Release 2.0.1

Download Sample

Early intelligence on the ideas, people, and companies poised to explode into the public consciousness

Brought to you six times a year in print, Release 2.0 delivers penetrating insight and thought-provoking analysis on the business and social impact of key technology trends. In Release 2.0, O'Reilly Radar gathers the best minds to provide an advance detection system for the future, spotlighting technology's inflection points and game-changing innovations.

Premier Issue: From 1.0 to 2.0
Issue 2.0.1, February, 2007

From this Issue...

From 1.0 to 2.0
By Tim O'Reilly
Keep an eye on the radar. The future is already here, if you look in the right places. Also: How the Cycles Repeat

Under new management
By Jimmy Guterman
Your editor discusses what’s changed, what hasn’t, and how the title for the new newsletter may seem trendy but it goes back all the way to 1993.

Web 2.0…
Nat Torkington, Brady Forrest, and Jimmy Guterman
It’s the meme of the moment. It’s the subject of everything from excitement to parody. In this issue, we take some aspects of the business revolution and look at them from some unusual angles.

A Simple Story
By Nathan Torkington
What if Web 2.0 stopped being a buzzterm and started making sense? What if we started considering Web 2.0 as something perfectly normal and reasonable?

People or Computers?
By Brady Forrest
There’s more than one way to do things. And Web 2.0 provides a fascinating framework for comparing machine-generated data with what humans can generate — sometimes without meaning to.

More. Better. NOW!
By Jimmy Guterman
Continuous iterative development isn’t just for technologists. It’s for businesses, too.

The Number: One Person Per Blog
By Jimmy Guterman
It’s a joke, it’s not quite true, and those who believe it are missing an opportunity.

The Canon: Designing Interactions
By Jimmy Guterman
Designing Interactions, by Bill Moggridge, a founder of the IDEO design firm, distinguishes itself by offering all sorts of practical tips for what it takes to make breakthrough products and services, and embedding those lessons inside stories of the people who made them happen.

 

New Release 2.0 on Money 2.0

One year ago, we published an issue of Release 2.0 entitled "When Markets Collide" (download a PDF), in which we considered what Wall Street and Web 2.0 might have to teach one another. Quite a bit, it turned out: the key parallels we uncovered include latency (both have to do their jobs more or less instantly), connectivity (it's the liquidity of Web 2.0), sensors and actuators (and how to use them), and reputation (stockbrokers are no longer curators -- they're rated).

So it's a ripe time to consider the status of the relationship. What's new? What's changed? The amount of financial data available publicly is astonishing. That doesn't mean it's all useful. There's plenty of data out there, but it's plenty confusing. You can't extract alpha until you understand what you're looking at. As Michael Simonsen, president and CEO of Altos Research, puts it, "free data on the internet is a mess."

If anyone doubts that financial markets and technology markets are deeply intertwined, consider this: the same day that JPMorgan Chase revealed its "purchase" of Bear Stearns, a Gartner Group analyst released a report showing that "the financial services industry continued to lead all vertical markets in server revenue, as it accounted for 25.3 percent of worldwide server revenue in 2007." As goes one set of markets, so goes the other.

In this issue of Release 2.0, we consider the Wall Street/Web 2.0 mashup from a number of angles. We talk to Paul Kedrosky, chair of our Money:Tech conference and an influential blogger on the topic (as well as others), about why some on Wall Street hate Web 2.0 -- and what Web 2.0 can do to infiltrate Wall Street nonetheless. Entrepreneur Marc Hedlund, now chief product officer for OATV-funded personal finance startup Wesabe, examines what happens when hidden data gets surfaced. Cathleen Rittereiser talks to hedge fund managers to discover what they want from Web 2.0 -- and what they're actually getting. Longtime Radar contributor Nathan Torkington digs deep into prediction markets and spells out both how to manage them and what companies can gain from implementing them.

It's a truism that alpha lasts longest when it's hidden. That may have been true in the past, but the growing use of Web 2.0 tools means that less data will stay hidden, and what's hidden will stay hidden for a shorter period of time. As James Altucher of Stockpickr said at Money:Tech, "When it comes to data nowadays, closed source is a myth."

You can purchase the current issue of Release 2.0 or, even better, subscribe to the newsletter.

SpongeBob SquarePants Supports O'Reilly Research Finding

In O'Reilly Radar's recent reseach report, Virtual Worlds: A Business Guide, we contend that virtual worlds will go mainstream. The most powerful data point supporting our argument is that the most active and popular virtual worlds nowadays tend to be those populated by children. The next generation is growing up playing virtual worlds.

And now one of the biggest purveyors of virtual worlds for children, Nickelodeon (which owns Neopets), is going in deeper. It's adding more virtual world features to Neopets and developing a virtual world around its SpongeBob SquarePants franchise. Companies not paying attention to virtual worlds are not paying attention to where the market is going.

New O'Reilly Radar Report: a Business Guide to Virtual Worlds

Virtual worlds, particularly Second Life, have generated much excitement -- and much skepticism. In Virtual Worlds: A Business Guide, the newest O'Reilly Radar report, Ben Lorica, Roger Magoulas, and the O'Reilly Radar team get past the hype (and the anti-hype), detail what is happening in Second Life and other virtual worlds, and lay out what businesses need to do to succeed in these worlds, now and in the future. It examines business opportunities, evaluates what has been successful and what hasn't, and what trends are starting to emerge. Those interested in the present will finds an in-depth study of Second Life; those interested in the future will be most interested in what we've learned about children's engagement in virtual worlds. Indeed, the most active users of virtual worlds aren't adults yet. Regardless of how Second Life ends up as a business, there are plenty of reasons to be bullish about virtual worlds as a business category. This report shows why and what to do about it.

Order the report.

See all the O'Reilly Radar reports.

Everything I Knew About Metcalfe's Law Turns Out To Be Wrong

In the recent Release 2.0, which covers the next generation of CRM, I invoke Metcalfe's Law, which I've always understood to state that "the value of a telecommunications network is proportional to the square of the number of users on the system."

Well, maybe not. Release 2.0 subscriber Simeon Simeonov, a partner at Polaris Venture Partners, sent me a kind letter about the issue, but he says I got Metcalfe's Law wrong.

I also heard, and repeated, Metcalfe’s Law this way many times until I learned that the statement of the law had nothing to do with users. It’s not even about nodes per se. The original formulation was more subtle and had to do with the nature of the exchange between devices. Bob Metcalfe is one of my partners at Polaris so I got the straight scoop a few years ago, including seeing the copy of the original transparency that Bob used when he talked about what George Gilder later on called Metcalfe’s Law. Another thing that very few people know is that Bob was talking about very small network sizes--nothing like the size of the Net. I blogged about this in 2006. It would be really cool if you can use the platform you have to help set the record straight.

Consider it done.

@TED: Best of Day 4 and a Wrap-Up

The last day at TED is a combination of exhaustion, anxiety, and wistfulness: exhaustion because we've been neglecting our sleep, anxiety because we remember how much work awaits us after the event is over, and wistfulness because we realize we can't live like this all the time.

Perhaps because the programmers knew that we'd be pulled in multiple directions, the last half-day of TED was stuffed with talks that demanded our full attention. Here are some of the best moments from today:

* Johnny Lee Chung showed his jaw-dropping Wii Remote hacks, which create, for less than $50, an interactive whiteboard. (Jesse Robbins covered it previously on Radar.) When comparing it to a real, multi-thousand-dollar interactive whiteboards, Chung said of his project, "you get 80% of the way there for 1% of the cost."

* Paul Collier, author of The Bottom Billion, looked to a historical analogy to consider how to get countries out of poverty. The last time the rich world did something serious about developing another region, he stated, was in the late 1940s, when the U.S. needed to develop a devastated Europe. We can learn from what the U.S. did then -- providing aid, reversing a protectionist trade policy, moving its security policy from isolation to engagement, and abandoning some notions of national sovereignty to create the United Nations -- as a model for what we need to do now.

* Al Gore, who debuted his "Inconvenient Truth" presentation at TED two years ago, delivered a run-though of a new talk he's developing. This time out, he seems less focused on alerting us to climate change -- he's done that already -- and more on what to do about it, not only at a personal level but at a national level. As he put it, "changing the laws is more important than changing light bulbs." During his talk, I kept creating an alternate history in my head. Regardless of your political point of view, there's no doubt that the world -- and the U.S.'s place in the world -- would be far different now if we were in the last months not of the second Bush administration but the second Gore administration. Perhaps Gore did more good outside of the White House than he could have inside.

There were two other talks from yesterday that I wanted a bit more distance from before I tried to write about them.

The first was from MIT's Tod Machover, who spoke in the abstract about how music has power in people's lives -- and then proved it. His talk peaked when he brought out , Dan Ellsey, a longtime cerebral palsey patient from Tewksbury Hospital, outside Boston, to show how even someone with a profound disability can create music. Then Machover moved from talking about composition to talking about performance, and Ellsey, thanks to a system developed at the MIT Media Lab, was able to "play" one of his songs. Strapped to chair, imprisoned by his illness, Ellsey and his work were completely, miraculously alive. My words can't express the drama of the moment. Perhaps when this talk makes it to the TED website, you can see for yourselves.

It's also hard to describe what conductor Benjamin Zander achieved last night. The Boston Philharmonic conductor also spoke of music, connected his notions of music to inspirational ideas about leadership (and, it seemed at the time, everything else in the universe), and led a devastating experiment that had the entire audience singing Beethoven's "Ode to Joy" in phonetic German, with him urging us to take our amateurish singing higher and higher. I won't even try to describe what he accomplished (again, the filmed talk will do that for itself), but I do want to share with you -- despite this being a family blog -- the term he introduced that everyone was talking about last night: BTFI.

Zander told of a cellist auditioning to be in an orchestra. Zander, helping the musician, told him he was holding back: he had to do more. The cellist didn't get the job because, he reported to Zander, he was still holding back. But then the cellist said "fuck it," made himself audition for a better job at another orchestra, and got it. Zander's lesson: to excel, you have to get BTFI, "beyond the 'fuck it'." It's an idea he and his wife Rosamund Stone Zander explore in their brief and wonderful The Art of Possibility. (You can read the Google Book Search excerpt from his book, on the origin of BTFI, here.)

Most of the speakers at TED were people who had seen problems -- in themselves, in an industry, in society -- and had decide to get BTFI. That encapsulated TED and it's an appropriate note to go out on. Until next year...

