Access to a world of cross-referenced historical data dramatically improves the journalist’s ability to put events in perspective, quickly and accurately. Consider the ambitious journalistic project initiated by the New York Times last Spring: titled Remade America, this seven parts series examines how immigration is reshaping the country. The treatment relied on databases like this “Immigration Explorer” interactive map displaying demographic changes, over a century (1880-2000), for each of the 3140 counties that (now) constitute the country.The project required the aggregation of huge amounts of data coming from many sources, one of them being the Social Explorer that proposes 15.000 interactive maps reconstructed from publicly available data:

Here are other examples that demonstrate the newsworthiness of well processed data.

This map  shows the structure of the US workforce, by country of origins, skills, etc.:

This one, produced by the Associated Press, shows the evolution of the US economy’s “stress index” based on the combination of unemployment, foreclosures and bankruptcy for each county (note the 27% unemployment rate in the highlighted region):

Or this view of the spectacular degradation of the credit market in the US:

Or even this city map of New York: for each neighborhood, it displays the evolution of crime over the years:

For more infographic resources (galleries, books, links), go to Nicolas Rapp’s website, he is the art director for Associated Press.

This is just the beginning. A massive shift towards making publicly available as much data as possible is under way. Many countries are heading in that direction — at a different pace, though. For the most part, it depends upon who’s in office and their (real as opposed to campaigned with) priorities. The US are determined to push hard in that direction thanks to their techno-savvy president. Earlier this month, the new administration’s recently appointed Chief Information Officer launched Data.gov, which will be the main repository for all public databases. In a Wired interview, Vivek Kundra, Obama’s CIO (age: 34), explains how he started the project, which datasets are his priority, and how to convince reluctant branches of the government to actually release their stats. Healthcare, energy and education are obviously on the top of the agenda.
This is not an easy task. Just remember the heated criticism the Clinton administration faced when it decided to open the Global Positioning System which is operated by the US Air Force. At first, the Pentagon was quite upset. Now GPS devices and GPS-related data are part of everyone’s life.

As for now, hundreds of feeds are already available — and practical. No need to be a statistician to understand what a dataset is about. Most have several levels of complexity, depending on what you intend to do, a simple graph or a more complicated dissection of facts. Currently, subjects include serious stuff such as socio-economic data, but also more diverse topics such as Airline On-Time Performances and Causes of Flight Delays, all accessible in ways that allow multiple treatments. Weirder, you can access a complete catalogue (1000+ items) of every space Shuttle collision with minuscule orbital debris, with the size of the crater and the estimated velocity of the object. Sounds eccentric, until someone will have to produce a story with it.

Vivek Kundra expects everyone — and at the forefront, the newsmedia — to take advantage of this initiative for the public’s benefit: “The key is recognizing that we don’t have a monopoly on good ideas and that the federal government doesn’t have infinite resources. (…) Democratizing data enables comparative analysis of the services the government provides and the investments it makes, leading to a better government”, he said to Wired.

Will such initiative save journalism ? Certainly not. Will it empower it? Undoubtedly. As an example, consider how such editorial tools would have impacted major stories, ranging from the Los Angeles riots of 1992 to the Paris unrest of december 2005. All of a sudden, every structural imbalances afflicting a city or a region, involving social ghettos, racial divides, educational failures, poverty, health issues, public and private expenditures, could be exposed in a compelling, understandable way. Data treatment raises the objectivity of a story; instead of — or in addition to — a piece about the economic context of an event, based on interviews with their human limitations, a clever presentation of raw data can be a great tool to offer facts in a unbiased way.
There is one condition, though, to make good use of this ocean of raw data: training. I’m suggesting young journalists will greatly benefit from being technically trained. (Coincidentally, a young French-Portuguese journalist named David Castello-Lopes who gave me insights about data-driven journalism, spent a year in Berkeley learning the tech trade; when he came back this month, he found a job on a TV network almost right away).

What about monetization? Well, first of all, there are already many private entities who make a nice living processing public data. Why not the newsmedia? Take the education market: Why not having editorial products, designed by professional journalists, capitalizing on powerful label such as Le Monde, VG or The Guardian to address this audience with well designed products, in print or online? Think about students, how they could use this new knowledge with their laptops or iPhones. This market is up for grabs. And medias are well positioned to enter it. (Or someone else will.)  –FF

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My money is on HTML 5, co-opted and promoted by Google and Apple.

First, do we really care about standards? Does it matter that YouTube uses Flash or H.264, that Microsoft is trying to promote Silverlight or that Apple, more prominently, and Google, less vocally, are pushing an open standard called HTML 5?

The answer comes in two parts: we need standards like trains need a single track width across the network, first, and, second, standards are often abused, made into a way to pick pockets.
There is no charge for a train track width standard, but a license fee is required for building cell phones using the CDMA standard. (I won’t go again over well-covered ground, over the history of Windows, Office and Wintel.) The secret, there, is to create critical mass for a way to do something, for said manner to become a standard. Then, you charge for the right to use the method itself or, less directly, for something needed to benefit from it.
For example, if Microsoft manages to make Silverlight a or the Web video/multimedia standard, good things will happen and bad ones will be avoided – from Microsoft’s perspective, that is.

