The original culture of the Internet has always struck me as predominantly socialist. Consider the concept of ‘open source’ programming and you’ll see what I mean. While socialism is a dirty word in our healthcare debate, it’s an important consideration as capitalism continues to integrate with the Internet. WIRED recently ran an entire article on the ‘new socialism’ though I think they neglected to cover how the new socialism is colliding with the established capitalism.
Of particular interest is the Social Web (or Web 2.0) which I find more left leaning than Web 1.0 ever was. From the name on down, social media is all about collectivism and sharing. But if Web 2.0 is to grow up, my belief is it will need to follow the trail of Web 1.0. That means making some concessions to capitalism. The reason is innovation, pure and simple.
Socialism has historically proven limited in its ability to facilitate sustained innovation and the widespread distribution of continually improved-upon tools and services.
The USSR surprised the world when the Berlin Wall collapsed. Behind the iron curtain, the Soviet Union was decaying from the inside out and its industrial apparatus was decades behind other first world economies. China didn’t begin its ascent onto the world economic stage until it adopted some capitalist trappings. More hardline socialist nations North Korea, Cuba, and Venezuela struggle on the global stage today. Even nations with strong socialist programs that are noted for innovation, like Norway, pay for it via the money from taxes generated through an aggressive capitalist marketplace.
Capitalism facilitates innovation by rewarding hardwork and efficiency in a way socialism does not.
The Internet is a curious place. Many of it’s inventors start with lofty and selfless ambitions to make the world a better place (or at least to offer people some cool opportunities to do interesting things). However, to take these inventions from a niche fringe or early adopters to the masses usually requires infrastructure, people and a means of paying for these two. The aim remains socialist (improvement for all people) but the means is necessarily capitalist. Here’s why:
Most people want some type of personal benefit in exchange for their efforts. You may find a handful of selfless people willing to work for free, but its hard to staff a floor of accountants or managers or customer support staff with selfless do-gooders say nothing for material costs.
I believe much of the tension online among ad agencies, marketers, businesses, and investors is due to incompatibilities between the internet’s socialist soul and the capitalist methodologies necessary to see innovation reach a widely dispersed online audience. This isn’t just my thought, it’s rather old in fact. The Cluetrain Manifesto expressed anticipation of some of this friction a decade ago. Here are some of the friction points I see today that are undermining the integration of capitalist-driven sustainability with altruistic socialism online.
Friction point #1: Free isn’t free.
Inventors are often driven by sheer curiosity, lofty desires to make the world a better place or baser desires like sharing music with friends, make their inventions available for free. Early adopters glom onto these tools and free becomes a viral accelerator. The problem, as any businessman knows, is free isn’t really free. At infancy an inventor may be able to build his tool by investing purely through sweat equity. Success however means wider awareness and demand. This traditionally results in one of two scenarios. One is that a threatened entity or industry stomps the innovation into oblivion (as the music industry did to Napster).
The other outcome is a realization that to grow, one must acquire staff and infrastructure. This in turn takes capital. The choice then is either to become beholden to investors or to stick to your guns and deal with the consequences. Either way, there is a price tag for ‘free’ be it a tiresome battle with the incumbents (as with Napster), sacrificing some degree of freedom (as with taking on shareholders) or struggling against diminishing returns (as with refusing to adapt while competitors invest in innovation advantages).
Friction point #2: There’s no historical precedent.
Web 1.0 had a much easier transition from socialism to capitalism. Though it felt revolutionary at the time, in many ways businesses took a tried and true construct of capitalism – purchase transactions – and simply moved it online. Voila! e-commerce was born and it became easier to cleanly map old world business practices like advertising revenue and shopping carts to the Internet.
The going will be harder for Web 2.0. One problem is that there is no old world model to work from. Conforming these tools of collectivism to capitalist markets has not been tried before. Ratings, reviews, comments and forums are all becoming standard features on business websites, that is true. They empower consumers like good socialist media and therefore are enjoying huge demand. But like email and instant messaging before them, they also don’t directly generate revenue making them harder for capitalists to work into their value calculations. This has lead to rampant experimentation – some successful, some not so much. Rampant, baseless experimentation is an expensive way to move forward. In the quantifiable world of capitalism its hard to get behind the mushy world of social media. Even with its sizeable traffic the metrics of measurement do not align clearly with capitalist needs. How many comments equal a sale and how much does it cost to create those comments? This is an exacerbated extension of the problem marketers have always faced. What is the value of a positive brand perception and how much does it cost to make? Over a half century into modern advertising those answers remain allusive. There’s no reason to expect social media will be able to provide satisfactory answers any time soon either.