@TED: Best of Day 3

The joke among TEDsters is that, around the third day, it becomes an endurance sport. It's one thing to be in a room listening to spectacular insights for a few hours. It's another to be doing so for half a week. Nonetheless, part of the experience you get from being at events like TED is that feeling of being overwhelmed: someone just said what feels like the smartest thing you ever heard -- and then the next speaker says what feels like the smartest thing you ever heard -- and then ... well, you get the idea. It's intellectually exhausting, but it's also thrilling.

Here are some of the best moments of Day 3:

* The "What's Out There" series of talks was pretty, er, out there. Particle physicist Brian Cox walked us non-particle-physicists confidently through the importance of the Large Hadron Collider, soon to open near Geneva. It was one of several talks in that section in which the enthusiasm of the speaker was so great that we all thought about dropping our careers and becoming particle physicists.

* The "What's Out There" panel was especially strong, but there were two talks that knocked me out. Joshua Klein, an animal behaviorist, talked about species that have adapted to human behavior. In particular, he talked about crows. He described his project to build a vending machine for crows and he showed short films about ways crows can take advantage of civilization: for example, dropping nuts onto boulevards so cars can crack them open. And author Richard Preston reported on his (and others') adventures high in the Redwoods, the unexpected ecosystems discovered up there, and the ecological threats they face. I don't want to simplify his rich argument -- his book The Wild Trees is a must-read -- but he does a great job of connecting the fate of the Redwoods and the fate of us.

* During the "What Will Tomorrow Bring?" session, the other Chris Anderson spoke not about his provocative "Free" thesis (on the cover of the new Wired) but about his less-than-$100 blimp, which he showed off, the product of his desire to make a "minimum unmanned aerial vehicle." Chris and the blimp will also be at ETech on Tuesday.

* Peter Schwartz argued that Wikipedia is a leader in the battle against poverty: it brings knowledge and possibility to places not getting them any other way.

The series of talks that most engaged me was the first one of the day, entitled "How Do We Create?"

* Designer Yves Behar urged us to question basic assumptions in out work. "Why do we have a CapsLk key on our computers"? he asked. "As a designer, I don't want to just slapping a new skin over existing technology." He certainly didn't do that when he designed the XO Laptop, which, among other delights, doesn't have a CapsLk key.

* Robert Lang, origami artist and mathematician, talked about how creativity depends on learning from those who came before us, even if we're taking lessons in ways the originators never intended. His best of many aphorisms: "the secret to productivity is letting dead people do the work for you."

* There was one particularly moving presentation during that session, from MIT's Tod Machover, which I'll give its own post after I have a bit more distance from it. (Benjamin Zander's great climax last night will get a shout-out, too.)

About that that anti-TED meme flying around the blogosphere that I mentioned last time...

Some of it has been cranky (such as a high-profile tech blog publishing the attendee list and vetting it), but at least one post -- from the usually very thoughtful Umair Haque, deserves to be addressed. His argument is that TED does more harm than good. I disagree. There are some things a reasonable person could argue against TED -- the inevitable elitism that comes with the high entry fee and the occasional self-congratulatory tone come to mind -- but by adopting a web-centric "ideas worth spreading" meme, I believe curator Chris Anderson has worked hard to make the ideas expressed at TED as available as possible. Most TED talks are available for free on the TED website. An official blog is reporting the events of the conference in near-real-time, as are a dozen or so unvetted ones. Haque's argument seems to be that TED does more harm than good because it hasn't saved the world (he denies that in the comments, but it seems to be his argument). Sure, it hasn't. No mere conference can. (Indeed, the even more elite Davos conference this year seemed to be full of leaders just throwing up their hands.) But while I suspect Anderson's goal is transformational change, the simple act of sharing transformational ideas -- first to a room of elites and then to the growing percentage of the world with Internet access -- lets them take root in unexpected places. That is definitely far more good than harm.

And now, off to the final day...

New Release 2.0 on Next-Generation CRM ... and a New Installment of Our Facebook Application Platform Report

In this month's Release 2.0, we consider the next generation of customer relationship management (CRM) and the search for an all-in-one-place inbox and address book.

We need some sort of universal inbox and address book because it's not just email that we're neck-deep in nowadays. Once you've figured out a way to organize one means of input, there's another one. Are you up-to-date on all the RSS feeds? Your Facebook friends? Their Twitter tweets? In recent months, we have started to see high-profile attempts to create universal inboxes from two different directions: online social networks and CRM systems.

As the need to store and organize more information grows more acute, both online social networks and CRM systems have grown dramatically in membership and in the amount of information stored and shared. There are millions of people who have accounts on both social networks and CRM systems, but of course our needs and expectations on these systems differ. Your contact record in someone's Siebel system identifies you as a current or potential customer; your contact record on MySpace may identify you as a folk singer or stand-up comedian. There are good reasons for keeping this information separate, but it is difficult to maintain multiple personalities online, just as it is in real life.

Yet the lines between the persona you present to your social network and someone's CRM record of you get blurred regularly. You might date someone you work with; you might engage in some business with an old college buddy. Separately, your social networks and CRM systems are useful. But they might have something to teach one another. In the new issue of Release 2.0, we explore what happens when the various forms of online communications smash together, in search of that universal inbox and address book. Email inboxes are taking on aspects of social networks and CRM systems. CRM systems are getting more social. Social networks are being used to track business contacts and replace other forms of online communication like email and chat. You can, for example, update your Facebook status via Twitter. And the goal for these projects seems to be the same: everything, organized, in one trusted place. The new issue of the newsletter reports on where we are -- and where we're going.

And while we're considering how online social networks are changing things, we have completed the third and final edition of our Facebook Application Platform report. In the months since we published the initial version of the report, we've seen:

* the winner-take-all nature of Facebook applications grow more prominent,
* a flattening or even declining usage among some top applications,
* a rise in the desire for truly useful Facebook applications -- not just frivolous ones,
* and much more.

We have updated our data on the most successful Facebook applications, the most-used ones, the most successful vendors, and much more. The platform is very much alive. but it is experiencing growing pains. (Purchasers of previous versions of the report get this one for free.)

You can order either a single issue or a subscription to Release 2.0 here and the Facebook Application platform report here.

Next week we'll have two more new reports to announce. We're debuting them at Graphic Social Patterns and ETech and we'll tell you about 'em here as well..

@TED: Best of Day 2

It was a day of extremes at TED, ranging from an extended session examining the pervasiveness of evil to an evening celebration of some of the most life-affirming ideas possible. It also ranged from the sober (how to survive a nuclear attack) to the self-referential and self-congratulatory (a brief sit-down with TED's originator, Richard Saul Wurman). Here's a quick rundown of some of the long day's many high points:

* There was a late-morning series of talks on the topic "Is beauty truth?", but it was in another session that we saw how truth brings with it some sense of beauty. Alisa Miller, president of CEO of Public Radio International, used the remarkable information visualizations of Worldmapper to illuminate what news stories get covered and what don't. (You can see her slides and hear her talk here.) In the end, she notes, "covering Britney is cheaper" than considering the more important stories.
* While interviewing Craig Ventner, TED curator Chris Anderson remembered an exchange they had a few years back. Anderson had asked, "Can you be accused of playing God?" Ventner's reply: "We're not playing." It was a joke, but Ventner took is as an opportunity to deliberate on how we're "supposed to use our knowledge to improve humanity." He also contrasted the optimism of TED with the pessimism of Davos
* In a brief talk, Dean Ornish gave his standard talk on why "our genes are not our fate," detailing the importance of lifestyle change. It was an interesting complement to Ventner and others showing how our fate could be in creating new genes.
* Philip Zimbardo, top researcher of the classic 1971 Stanford prison study and an expert witness for Abu Ghraib guard, showed some photos from the Iraqi prison that were more graphic and troubling than what's been in the mainstream press, and hammered on the parallels between his landmark study and what is happening today. Countering the "bad apple" theory of people who behave terribly when placed in unsuperivised positions of complete power over others, he stated, "it's the barrel that's bad, not the apples." As intense as that session was, it kicked off with a brief clip about the just-ended next-generation DVD wars that managed to be both hilarious and offensive.
* While accepting their TED prizes, novelist David Eggers delivered a tour-de-force tour through his 826 writing and tutoring project, and Neil Turok shared his double life as a physicist (he's not so sure the Big Bang started everything) and as a founder of the African school for math and sciences.

And that doesn't even include Samantha Power's stirring talk about diplomat Sergio Vieira de Mello ... or Susan Blackmore's sharp application of Darwinian principles to everything ... or Isaac Mizrahi's star turn ... or 100 other fascinating moments. And the best news is that this event is only half over.

Finally, I've noticed an anti-TED meme flying around the blogosphere this morning. I'll address that tonight, when I write my post about today's events.

Teaching design to businesspeople

The "D" in TED stands for "design," and it's become a truism that design is a crucial element of business success. Ask Apple. But the conventional wisdom still maintains that design is a "soft" art, not worthy of attention by serious businesspeople. It's for the designers, the marketing people. And when top executives insert themselves into the design process, the results are often unintentionally hilarious. I remember a decade ago, when I made my living in part by building websites for large media companies, one meeting in which a client CFO rejected an iteration of a site because he didn't like the shade of mauve in the background. (Philip Greenspun joked about these sort of people -- go to this page and search for "mauve" -- but it really happened.)

There's a growing literature detailing how businesspeople can build and sell better products if they think like a designer. Jane Fulton Suri's Thoughtless Acts?: Observations on Intuitive Design is a tiny classic that does nothing less than teach businesspeople a new way of looking at everything. And this month O'Reilly is publishing Subject To Change: Creating Great Products & Services for an Uncertain World, in which the Adaptive Path team shows how important design is, in terms businesspeople can understand.

And now these ideas are filtering into education. In one high-profile example, the Stanford "d.school" is doing much to connect business and design. Andy Oram, in an internal O'Reilly list, pointed us to a fascinating article by Terry (Bringing Design to Software) Winograd of Stanford in the recent Interactions called "Design education for business and engineering management students: a new approach." Winograd reports on the insights that have come to Donald Norman as he has sought new ways to infect nondesigners with design smarts. The author of The Design of Everyday Things and Emotional Design has developed a "design track" in the Master of Manufacturing and Management program at Northwestern. It's still early on, and Winograd's perspective in the article is prospective, but it's another data point that the next generation of businesspeople may be able to think at a deeper level than shades of mauve.

@TED: Best of Day 1

If nothing else, TED is a trip. The veteran conference has gone through many permutations. Under curator Chris Anderson, TED is still full of technology, entertainment, and design, but it has really lived up to the change-the-world rhetoric that was always a bit more under the surface during Richard Saul Wurman's ace stewardship. Al Gore's talk about global warming turned into An Inconvenient Truth after a movie producer saw him deliver the talk at TED; Pangea Day, an ambitious attempt to create a world-wide one-day film festival (it's coming May 10) came out of TED as well. And this week E.O. Wilson is debuting the first iteration of his Encyclopedia of Life, funded by a TED grant. Indeed, the change-the-world attitude is so great that the only truly negative feedback I heard at last year's event was over how wasteful the opulent gift bags were. So this year the bags are constructed from 100-percent post-consumer recycled beverage bottles by Rickshaw Bagworks.

The conceit of this year's TED, now in its final installment in longtime home Monterey before a move to Long Beach, is "The Big Questions." I'll chronicle some of the high points of the conference here. For more detailed coverage, the official TED blog is offering blow-by-blow coverage. And the event, while aiming to be iconoclastic, has become so iconic (and expensive and exclusive) that it has inspired its own barcamp alternative, as noted by Jerry Michalski.

Some of the choice moments of the first day:

* Third generation paleoanthropologist Louise Leakey explaining what you need to do to if you want your remains to be found as a fossil (there's lots of luck involved if you want to be preserved for millenia), and how "technology removes barriers to population growth"
* Priceline founder Jay Walker demonstrating how it takes a lump of coal to transmit a megabyte of data across the Net
* Photographer Chris Jordan talking us through "Running the Numbers," a series of dramatic information visualizes focusing on consumption in the U.S. He learned that, for example, one million is the number plastic cups used on planes in the U.S. every hour and delivered a devastating visualization of that data point.
* * Guitarist Kaki King channelled Preston Reed and the ghost of John Fahey in a surprising and thrilling manner
* Roy Gould and Curtis Wong debuted Microsoft's WorldWide telescope, which may, as Gould put it, "change the way we do astronomy." Simply, it allows us to see the sky -- and what lurks beyond the sky -- in an entirely new way (the talk is already on the TED site).
* The presentation from the day that burned itself immediately into my long-term memory came from Jill Bolte Taylor, a neuroanatomist who showed us a real human brain -- and spent most of her talking describing her own stroke and what she felt and thought while her brain was going wild, from the borderline-metaphysical ("I can't define where I begin and where I end") to the borderline-hilarious ("I'm a busy woman. I don't have time for a stoke"). Her description of her time in that strange state, caught between two worlds, the rare neouroanatomist who has been able to chronicle a brain-changing event from the inside, was astonishing.

And that's just cherrypicking from the first day, a half day of talks. There are 2-1/2 more days coming...

(There are always fun interstitial film clips between talks. You can't beat a harmonica-playing Darth Vader.)

Steve Jobs rules the recording industry. Now what?

Last night's Grammy Awards ceremonies were even less relevant than usual, no small achievement. The TV broadcast began with a "performance" by that cutting-edge new artist Frank Sinatra and fell down from there. The only real emotional charge of an evening celebrating the most emotional of media came when we viewers were confronted with the disparity between the preternatural confidence of Amy Winehouse's "Rehab" and the shaky, shell-shocked manner in which Winehouse accepted her award for it. Alpha geeks had a moment to celebrate, too, when one of the winners behind Historical Album of the Year (Woody Guthrie's Live Wire) turned out to be a mathematician.

But, those and few other brief moments notwithstanding, the action in the music industry is elsewhere.

One of those places is Apple's iTunes online music store. For several days last week, the top-selling track on the store was Yael Naim's "New Soul," a song available, at least to U.S. audiences, exclusively via iTunes. The exclusivity isn't a big deal -- the store is powerful enough to offer plenty of high-profile exclusives -- but the reason "New Soul" became a hit is a big deal. "New Soul" was a hit solely because it appeared in Apple's commercial for the MacBook Air. Until the 1980s, record companies looked to radio to break new artists. Until five years ago, the place to launch new performers was music video. For most of this decade, the breakdown of traditional music channels has led to new songs being noticed via video games, television shows, and -- most of all -- commercials. Whoever is programming the music for Apple's television commercials may be, right now, the most powerful talent scout in the record industry.

How did Apple gain all this power? The record companies, desperate, vain, and stupid, handed it over. As Michael Hirschorn wrote in the March Atlantic (I'd link to his terrific essay, but the venerable Atlantic tends to get around to uploading new articles to its website weeks after they appear in print), "Steve Jobs shanghaied and basically destroyed the CD business. The major record labels, in giving Apple's iTunes the right to sell individual songs for 99 cents each, undermind their own business model -- selling bundles of songs gathered together into something called an album for up to $20 a pop -- because they didn't see that people were about to consumer music in an entirely new way. The labels saw iTunes as free money; 'ancillary,' in the legal vernacular. Jobs took their cheap music and used it as a loss leader to sell his expensive iPods, and the traditional music business now lies in tatters." The punch line, of course, is that the record industry is trying to shut out Apple by selling music online elsewhere such as Amazon -- for a mere 89 cents per cut.

I've written before here about clever ways to sell music nowadays. Like the performers I celebrated in that post, record companies have to adopt new ways of packaging and selling if they want to stay in business. Just as twin geniuses Sam Phillips and Ahmet Ertegun reinvented the record industry in the 1950s, we need a new generation of tech-savvy entrepreneurs who accept that recorded music consumed in $20 increments -- except for that created by a small subset of veteran performers with large and reliable fan bases -- is a dead notion for now. Music is everywhere, just as software is everywhere. We've seen an explosion of new models in recent years for selling software -- web-based, software as a service, various levels of open source, and so on -- some of which have been quite successful. Software may be useful, but for the most part it doesn't satisfy the emotional need that music does. It should be easy to sell music, certainly easier than it is to sell software. The music industry has much to learn from the computer software industry about reinvention and staying in touch with the customer. (In future posts, I'll probe what the music biz can learn from the software biz.) If what remains of the music industry doesn't look to successful technology industries for ideas, it'll be as lifeless as the Frank Sinatra half of last night's Grammy "duet."

Money:Tech Day 2: Best Lines of the Day [MoneyTech]

Like yesterday, the second day of Money:Tech was stuffed with early signals on everything from using website visits to predict the unemployment rate to the emerging market for catastrophe bonds.

Here are just a few of the choice lines today:

Michael Stonebraker, Streambase, on why fast-moving financial firms must keep their data in memory, not on a hard disc: "The minute you store the data, you lose."

Devin Wenig, Reuters, on how the speed problem may be solved: "Latency is not the burning issue in our industry anymore." To which Tim O'Reilly responded, "there is a lot of room to collect the data earlier," before that latency period even starts.

Martin Wattenberg, IBM, on what he's learned painting the future of data visualization: "There's more to life than AI and fancy machine learning."

Brian O'Keefe, Panopticon, on the limits of software: "You can't ask questions in Outlook."

Henry Blodgett, Silicon Alley Insider, on an eternal truth in equity research: "The only research that's valuable is the stuff nobody else has."

Nouriel Roubini, RGE Monitor, describing his business model: "We filter what's available for free on the Web and people pay us for that."

Cathleen Rittereiser, Alternative Asset Management, on how hedge funds persevere: "It's better to be wrong together than to be wrong alone."

And I didn't even quote my own panel, on collective money management. I'll return to that in a future post.

I'll let Money:Tech conference chair Paul Kedrosky weigh in definitively about the event on his own blog when he catches up on sleep, but from this vantage point it feels like we're still quite early on in the interactions between financial markets and Web 2.0 markets. We'll continue to chronicle them here, in Release 2.0, and at future Money:Tech events. This was a very exciting beginning.

Update: Paul Kedrosky has written about his conference: here's a post-mortem and a personal note.

Money:Tech Day 1: Best Lines [MoneyTech]

There's so much going on at Money:Tech today that I won't try to cheapen it my squeezing it all into a blog post. Indeed, we're planning a full issue of Release 2.0 in April to capture how much has happened in the collision of Wall Street and Web 2.0 since we first identified it last year (PDF link to issue, 2.4M). But, along with our posts on individual talks, I do want to share just a few of the most provocative near-aphorisms we heard today:

James Altucher, Stockpickr, on differentiating between open and proprietary approaches: "Closed source is a myth."

Michael Simonsen, Altos Research, on the organization of information: "Free data on the Internet is a mess"

David Leinweber, UC Berkeley, on how quickly investors have to respond to a news event to take advantage of it in the market: "You have to get the news before the news people get there."

Tom Desmond, TradeKing, on how the Internet democratizes investing: "Turning trading from a solitary function to a social one levels the playing field." This was a notion picked up by Wesabe CEO Jason Knight, who also had the best talk title of the day: "The Death of Quicken." His key line: "People understand the difference between income and debt. They just don't know how debt accumulates." (Disclosure: OATV is an investor in Wesabe.)

Renny Monaghan, Salesforce.com, on the need to balance the need to know everything with the need to get work done: "How do I avoid being a news junkie?"

George Tsiolis, Agoracom, on how the new investor discussion groups are different from the flame-throwing Yahoo groups of yore: "Investors want a community. But they want a civil community."

Mike Gamson, LinkedIn, on who uses his company's service: "our demographics are the same as the Wall Street Journal, except they're slightly younger and slightly wealthier."

Rick Seaney, FareCompare, on what we think of the airline companies we rely on: "Airlines rate lower than the I.R.S. for consumer satisfaction."

It was an exhaustive day. And we get another one tomorrow. I'll be moderating a panel on collective money management -- and there will be 16 other sessions.

The Industry Standard is back. Why?

The Industry Standard ably chronicled -- and, eventually, mirrored -- the Internet boom that began a decade ago and died a few years later. (Disclosure: Despite its occasional excesses, I am honored to have been associated with the magazine.) After years of noticing that thestandard.com was still receiving ample traffic and -- with one brief exception a few years back -- not doing much about it, IDG, which was the Standard's lead investor and picked up the carcass in bankruptcy court, has relaunched the site this week.

The new site is, to these eyes, an unintentional parody of Web 2.0 features. Rather than mere advertising, it has a more high-end sponsorship model (i.e., one pay-for-it-all advertiser), it seeks to create a community (you have to sign in to enjoy the more interesting features), it combines aggregation and a sliver of original material with a "wisdom of crowds" prediction market, and it appears to have a bare-bone staff. And, of course, to keep costs really low, this time the brand is online-only.