Let’s pause for a moment and look at HTML and browsers. (Experts readers, a.k.a geeks and nerds, ought to avert their eyes.) HTML stands for Hypertext Markup Language.  The “markup” part stems from the days of physical paper, it is a way to describe a page. Here we have a paragraph, we use this font, this size, this color, some text, end of paragraph. Here we put a picture, and so on.
The “hypertext” is the real killer, Tim Berners-Lee’s invention,  with a reference to Ted Nelson’s Project Xanadu.
The deceptively simple idea uses the Web addressing system to create Universal Resource Locators, URL, such as http: //www.example.com/topics/recipe_for_pain_perdu.
Once you have URLs, you create links to other pages, to anywhere, anything on the Web. This yields the explosion of knowledge, entertainment (and money…) still going on today.
Completing the picture, so to speak, we have the browser, a computer program that interprets (renders is the tech term) HTML statements and displays text, pictures on our screen.
Things get really interesting, here, because there was no despot enforcing anything, on the one hand, and HTML lacked descriptive power, on the other hand. Extensions flourished out of the need for animations, video, e-mail add-ons… The extensions are often called plug-ins. The absence of a dictator allowed competing and sometimes conflicting extensions to flourish and several HTML interpreters to appear.
In the meantime, the W3C consortium, a standard body with great moral authority but no enforcement powers, worked on successive versions of HTML, struggling to cope with the explosion of creativity and greed, trying to avoid the babelization of the Web, or another Microsoft takeover.
The latter, as we know, took place when Microsoft made their browser the de facto standard by virtue, if that’s the right word, of tying it to Windows. The main competitor, Netscape’s Navigator, died; others such as Opera struggled to stay alive.
But, less than a decade later, Navigator is reborn as Firefox from the Mozilla foundation, Google is developing its Chrome browser and Apple ships Safari, a strictly standards compliant browser, according to the well-known Acid test. These browsers, Apple’s included, work or will work on Windows and Macs; most also work on Linux.

Returning to Silverlight, the good things Microsoft wants to make happen are rich, fast, reliable multimedia content on Windows. More specifically, we all believe we’ll watch more and more video on our PC (and smartphones). Microsoft wants to make sure “everything” runs and runs well on Windows. If “everything” is encoded using the Silverlight standard, Microsoft doesn’t run the risk losing control of video on the Web, of inferior performance on their platform because they lack the inside knowledge they enjoyed with Explorer running on Windows.
And, to better control the platform and make a few bucks in the process, they sell their Visual Studio tools, largely regarded as the best in the business.

Moving to Adobe, they have Flash, the multimedia platform they acquired with Macromedia. Their pitch is the same as Microsoft’s, just search and replace Silverlight with Adobe Air. Develop the next generation of Web applications using Air, generating mixed mode Cloud/Desktop applications. By mixed mode I mean applications that will keep working, albeit with some features missing, when the Internet connection is absent.
For their platform, Adobe offers showcases such Photoshop Express, making a good pitch for Air’s expressive power. Just as Microsoft does, Adobe wants to stay on top of the next generation: rich media, video developments for the Web. Adobe also expects licensing and tools revenues. But the most important motivation is fear of becoming a second fiddle, of letting others do to it what they, Adobe, want to do to others.

We now turn to Apple, commonly labeled as the proprietary company, for its ferocious protection of its OS. Yet, for its browser, Apple claims compliance to W3C standards. And, for video, it promotes the use of HTML 5, this in apparent concert with Google.
Why?
In part, this is because HTML 5 provides the improved expressive power, security and storage required for modern Web applications. In other words, Apple and Google believe HTML 5 works for them.
Just as important, this is freedom from games (supposedly) played by Adobe and Microsoft. In addition, HTML 5 allegedly consumes fewer hardware resources. For Apple, this supports video on their smartphones, their most important business now, without having to use Flash, deemed too power-hungry for current iPhones – they use H.264, instead. (Keen observers have noticed the occasional warning on Macs regarding the slowdown apparently caused by the Flash browser plug-in…)
Google is of a similar mind, for their Chrome browser, for their huge amount of video content on YouTube and their Android platform.
Neither company plans development tools revenue. And Apple is only interested in making money through hardware, everything else being a means to that end, from Mac OS X to iTune and the App Store or iLife applications. (The company charges for expensive applications with a narrower “pro” market such as Final Cut. Why it charges for more mainstream fare such as iWork is a puzzle.)

Where does all this leave us?