Could community applications like Twitter, Facebook and Skype be headed for the same status as email and instant messaging? Could they become must-have features that no consumer is willing to pay for? That would be bad for capitalist investors who bet millions that these socialist tools could be bent to serve capitalist needs. But if you can’t get someone to pay for a service, you can at least serve them ads through it right?
Friction point #3: Advertising is breaking down online.
The most obvious way to bend the socialist Web to the capitalist will is to monetize the traffic through advertising. This worked reasonably well with Web 1.0 even if it took the advertising agencies a bit longer to pick up on it. It’s getting hard now though. One problem is that since Web 1.0, the model has moved from impressions (pay per view) to actions (pay per clicks), and that means lower volumes and higher costs, especially since click through rates have been trending downward almost since day one.
Another dilemma is the increasingly important question of how much advertising we can pack into our environment. Forget people even clicking on ads, with so many of them out there, we’re having an ever harder time recalling any of them – let alone acting on them.
Worse still, social media itself throws wrenches in the centuries-old methods of marketing by adding a readily available layer of untethered consumer feedback into mix.
Somewhat ironically, companies today pay for the very social media applications on their sites that lead to the flaming, complaining and ‘outing’ that often costs them their own customers. True, it works in the inverse too, and good ratings mean better sales but the reality is, negative travels faster and is more compelling. Think of the stories that make press headlines…
In addition, because consumer commentary is both plentiful and accessible, it undermines the efficacy of any advertising message. Suddenly the content that costs so much to make (advertising) isn’t worth as much as the stuff consumers write as comments to that content. That’s a capitalist nightmare. Worse still, companies can’t really control what consumers say. Instead they must invest more and more to make every experience flawless lest they wind up the number one search term on Twitter for all the wrong reasons.
If anything, in gross aggregate I’d wager that social media thus far has cost capitalists more than it has earned them.
Why can’t we all get along?
Is social media incompatible with capitalism? Is it less a market gainer than a necessary market defense? Do the sales it creates offset the costs it requires?
Social media gathers people better than any technology in history. Ironically it also undermines many of the traditional ways capitalists have made money from these aggregated groups. But social media and online communities need capitalists as much as the capitalists need the communities. Historically capitalism has been a necessary ingredient in the growth, evolution and establishment of the Internet.
A lot of digital ink is rightly committed to discussing the imperative of business to be transparent. Less ink is offered up on the responsibilities of the consumer in this symbiotic relationship. This is not to say we must begin to click on banners to support corporations. We should however re-evaluate our expectation that everything be free. We should view ourselves as contributing to innovation every time we write a positive review or recommend a product to a peer. Ranting and ripping some company a new one might be a lot of fun, and is necessary at times. But so is the flip side.
The system works best when both sides benefit and the upheaval caused by social media can be minimized and adapted to, to everyone’s benefit, if we all participate in how the new marketplace unfolds.
Interestingly Web 3.0, the Semantic Web, seems poised to have an easier time reconciling itself to capitalism. Of course if it works really well, none of us will actually know it as it will be completely invisible even as it delivers a more individually customized online experience.
The inherent benefits of semantic intelligence are right in line with the holy grail of business – connecting products and services precisely to the people who want them right then and there. In hindsight, Web 2.0 might be a bump in the road. Right now, its a battleground as socialism and capitalism come to terms with each other in an uncomfortable dance.
Nice article! I think you are right on that there is a tension between free and not-free–though I’m not sure if I’d express that as a tension between socialism and capitalism. It is important to distinguish Soviet-style state socialism with a more anarchistic socialism. The first implies government control; the second rejects hierarchical control, either at large scales or in general. While the first form is less open to innovation, the second may generate more innovation (and heterogeneity) than any market-based mechanism.
Following the commercial boom of the 70s, 80s, and 90s, it is interesting that social media (Facebook, Twitter, etc.) may be introducing a major cultural shift. I’d argue that as a society we are moving from the myth of fulfillment-through-commerce to one of fulfillment-through-relationships. And, in that paradigm, people may be unwilling to pay. I’m not sure how (or if) the market can adjust.
Ted, I’m even less convinced ‘anarchistic socialism’can viably sustain innovation or distribute it broadly. The minute you need resources beyond sweat equity and personal seed money you have to open the door to multiple agendas and this inevitably changes the trajectory or an effort.
I firmly believe that while a small percentage of people will sacrifice their personal well being for an abstract greater good, most people are motivated by some type of personal gain (granted that could be the satisfaction of a relationship, to your point). That gain for eons has been some form of value acquisition. At the bottom of the pyramid are people trying to climb up. At the top are people trying to stay there. This spans any culture I can think of. Hierarchy, it seems, is built into us perhaps by survival instinct. Experiments with flat companies and flat societies have tended to fail either from infighting or inefficiency. I think hierarchy is here to stay and within it is a core desire to move upward which motivates action which leads to innovation and improvement. (I acknowledge that statement is sweeping and there are many examples where upward mobility has been pursued in decidedly malevolent ways).
While I do agree that the marketplace needs to adjust to a changing and socially-empowered world, I think the hardline socialist expectations of Internet users need to be curbed to. Free is unsustainable and ‘conversation’alone will not be the tide that lifts all boats. There’s a lot of noise being made about relationships, much of it warranted. But like putting clothes on our backs and food on the table, taking an idea from the garage to the world, realistically requires value exchange and therefore commerce. Combined with what I believe is an innate desire in each of us to improve our lot in the world, I have a hard time finding any shred of evidence that relationships, like love, will a way.
One thing that struck me while I was reading your post is that the social web, because it knows so much about us (our actions, friends, groups, associations, etc.), is a potential gold mine for advertisers.
The problem is, users don’t like advertisers knowing so much about them and as such, typically reject targeted ads (like those on Facebook) while at the same time refusing to pay for access.
Also, Congress is getting ready to weigh in with potential legislation that will make it even more difficult for capitalists to make money from social media services – at least through targeted ads.
Jeff, yeah, its interesting how much of a ideological mash-up the Web has become. You have technology that should be ideal for advertising in that it can learn the preferences of individual people and gather together groups of like-minded people. At the same time, it also rips the power away from advertisers. It almost seems like a taunt; ‘Sure you can use me [social media] to track people down to their individual preferences and find groups of them to market too but while you’re doing that those same people need your advertising less and less and listen to it less and less because they can converse with each other so easily they don’t need your messages to form an opinion about your product.” The buddhists say the key to the gates of heaven also open the gates of hell. Social media feels like one of those keys from a business perspective.
I’m not sure that the broad distribution of innovation is (or will continue to be) a valuable goal. I’m seeing an increasing drive toward small-scale, local production and economic activity. If social media outlets could develop the capacity for small-scale advertising, then there might be some potential for growth–so I would pay $10 to have a banner ad advertising my upcoming garage sale in the rotation for people in my networks.
What is ‘local’in a world of digital networks? Similarly, broad distribution becomes important to anyone not content with a small slice of a small pie (this goes to motivation and the appetite whetted by consumerism). I would also posit that innovation is the cornerstone of progress. The zealot-inventor is driven by it and without innovation our current problems and struggles linger. Innovation that isn’t broadly distributed has reduced impact which feels to me wasted.
Nice post. You have to admit, though, that dynamic tension like this usually produces greatness.
One of the challenges with this direction, though, is to look at socialism through the command and control economies of the USSR and, now, China. Another, more interesting model might be those of Scandinavia where they’ve combined social welfare with market capitalism. And what you see there are some of the most innovative companies in the world (Nokia, Skype, IKEA, to name a few).
The funny part is, if you believe Richard Florida, is that those societies are now some of the most socially mobile countries in the world. That is: You actually can work your way from bottom to top in a generation.
The U.S. has become one of the least socially mobile countries, which raises the question of whether utterly free market capitalism really does tap into the true potential of its people.
What does this have to do with online? Well, look at crowdsourcing and the breakdown of the agency model online. Hopefully what it means is that the uber wealthy will have to give up some of their dough to share with more people on the bottom. Not equally, but still sharing. Can’t see how that would be a bad thing.
Hi Rich, yes my friend Ted also pointed out the difference between state-controlled socialism and the more pure dictionary-defined concept. I happen to agree with you (as boring as that can be in a blog comment board) regarding Norway, Scandinavia etc. Some blend is probably the right checks and balances approach to keep either extreme from going too far astray. Or course its hard to get to balance given our collective tendency to publicize extreme opinions on any topic. This brings me to what I believe is the myth of crowdsourcing. I’ve read in several places that crowdsourcing makes the 80/20 rule look like egalitarianism epitomized.
