about 8 years on 2009-03-04


pn:  i have been trying to get a post out on why i am bullish on the information business for months.  it isn't going to happen, so i am going to codify what i have and move on... the thesis is intact, i just wish i could clean it up a bit.

apparently, the new argument in the online world isn't whether or not the 'press' will shortly be a thing of the past, but instead a feeding frenzy over who gets credit for having declared the death first.  my i just say, whoa nelly -- jeff jarvis, et al - you might want to take another look at those tea leaves.  a lot of thoughtful people disagree, and are starting to be more vocal about alternative ways the 'information' business will ultimately play out.

the internet was supposed to provide almost unlimited free access to 'information' -- but i would posit that it does not seem to be ending up that way.  instead, what we are seeing is that 'entertainment' is getting extremely inexpensive and almost universally accessible - actual information is getting more expensive and harder to find.  this phenomenon, which sounds a heck of a lot like colbert's concept of 'truthieness' is possibly the largest mid-term threat to the functioning of our liberal democracy.

before you cry foul, hear me out: does anyone really know if sara palin really did/didn't say that south africa was/wasn't a country?  what really did go on with yahoo?  is wikipedia's entry on the white rhino actually correct?  "we", as a general public, have no idea.... fast and cheap communication is actually clogging the line with non-information, not clearing the channel.  so, while citizens can clearly turn out an enormous volume of content very quickly, i don't see them taking over the professional journalist function any time soon. again, i am not the only one thinking along these lines, and i have to credit clive thompson for making a similar point in wired.

but - why?  information theory 101:

starting from zero and then building up -- the value of real news & information is fundamentally based onimprobabilityand improbability alone.  this is the same concept that underpins the concept of binary and compression technologies in computer science.  if you already know something there is zero value to me informing you of the same fact.  when you cycle this up, the critical implication is that the value of information does not scale, but rather that the value of information is inversely related to how public it is.  at the same time, however, the value of entertainment content scales quite nicely. 

to put it in a real world context.  if you and you alone know with 100% certainty the closing stock price of wmt tomorrow the information is almost infinitely valuable.  if everyone knows then it is worthless...  meanwhile, if you consumed and enjoyed the latest batman movie, that does not in any way make the movie less enjoyable for me (in fact, the community around the content might make it more valuable).

the value of information / news = the improbability of information =  f (speed * trust)

perfectly fast information that is completely untrustworthy is worthless.  perfectly trustworthy information that is completely untimely is worthless.  the value of information is a function of speed and trust -- in a multiplicative not additive sense.

1.  the first way to make money/create value from this fact is 'speed' - speed is just a shorthand for improbability because the improbability of a situation goes way way down after someone has reported it.  so, even on niche or relatively unimportant topics there is value in being the fastest transmitter  (there is little value in being second on speed).  this used to be a function of 'knowing' something first and having the fastest distribution mechanism (pony express / telegraph, etc), but outside of companies like reuters enabling algorithmic trading, it is now just about 'knowing first' and typing fast.  

2.  the second way to make money/create value from the improbability of information is 'trust'.  if you are the first one reporting a new piece of information, the recipient of the information has to handicap the value of your information based on the probability that it is true.  so, if you are betting on a coin toss and a source reports that the answer is 'heads', you have to handicap your bet based on how trustworthy the source is...  being a trusted source of information creates value - fact checking creates value.

so, what is actually changing for the 'news' business....

historically news organizations faced a segmented and regional information space in which to operate.  they didn't need to be first to a story and they didn't need to be 100% trustworthy... they just had to have a decently fast way to transmit decently trusted information.  the only thing that has changed with the internet is that the cost of 'distributing' information is approaching zero.  news organizations, which historically spent an incredible amount of money and built value based on distribution channels are out of luck.   the zeroing of distribution costs have two critical implications:

1.  speed, which used to be a function of capex, can no longer be captured as a fundamental driver of value.  there is no rms/ros (relative market size, return on sales) as a pure function of distribution. 

