About Me 0118: Making Money on the Internet

Values, Value and Valuation — The money is all relative

Oh how timing sometimes works out to be funny. I was driving home tonight and started thinking about the value of products, the valuation of companies and how the values that a company portrays can change the rest. No sooner had I sat down to write this piece than the news of Goldman Sachs investing $500 million into Facebook broke and refreshed the entire thing in my mind. So let’s look at these three things, and try to see if one manages to sway the rest.

Values

Do you, like me, find yourself more inclined to use or purchase something that comes from a company that you can believe in? The ethos of a company can — for me at least — completely break me away from the product. That very fact, because I feel that I’m likely not alone in my actions (or lack thereof) can have a serious impact on the bottom line of a company.

Look at Facebook, for instance. When the Social Graph was announced and the new privacy changes went into effect, many people threw up their hands in disgust. But many others continued with life as usual, even if a bit annoyed. Why? Because Facebook has this outward appearance of a company that’s simply trying to do cool things, and it needs information in order to do them. The company’s values seem, for the most part, to be in line with the things that we Internet users want. As such, there was a lot more wagging and a lot less barking from the angry dogs crowd.

You’re starting a company? There’s likely something to be said for developing an ethos ahead of time, making it known and then sticking to it. Would Google be where it is today if not for the “don’t be evil” tag line? Even if you don’t fully believe that the company runs that way, you still remember it. Point made.

Value

When value exceeds cost, even by a single cent, the purchase will be made – Grant Cardone

That quote is one that has stuck with me for some time now. A few years ago I was making my living selling cars and it is sometimes exceedingly difficult to overcome the objection of price. In the technology world, we’re constantly being offered products for “free”. The only cost? A bit of information, a slice of our privacy or somethings similar. But then, after using those “free” products, we start to build our own value for them.

Don’t believe me? Just look at some of the things that you likely use every day. Gmail? You’d pay for that. Twitter? You don’t want to admit it, but it’s likely become a valuable asset to your daily Internet life. The same can be said for so many things and yet we get them for “free”. But there’s a down side to this issue as well — it becomes very difficult for a maker to charge for a product when there are free alternatives. Don’t believe that? When was the last time that a box office movie didn’t get a torrent version?

And yet, even as companies try to build value in their products, still others think that the economy allows for them to set their own values and tell us what something is worth. TV networks are probably the most well-known perpetrators of this heresy. Apple TV launched, ABC and Fox decided to jump on board and see what would happen. Some of the rest? They decided that $.99 was devaluing the product and yet as the provider of the product, there is no one entity that is more unqualified to name the value.

Consider it a lesson in business, I suppose. The potential buyer will determine the value of your product. Always.

Valuation

Now here’s a sticky one. Valuation is one of those strange things because it means so many different things to different people. To the potential investors, it’s a measure of how much money can be made. To the business owner it’s a gauge of how well the business has done. To the end user? It’s…honestly not much.

As a case in point, around TNW we love Twitter. We want to see it succeed and we are sure that it will. The valuation continues to climb prior to any IPO and yet, as users of the service, it really doesn’t matter much to us. Sure, it would matter if the site closed its doors, but beyond that there simply isn’t anything about the valuation number that matters.

And so, as an entrepreneur you have to ask yourself where the balance lies. Do your company values allow you to build value in your product? If so, then the chances are that your valuation will end up right where it needs to be. There’s a fair amount of truth in the thought that, if you handle the small stuff, the big stuff will fall into place.

So with that, I offer you a thought going into the new year — start with your values. The rest will fall into place.

Alistair Croll is the co-chair of O’Reilly’s Strata conference, which tackles the convergence of Big Data, ubiquitous computing, and new interfaces. The next Strata event happens in Santa Clara, CA from February 1 to 3.

Karl Marx said that the industrial revolution polarized the world into two groups: those who own the means of production and those who work on them.

Today’s means of production aren’t greasy cogs and steam-spewing engines, but that doesn’t mean they don’t divide us. Industrial data is all around us, and search engines, governments, financial markets, social networks and law enforcement agencies rely on it.

We willingly embrace this “Big Data” world. We share, friend, check in and retweet our every move. We swipe loyalty cards and enter frequent flyer numbers. We leave a growing, and apparently innocent trail of digital breadcrumbs in our wake.

But as we use the Internet for “free,” we have to remember that if we’re not paying for something, we’re not the customer. We are in fact the product being sold — or, more specifically, our data is.