I'm not sure what's being accomplished here, aside from the modest monetization of a dormant but still semipopular URL. It's an attempt to revive a once-very-popular name, synonymous with original content, with as little original content as IDG can get away with. Maybe that will change.

Recently someone I hadn’t been in touch with for more than 20 years found me on Facebook and suggested we "reconnect." But if we really wanted to "reconnect," whatever that means, we might have done so at least once during the previous two decades. That’s how I feel about The Standard coming back: it’s too late, its time has passed. The new site should rise or fall on the basis of its own achievement, not on those of an entirely different team a boom and a bust ago.

One Laptop Per Child will succeed even if it "fails"

The way people are dismissing the One Laptop Per Child (OLPC) project this week reminds me of how people were treating Hillary Clinton during the five days between her Iowa defeat and her New Hampshire comeback. To many observers, the inevitable has become the disaster in record time.

Some of the anti-OLPC notes that have appeared since Intel was kicked out of the project have been well-reasoned (read the Economist's near-obituary and Nikolaj Nyholm on Radar) -- but much of the anti-OLPC opining has deteriorated to personal attack on OLPC head Nicholas Negroponte. There are plenty of forces that want OLPC to fail commercially. And, for a variety of reasons, it might.

But what does "fail" mean in the market OLPC is trying to serve? Regardless of whether it's the XO laptop, Intel's Classmate, Pixel Qi, or some other endeavor, it's now far more likely that ultra-low-cost PCs are going to be made available in quantity for a developing world that needs them. (It needs clean water and vaccines more, of course, but it needs inexpensive and efficient IT as well.) And, most important, even if the XO laptop fails in the marketplace, none of this activity -- commercial and otherwise -- would have happened without the breakthrough OLPC project to start it.

P.S. To learn more about the XO laptop's technology, I recommend this post from "Bunnie" Huang. To understand an unexpected example of its utility, see Mike Hendrickson, here on Radar.

Open Source Hardware Enters the Mainstream

A little suggested Sunday morning reading...

We use this space, in part, to discern early signals of oncoming trends, and we're especially gratified when those trends show up in the mainstream. In today's New York Times you can read What This Gadget Does is Up to You (registration required), which covers the Neuros OSD, an intriguing open source media recorder. Not only does it run an open source operating system (it's Linux-based), but all the circuit diagrams for the product are available online. You can change pretty much everything about it -- and it's still useful to self-identified "duffers" such as the Times's Anne Eisenberg, who writes, "Thank you, hackers!"

The Neuros device was also the lead example in the December issue of Release 2.0. In that issue, we consider some of the key questions about open source hardware and look at some of the most important companies in the space, among them Chumby and Instructables, that are harnessing the DIY ethic to create innovative products, services, and activities. (Disclosure: both Chumby and Instructables are also O'Reilly AlphaTech investments.)

You can find out more about Release 2.0, download a sample excerpt from the new issue, and either subscribe (we publish six times a year) or purchase the new issue at http://radar.oreilly.com/r2/.

You can opt out any time you like but you can never leave

Here's a brief follow-up to this week's thread on Facebook, Plaxo, and Scoble. This morning I found several dozen Plaxo notices in my inbox. Enough is enough, I thought, so I followed the instructions to opt out of all future messages from Plaxo. Here's what happened all three times I tried, a few hours apart:

Well, that's one way to keep people from opting out. Even if this is truly a technical error -- and I am willing to believe that -- it doesn't come at a good time for Plaxo. When the blogosphere thinks Facebook holds the high ground in an argument, that's not good news for the other side.

Who will be the next Open Source Public Enemy #1?

During the end-of-the-year break, a traditional time for bad news since fewer people than usual are paying attention, The SCO Group was delisted by NASDAQ. It was the latest bump down for SCO, best-known in recent years for claiming it owned Linux, which lost a major court decision in August and filed for bankruptcy in September. As SCO slides closer to nonexistence -- its website hasn't been updated since we noted this back in November -- it's worth remembering that the company, under CEO Darl McBride, was once not merely relevant but feared. You may remember this cover story from FORTUNE back in May 2004:

The story itself was more sober than the cover shot, but there was a time, not so long ago, when reasonable people were worried about the viability of open source software in business. SCO's many lawsuits, both real and threatened, forced the open source community to reconsider, at the most basic level, how we license open source. SCO didn't gain much from the suit, at least not in the long term (its OTC stock trades between a nickel and a dime per share this week), but its actions did force the open source industry to get more serious (some might argue more professional) about delineating who has the rights to what.

With SCO apparently on the way out and even Microsoft warming up to open source, who will be the new bogeyman to unite the open source movement?

We'll look for your nominations in the comments.

Human vs. Machine: The Great Challenge of Our Time

In an email conversation with Bill Janeway about our upcoming Money:Tech Conference, he said something really profound:

The timeliness of this Conference is NOT only because "web 2.0" technologies and business models have reached critical mass in the financial markets. It is also because, as driven by the web more generally, the frontier between human and machine-decision making has become radically problematic. First, quantitative approaches in trading, pricing, valuation, asset definition vastly expanded the domain for machine decision-making. But then the humans struck back, by refusing to act like the mindless molecules that the models driving machine decison-making required. The self-reflective, behavioral attributes of human market participants is now driving back that frontier, requiring innovations in every aspect of financial market processes, beginning with techniques of risk measurement and risk management. When price is an inverse function of liquidity and liquidity is an inverse function of price certainty, the recursive loop can only be broken by human intervention and action.

I've written quite a bit about "bionic software," the idea that one of the distinguishing characteristics of Web 2.0 is that its applications are a new hybrid of man and machine, driven by algorithmic interpretation of aggregated human activity. Recent turmoil in financial markets show us just how such systems can run amok.

Figuring out the right balance of man and machine is one of the great challenges of our time. We're increasingly building complex systems that involve both, but in what proportion?

Bill Janeway will be talking at the conference with Rick Bookstaber, author of A Demon of Our Own Design. Bookstaber was the head of risk management for Morgan Stanley, and now runs a hedge fund. He argues that the very techniques originally developed to manage risk via computational means have actually increased risk. He asks whether we can put the genie back in the bottle, and whether we can afford not to.

Incidentally, this same issue is playing itself out in the world of Web 2.0 itself, with new search engines, from Jason Calacanis' mahalo to Jimmy Wales' Wikia Search making the argument that a purely algorithmic approach is fundamentally flawed. In response to yesterday's announcement of Wikia Search, Cory Doctorow wrote, in a BoingBoing editorial entitled Wiki-inspired "transparent" search engine:

We have a notion that the traditional search engine algorithm is "neutral" -- that it lacks an editorial bias and simply works to fulfill some mathematical destiny, embodying some Platonic ideal of "relevance." Compare this to an "inorganic" paid search result of the sort that Altavista used to sell.

But ranking algorithms are editorial: they embody the biases, hopes, beliefs and hypotheses of the programmers who write and design them.

Mahalo is placing a bet on human intervention in search results; Wikia Search on the power of making its ranking algorithms open and transparent (a la open source software). But both are trying to re-draw the boundary between human and machine.

For what it's worth, while Google strongly favors a proprietary algorithmic approach (much like hedge funds and Wall Street firms trading for their own account), they also recognize the importance of human intervention. Peter Norvig, formerly the Director of Search Quality at Google and now its Director of Research, pointed out to me that there is a small percentage of Google pages that dramatically demonstrate human intervention by the search quality team. As it turns out, a search for "O'Reilly" produces one of those special pages. Driven by PageRank and other algorithms, my company, O'Reilly Media, used to occupy most of the top spots, with a few for Bill O'Reilly, the conservative pundit. It took human intervention to get O'Reilly Auto Parts, a Fortune-500 company, onto the first page of search results. There's a special split-screen format for cases like this.

One also sees human vs. machine in the battle of search engines such as Google against search-engine spam. When I pinged him about the subject of this post, Peter wrote to me:

I do think you have a good point -- as more money is handled by automated trading systems rather than by human traders, there is a larger risk of chaotic behavior. You are right that there is an analogy to search result manipulation, but I think we search engines actually have an easier problem because we can control the timescale and magnitude at which we make changes, whereas in markets big changes can happen very fast, and the only brake is to close the market...

It's also intriguing to see how humans start to adapt to algorithmic models, learning their deficiencies and gaming the system. Search engine spam is a great case in point. Radar reader Eric Blossom noted recently, in a comment on my post Trading for their own account:

I find myself skipping to the second page or so of the search results list that I get from Google. I do this to avoid the heavy commercial pages that seem less pertinent. Places like Digg also seem to collect pointers to blogs etc. rather than to original sources. I'm clicking more as my eyeballs spin than I used to. Perhaps the golden age of search engines is already over from the user's perspective. They're still useful. Just a bit more painful.

But of course, if more and more people start to act like Eric, that could help to inform Google's algorithms that some of those second page results are actually to be preferred, leading the system to "heal" itself. This would be a positive feedback effect from human reaction to algorithmic misbehavior. But it could go the other way.

One also has to wonder if there could, in the future, be a catastrophic sub-prime-like crash for the Google adwords market. There are more dissimilarities than there are similarities. An Adword is not a derivative. But as I suggested in my original Release 2.0 issue on Web 2.0 and Wall Street, all it would take is a desperate second-tier search engine introducing futures pricing into keyword buys (versus today's real-time auction) to securitize and potentially destabilize this market.

George Soros' comment from the introduction to his book The Open Society is relevant here:

I interpret history as a reflexive process in which the participants' biased decisions interact with a reality that is beyond their comprehension. The interaction can be self-reinforcing or self-correcting. A self-reinforcing process cannot go on forever without running into limits set by reality, but it can go on long enough and far enough to bring about substantial changes in the real world. If and when it becomes unsustainable, it may then set into motion a self-reinforcing process going in the opposite direction. Such boom-bust sequences are clearly observable in financial markets, but their extent, duration, and actual course remain uncertain.

It's probably less valuable to speculate about specific ways that the Web 2.0 economy could go haywire than it is to recognize that financial markets, as large, networked information systems driven by a combination of algorithmic and human activity, may well be canaries in the coal mine for other similar systems (like Web 2.0 applications) as they continue to evolve.

Remember William Gibson's dictum: "The future is here. It's just not evenly distributed yet."