2.  there are no longer natural barriers to how information flows that can be easily exploited for profit.  think of this one like the bubble in illegal music sharing.  historically, clunky physical mediums for music (records, tapes) meant that even though you could steal music, it wasn't worth it - it was cheaper and easier to just buy it and leverage the physical distribution channels of the record labels... but when the medium changed all of a sudden copying and sharing music was 'profitable' from the consumer payoff sense.  this is what has happened for the information business.  it is far cheaper to copy and re-copy information than to just buy it from the source, and in this way the medium defines the nature of the transaction.

newspapers need to essentially write off their huge investment in and value derived from distributionand the reaction of most papers - put 'entertainment' through the same pipe, get out of the 'information' game entirely

most newspapers have reacted by giving up on the information business and concentrating on pure entertainment content.  after all, if information diffuses outside of your control almost instantly, it is very hard to derive value from an information business... entertainment is a totally different story, because the exclusivity of the content isn't as central. 

just because the current players largely are exiting the 'information' business doesn't mean it will go away...

actually, it means that the remaining players stand to make a lot of money.  as more and more players exit a smaller and smaller number of players will end up owning and controlling the information business - which means that they should be able to extract higher rents.

real information will be subscription based,and it will be a function of a professional group of trusted journalists - not 'the crowd'

ultimately, the news/information will go back to a subscription business.  i get value from having real information, and i will pay directly for that value based.  the faster and more trustworthy your information, the more i will pay for it.  most importantly, advertising is in our new age a fundamentally incongruous form of monetization for news... because advertising relies on wide distribution to generate incremental value, and information requires limited distribution.*(even in the context of super targeted information - see nanotargeting - the mere interruption of advertising messages degrades information)

as for 'the crowd' - well, first off, by definition the 'the crowd' can't produce information...  because if the crowd is providing it/it is common knowledge, it isn't valuable. 

so, while i was impressed and very much appreciate how cool it was to get a real stream of content about the flight landing in the hudson, that content stream was not information, it was content.  the fact that more and more people knew about and saw pictures of the event real time didn't actually provide any value - and the fact that others saw the pictures didn't make them any less valuable to me.

even if you are just talking about the first tweet 'us air plane lands in hudson' -- without any trust associated with the individual reporting the fact, it is valueless...

it is un-questionable that the news business is changing - but it isn't going away in the slightest.  in fact, i see a very bright future for those that provide speedy and trusted information in a world where truth is ever more scarce. 

post script(s) -

i am realizing that this train of thoughts is far more than a blogpost - and being highly explored by many people at this point -- that said, i am attaching a few post-scripts of other concepts and ideas i would like to include in the master message, but i just don't have time to write

how i was going to begin this post months ago: i have had at least four conversations in the last month which have wound towards a discussion of the unparalleled similarities between recent history andatlasshrugged.  the general consensus is that the last month could easily have been mistaken for a chapter out of the book.  the movements on the market, the government response, the scraped auto industry...  it all feels very much like a fictional narrative i have already read. 

that said, the narrative similarities are far less disturbing (or interesting) then some of the deeper and more philosophical parallels.  specifically, i am appalled by some of the similarities between rand's portrayal of the fourth estate and what it feels like modern 'journalism' (or i should at least say 'reporting') is fast becoming.  i do think that there are still publications in the world that are intellectually honest (and therefor valuable), but it feels like an ever greater percentage of the information being communicated publicly in the world is actively unconcerned with the truth.  rather, news as entertainment has become so dominant that the 'reality' of information is truly becoming an afterthought.  the title 'news' has been degraded to be little more than a presentation format.  i know this sounds highly alarmist and unoriginality cynical (the worst type of cynicism).  it probably is to some degree, but hear me out...

what about deep analysis, digestability,marketabilityof information:  there are a few other elements of information's value which fold under speed and trust which are worth briefly discussing. 

first, the question - isn't there value inanalysis?  the answer is, absolutely, but only so long as it feeds speed.  analysis of information can either be directly characterized as being the first

second,digestabilty- isn't there value in the digestability/format of information?  again, yes, but only so far as it feeds speed.  the format of the wsj or nyt is valuable because the layout allows others to consume the information with maximal efficiency - the paper format is a fat pipe and one can learn to read it efficiently looking to specific areas which have specific value.

what about 'marketability' of information.... isn't the value of information have to do with the subject of the information?  isn't information about clinical trials for a new blockbuster drug more intrinsically valuable than whether a coin will come up heads or tails? -- i would argue possibly not.  obviously, you need to have a market where people are willing to bet against/are betting based on your information-- but ultimately all information is the same, all that matters is how many parties you can aggregate that are betting against you (what the initial probability is of your outcome). 

original swl blogposts and letters 2007-2010