If I had to make a bet, I’d say HTML 5 wins a larger portion of Web video implementations, that is without Adobe or Microsoft plug-ins. Google and Apple’s smartphones will provide much momentum for “more standard” (note the irony) implementations.
Silverlight is a capable platform from a capable and determined company, one that isn’t giving up easily. But, as smartphones become the next PC, Microsoft’s dominance of the “old” version might not translate to the new truly personal genre.
As for Adobe, I’m not sure their good product, a modern descendant of their successful Flash, will assume anything but an also-ran position. –JLG
–
Bonus feature, as I referred to nerds above: see Obama as the first nerd president. A fun talk (written and delivered) by John Hodgman, the PC in Apple’s commercials.
–

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The key figures:

• 39 million accounts, including :
• 25,4 million active blogs with 33,000 new blogs added every day
• 16 million individual profiles with 35,000 added every day (there is a small overlap between the two categories)
• This online population has created more than 650 billion articles, loaded 580 million pictures and 37 million videos.
• French monthly traffic is 8 million unique visitors (Nielsen), versus 13 million for Facebook
• But Skyrock gets about half of its traffic from abroad: worldwide, its audience amounts to 23 million UV (ComScore). As a comparison, Facebook logs 275 million UV worldwide, approximately 100 million in Europe and 70 million in the US (ComScore).

Now let’s look at the money side. Unlike Facebook, Skyrock is a profitable company. Last year, Skyrock as a group made €38m in revenue; half coming from its radio operations, and half from the internet; with an ebitda of about €7m for the group and €5-6m for the internet alone (last year was not great for radio advertising). Even better, Skyrock doesn’t seem to be affected by the worst year in internet history: its internet operations revenue is up 42% for the first half of 2009 versus the same period last year (the radio side is up 22%). These numbers make its owners happy. The group is a privately held company owned by the private equity arm of French insurer Axa (for 70%) and by the founder and CEO Pierre Bellanger (30%); being blissfully private, it doesn’t release financials. Most of the data mentioned here come from interviews conducted with Pierre Bellanger and his staff in recent weeks.

How can Skyrock thrive in such devastated online environment ?

The short answer is: by adapting its relationships, both to its customers and to the advertising community. For a blog platform or social network, page views are measured in billions per month. Nielsen gives Skyrock 1.2bn page views, Comscore 4.4bn, both for the French market, and 5.6bn worldwide. Nielsen grossly underestimates young audiences, it ignores people with only a cellphone subscription; such disregard explains the discrepancies between Nielsen and Comscore measurements. Until recently, the obvious business model was capitalizing on this huge traffic by selling advertisers audiences with inexpensive CPM (Cost per Thousand). Then, two problems arose: CPM became structurally cheaper as global inventories kept growing, and the financial crisis relentlessly pushed prices further down. For Skyrock, as for everybody else, it was time to update the model.

In marketing parlance, the main idea is to have members of a community participate in the advertising experience and to involve the brand well beyond the traditional sales pitch mechanics. The result was dozens of special mini sites, each dedicated to a single marketing operation, designed for a specific purpose, for a limited time. A couple of examples will help clarify. The first one is a traditional “tough sell” in French media: the Army. The Army wants to improve its image and to increase enrollment rates. To do this, the Skyrock’s commercial team proposed a complete web program built on a Reality TV show concept where a candidate borrows someone’s life for a period of time. Here, the idea was to take young guys — preferably not fans of the military — and to transfer them into an army environment. The program was called “Full Immersion”. A complete online casting operation was set up within the mini-site. Selected candidates joined their unit for the usual training, while a camera crew was followed the temp-recruits. It was quite a success, generating lots of traffic, with people following the candidates’ fortunes and misfortunes, as in a TV series, all told in a fairly authentic and human way (there is no forgiveness for fakery in such a setting). The Army was happy with the results (they measured it, of course), so much so the Navy now wants to follow suit. A broadcast TV network even bought rights to a short reality show.

In the last year, Skyrock has run about eighty similar operations. Banks, for example, are eager to capture the nascent savings of the youth; some financial institutions will assign most of their investment targeting the 18-25 year-olds to Skyrock (combining its FM radio and internet networks). Consumer brands like to propagate their products in viral ways, for instance through user-generated emails; such messages will eventually reveal themselves as sponsored. The film industry joined the fray with studios providing bonus, exclusive material on new releases with the intent of triggering buzz, conversations, links… “On movies”, explains Pierre Bellanger, “speed is key. The buzz has to be spread as fast as possible after the film’s release. Quickly amplifying the world of mouth is essential. Not only we are able to tell a film distributor ‘we can serve  you 200,000 people aged 18-25 in region X’, but we can do that in two hours”.
The fabric of a social network helps: more than data-mining its 40 million members, Skyrock wants to capitalize on actual links, relationships, affinities: if Zoe happens to click on an ad, the banner will be served to all her friends; this, in itself, dramatically increases the likelihood of a click on the ad, and therefore accelerates the spread of a message.

Needless to say, Skyrock makes a great deal of money in such operations. Cash comes from three different sources: the design of marketing campaigns, billing for the duration of the operation (forget about depleted CPM , “Sky” is charging by the day), and charging for technical services. With 150 people working on its internet operations, Skyrock can produce sophisticated sites swiftly and inexpensively. And when developing a new application is required, it is often supported by a client. I can’t think of a better system in our industry.

As expected, advertising agencies are looking at the Skyrock model with a mixture of concern and hostility. Weighed down by their massive overhead and lavish lifestyle, big firms find hard to compete with Skyrock’s swift-boat tactics… which discreetly jubilates when eating their lunch. Wisely enough, Skyrock treats big media buying agencies differently, they are closely associated to each special operation. