hence no single platform is safe in the long term (hello, MySpace!).

What of a third category of social media services: personal discovery / reconnection sites? Friends Reunited (now under new management) was the first and remains the best known of those. Again, there are several country-specific clones (e.g. odnoklassniki.ru, meaning "classmates"). In all cases, while there is a wide range of functionalities for instant messaging, picture sharing etc, the main point is about re-establishing social links with people from one's personal past (classmates, university friends, etc). Once those links have been restored, user activity tends to dip significantly, as people then switch to off-site methods of staying in touch (or simply realise that there were good reasons for not staying in touch in the first place). LinkedIn, while similar in some respects, is quite different in that it seeks to establish new communities rather than re-establish old ones.

The "personal discovery" sites face another constraint which will always limit their growth potential - we have already seen the passing (in the social networking sense of the word, anyway) of the last pre-email, pre-mobile phone generation. From now on, the new cohorts of users quite simply will never face the situation of having lost touch with someone against their own will. They grow up permanently online and on-call. In a sense, this is quite sad - if you've never lost, you've also never found. But that's just lyrics, I guess.

The polar bears can rest easy, for now...

This post was written in 2012–2013 and reflects thinking at the time. For current views and topical discussions, please see recent articles.

The Stockman gas condensate project goes on hold, as investors lose c.$400 million each

Remember the"war of words" over mineral rights in the Arctic a few years ago? The story went like this: while the commercially viable reserves elsewhere are peaking or declining, the Arctic harbours untold riches of oil and gas, which are now becoming accessible due to global warming. Therefore, all the countries with an Arctic coastline (the United States, Canada, Denmark, Norway and Russia) felt obliged to grab as many square miles as possible. Now it looks like all the excitement was a bit premature.

For many years, one of the biggest potential E&P projects in the Arctic was the Stockman deep-sea gas condensate field in the Russian sector of the Barents Sea. The investment thesis was based on bringing the gas to shore, liquefying it there in an LNG plant, and transporting the LNG by tanker to the US (at the time, Henry Hub prices were quite tasty). Initially, Gazprom, which holds the exploration licence, planned to go it alone. Then, after the scale of the capex requirement and the technical complexity had become clear, it invited western oil companies to come in as partners. Eventually, Norway's Statoil and France's Total joined the consortium, with Gazprom keeping 51% of the interest.

For years, things have been suspiciously quiet, and now we know why. The consortium has been officially disbanded, the three partners having lost over $1.2 billion between them on feasibility studies and such like. The Statoil representative has insisted that the project remains technically feasible, but "the commercials needed to be better defined". What it looks like is that the cost estimates have spiraled beyond the parties' willingness to invest, at least for now. I also suspect that the decline in US gas prices, due in no small part to the increased production of shale gas, has also played a major role.

With this flagship project hitting the buffers, expect the "race for the Arctic" to slow down considerably. Incidentally, this should give the US an opportunity to re-enter the fray in a much stronger position. Unlike the other four "Arctic nations", the US is not at present a party to the Law of the Sea Convention. Should the US sign and ratify it before the other players take a fresh look at the opportunities in the Arctic, it will become a major force to be reckoned with - in this area, it is not one at present.

BitTorrent and the music business: an uneasy truce emerging?

This post was written in 2012–2013 and reflects thinking at the time. For current views and topical discussions, please see recent articles.

File sharing is here to stay - music companies need to learn to live with it

I've come across this interview with one of senior BitTorrent employees, Matt Mason, who has written extensively on the issues around music piracy. BitTorrent, in case one doesn't know, is an incredibly powerful tool for P2P sharing of high volumes of data. As such, it has succeeded where Napster failed before: it has made music (and video) piracy more than technically possible - it has made it virtually irresistible. Does this mean that the music recording industry is finally doomed?

In my view, what is doomed is the music divisions of the huge US studios, which may well follow  EMI into the sunset, unless they radically change their game. For we are now seeing a likely end of paid content. This is a much bigger challenge than that posed by "first generation" P2P file-sharing around ten years ago. Back then, the CD was king, and the king was way over-priced! As a reaction to that, young people started ripping their CDs into mp3 files and swapping them over the likes of Napster. The trade-off was poorer sound quality and a lack of a  physical medium (although of course you could then burn your pirated mp3 tracks onto a CD...). What that meant was that, having found the music that they liked via free file-sharing, people were then willing to go and buy it in physical form, through an "official" retailer (and it helped that, faced with the threat of piracy, CD prices declined to more reasonable levels). The music studios' revenue model therefore had to adjust, rather than crumbled completely.

What happened then, though, was that the studios, and of course Apple, saw this as a opportunity to get rid of the physical medium altogether. Of course this reduced the distribution costs and sped up the buying process. And of course Apple made a lot of money. But once a professionally-produced and professional-looking physical medium is no longer the default, there is no longer any difference in the user experience whether you go through the "official" or "pirate" channel to get your music tracks (or the latest episode of Hardcore Pawn). In fact, ownership is no longer viewed as very important, since with high-speed broadband, 3G (and soon 4G), wi-max and other "always on" technologies, consumers can simply stream whatever piece of content they fancy this very second. In this sense, perhaps the bigger challenge to the studios is not BitTorrent but services such as LastFM and YouTube (although they do pay royalties to the rights owners).

But back to BitTorrent. What Matt Mason is saying is that the studios can monetise their content rights by using P2P portals as audience aggregators for the purposes of advertising selling, product placement etc. Facebook has shown how this should be done. Of course, Facebook's challenge now is that it is no longer seen as "cool enough" by a lot of people. BitTorrent and similar services should be immune to such a "falling out of fashion", as their focus is external (music content) rather than internal (interaction with other "cool people"). Don't treat the file-sharers as pirates, treat them as consumers (and milk them accordingly!). If that's how it pans out, the recorded music business model will come to resemble that of FTA television, in being predominantly advertising-funded. Isn't it curious how the future of one medium may well lie in the past of another. But before that happens, a lot of companies that once seemed "too big to fail", will have failed. And hopefully their place will be taken by a large number of independent labels, or even artists marketing their music direct. But that's the topic for a separate article.

Back to the gold standard? You are having a laugh...

This post was written in 2012–2013 and reflects thinking at the time. For current views and topical discussions, please see recent articles.

The US can't afford to go back to the gold standard - it needs fiat money to service its huge debts

It's a truth universally acknowledged that the international financial system is broken is some fundamental ways. Many blame the huge increase in money supply (and, linked to that, of cheap credit) since the early 1990s for the over-heating of the global economy that culminated in the 2008 crisis. Since then, while the full economic collapse feared at the time has been averted (at least for now), many of the leading economies are suffocating under the weight of debt, accumulated both in the run-up to 2008 and in the "quantitative easing" afterwards. In many senses, the cure has been worse than the disease.

Against this background, the Republican Party is considering returning to some kind of a gold standard system for the greenback. While the stated commitment to a saner monetary policy is laudable, is the suggestion itself a credible one?

Let us remind ourselves what happened in the 41 years since the US abandoned the gold link and introduced a fiat currency. In 1970, the last year under the gold standard, US federal debt was 28% of GDP, whereas for 2012 it is estimated at 74%. With the individual states included, the public debt was 102% of GDP in 2011. Of the industrialised countries, only Japan and PIIGs had more. Also, given the size of the US economy, we are talking some truly astronomical numbers. In a normal economy, this mountain of debt would result in pretty high interest rates, leading to a full-blown depression (as it has done e.g. in Greece and Ireland), and possibly riots in the streets. In reality, though, 3-month Treasury Bill yields have been hovering just above zero since 2008, and are projected to remain there for the next couple of years.

The reason for this is the liberal printing of fiat money by the Federal Reserve System. Unlike Germany in the early 1920s, hyperinflation has not been the result because the US dollar is the world's main reserve currency, so foreign investors have been happy to soak up trillions of freshly printed dollars to buy Treasury Bills, still considered to be a "safe heaven". Of course, this leads to escalating debt, which needs to be serviced, etc. Eventually the bubble will burst - but not quite yet. Returning to the gold standard would prick the bubble immediately and bring the whole sorry edifice crumbling down. Even the most ideologically-driven Republicans are not "brave" enough for that.

The Murdoch girl and media ethics

This post was written in 2012–2013 and reflects thinking at the time. For current views and topical discussions, please see recent articles.

The lady doth protest too much - Elisabeth Murdoch is an unlikely example in media ethics

So, Elisabeth Murdoch has been taking pot shots at her father and brother. Apparently, "television is a force for storytelling rather than a route to political power" (implying that nasty old Rupert has been subverting British democracy). Also, she is unhappy that News Corp is being run by people fawning over the boss rather than being governed by a "rigorous set of values". Of course, The Guardian just loved it - and wouldn't any fair-minded individual?

Actually, no. First off, there is a stench of hypocrisy emanating from Elisabeth's sermonising. Where would she, and her "independent" media production company Shine, be without News Corp's backing and her family's industry connections? Didn't she make untold millions by selling Shine to News Corp?

Secondly, television is (or can be) many things, including "storytelling" (whatever she means by that). But it doesn't have to be very narrative in nature - minimum-commentary rolling news coverage also has its place, and so does mindless entertainment (such as much of Shine's output). More to the point, "storytelling" is not by definition a good thing - we've seen many examples of mendacious stories being rammed down the public's throat by biased or government-bullied media organisations ("Iraq's weapons of mass destruction", anyone?). You can't accuse e.g. Fox News (one of Daddy's companies) or CNN of lacking a clear narrative. (This becomes especially apparent in any foreign conflict in which the US is involved, from Yugoslavia in the 1990s to Libya and Syria today). So a propensity for "storytelling" only becomes a virtue in a media organisation if there are equally vocal organisations espousing alternative stories. All too often, though, that's not the case.

Thirdly, you can't deny that television is also a route to political power - always has been, always will be. Some media owners are more subtle about it, others less. And that includes dear old BBC and The Guardian itself. (If anything, my impression is that in the UK News Corp has been less politically activist than in some other countries). So Elisabeth is offering a false dichotomy, which isn't helpful.

The Guardian article mentions the idea that the motivation behind Elisabeth's speech is trying to get the Beeb to commission more programmes from Shine. That may well be part of it, but perhaps sibling rivalry has played at least as big a role?