So here’s a tricky question: Who owns all that data?

Why Data Ownership Is Hard

The fundamental problem with data ownership is that bits don’t behave like atoms. For most of human history, our laws have focused on physical assets that couldn’t be duplicated. The old truism “possession is nine-tenths of the law” doesn’t apply in a world where making a million copies, each as good as the original, is nearly effortless.

It’s not just the ability to copy that makes data different, however. How data is used affects its value. If I share a movie with someone, the copyright holder loses a potential sale. On the other hand, they may make money: freely sharing Monty Python videos online increased DVD sales by 23,000%. Some kinds of information were meant to be shared. If I give my phone number to someone, surely it’s gained value. But if it’s written on a bathroom wall, presumably it’s lost some.

It is hard to get data control right, too. In 2009, Burning Man required that Burners give organizers control of any of their images that were shared by a third party. The well-meaning effort to protect unwanted distribution sparked a vigorous debate about what electronic freedom really means. More recently, WikiLeaks has forced us to ask: Do thousands of leaked cables belong to the government, U.S. citizens, WikiLeaks or the newspapers that published them?

Old Laws, New Problems

These questions of data ownership are all nuanced issues, quick to anger and hard to resolve. We’re struggling to cope with them, both legislatively and culturally.

In a number of recent cases, outdated laws are being repurposed and abused, alternately defending and restricting freedom. We’re using ancient wiretapping laws to imprison people who record law enforcement officials. At the same time that reading a spouse’s e-mail is a criminal offense, Google search history is now an admissible form of evidence. And the U.S. attorney general has just subpoenaed the private Twitter messages of a foreign citizen.

Big Data Makes Its Own Gravy

But if data law is confusing, Big Data makes it downright Byzantine. That’s because the act of collecting and analyzing massive amounts of public and private data actually generates more data, which is often as useful as the original information — and belongs to whomever performed the analysis. Put another way: Big Data makes its own gravy.

In August 2006, America Online published a dataset of search results, hoping to provide raw material to researchers. The data had been anonymized, so that each searcher’s identity was just a number. Five days later, The New York Times had tracked down one of those searchers by linking her search history to other public data, such as the phone book.

At big data companies, this kind of thing happens constantly; the companies just aren’t ignorant enough to do it in public. Since 2006, our willingness to share data has risen dramatically. So has companies’ ability to mine it for new insights, and not always in ways we’d approve of. Consider the Netflix Prize, awarded for figuring out how to use our film preferences to suggest other movies. That kind of power could also be used for an “Insurance Challenge” that turns our online behavior into actuarial tables that dictate premiums and deny some of us coverage.

The Rise of the Data Marketplace

For decades, lawyers and traders have relied on companies like Thomson Reuters for the latest stock and legal news. Now startups like Gnip, Infochimps, Windows Azure DataMarket, Factual, and Datamarketplace (acquired by Infochimps) are making data easier to acquire and massage. These data marketplaces seldom create new data; rather, they clean it up, ensuring it’s current, and connecting buyers and suppliers. Their value comes not from the data, but from making it usable and accessible.

These data marketplaces can teach us an important lesson about data ownership. Ultimately, the question of who owns information is a red herring.

It’s Not Really About Who Owns the Data/>

Thirty years ago, Stewart Brand observed that, “On the one hand information wants to be expensive, because it’s so valuable. The right information in the right place just changes your life. On the other hand, information wants to be free, because the cost of getting it out is getting lower and lower all the time.”

Data will leak out, as it always does, despite the best efforts of hardware companies. It’ll be around forever, even if we try to impose a statute of limitations on it. And we’ll find new ways analyze it, making still more data. Yesterday’s online chaff may be the cornerstone of tomorrow’s new startup.

The important question isn’t who owns the data. Ultimately, we all do. A better question is, who owns the means of analysis? Because that’s how, as Brand suggests, you get the right information in the right place. The digital divide isn’t about who owns data — it’s about who can put that data to work.

More Data Resources from Mashable:

- Open Data: Why the Crowd Can Be Your Best Analytics Tool /> - 5 Predictions for Online Data in 2011 /> - How a Physically Aware Internet Will Change the World /> - What You Need To Know About Data Portability /> - How Online Retailers Can Leverage Facebook’s Open Graph

Image courtesy of iStockphoto, fpm, grybaz

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Thursday, January 13, 2011

Making Money on the Internet