I’ve read some statistic that approx 1% of Wikipedia’s user base provides 80% of the article content. That’s fringe sourcing. Where it gets interesting to me is that the participants in crowdsourcing don’t represent the mean (the proverbial larger crowd) any more than the placard carriers in D.C. represent the mean opinions on healthcare.
The Internet may provide the opportunity for a voice for every person but that doesn’t mean it accurately reflects the voices of the collective people. Whatever the topic du jour is, the people willing to work for free to contribute to it will tend to be of extreme opinion – either for or against. The rest of us have different priorities and agendas. There’s a lot of power tapping into those opinion leaders, but its also worth noting they’re not a mirror of the broader audience. Its easy to miss you mark believing a crowdsourced piece of content is vetted by broader group. That’s why everyone smirks when they say ‘everything on the Internet is true.’
This brings me back to motivation. Making an accountant work harder in a company requires incentive. It’s the rare accountant that is so enamored with offering a widget to the world that they will work for free. Makes me think of Peter Gibbon’s monologue to the Two Daves in the film Office Space.
BTW Rich, also worth mentioning, I’m right there with you insofar as believing greatness is the outcome of dynamic tensions and growing pains.
Corey, keep on going guy!
So, if we paid everyone the same salary, gave everyone a house, a car, 5 weeks vacation, access to the same type of good schools etc., would we produce same mediocre product?
I like looking at things like Linux, a great example of someone with a brilliant idea who enabled the crowd to help, and shook the foundations of the biggest capitalist company around.
Computers and the internet have given the means of production and distribution to the masses. Good right? So why are there so many crappy videos on YouTube. I’m happy to pay for HBO; I’d never pay for YouTube.
But since you’re bringing this around to social media, advertising and the internet, here’s a question: Should company A invest millions of dollars in marketing and advertising, or should they put that money into customer service and product development? If you look at GM, you kind of wonder.
The extremist you point out, though, illustrate a good point here. People aren’t listening to broad consensus content, like Walter Cronkite, they’re narrowcasting more and more. And it’s becoming too expensive to reach those people through traditional marketing.
I hope semantic Web works. Or a chip in my head. Or eye recognition like in Minority Report. Yikes!
Yeah, actually, I do think if everyone got the same salary, same house, same car, and 5 weeks vacation there’d be someone who wanted more. I think that desire is hardwired into us. Now, not everyone needs to want more, only one person does. And if that person gets it (which should be easy as everyone else is blissfully content), then someone else will want it too. And thus the Garden of Eden collapses. (How’s that for dramatic flair?)
I like your point about Linux. It’s a lot like MySQL too right? An enabler like email and browsers. Linux allows capitalists to do better business but achieving economies and participating in broader developer bases to take advantage of innovations. It’s also the right type of business to sustain itself on the late night working of a group of devout developers on their own time. It doesn’t really cost anything to make or deliver because the Internet is paid for elsewhere. Beer, cars and clothing won’t work that way. Most products and services won’t work that way.
I liked your point about investing in better products and customer service vs. advertising too. As the theory goes building a better mousetrap should net more business. That’s the bottom line dream social media puts in front of us. I think it makes really good sense in theory. Product design has long been the best advertiser. Apple proves this regularly. That said theory and reality never seem to jive so I’m sure there’s a butterfly flapping its wings somewhere that will blow said theory to threads.
But maybe the message of the socialist/capitalist collision online is that social media is next advertising both for its roll in commerce and also as that necessary expense businesses must invest in. There may even be a bonus here. Perhaps it will work well enough that the old saying, ‘I know half my ad budget is wasted, I just don’t know which half’won’t apply. Wouldn’t that be nice? Of course this is a huge leap in mindset for your average businessman and its not an easy change to make nor can it be made in one fell swoop. It’s an evolving change which means a lot of trial and error and dead ends to get there. That is another reason I think capitalists, who thrive on efficiency, struggle with social media. Its theoretically efficient but in practice, at least right now, is a lot of guesswork. Capitalists may be risk takers, but even risk takers want some basis to form predictions and estimate their odds. That’s harder to come by. I saw recently someone pointed to a headline that said Twitter earned Dell $3MM in revenue. That’s great until you read the article and realize it did so by functioning as a bulletin board not a conversation. Wooting deals on Twitter is taking the billboard model and applying it to Twitter. Not quite the promised ROI of social media despite the headline.
Separately, semantic intrigues and scares me at the same time. I don’t like the idea of someone knowing what I want before I do. That IS Minority Report.
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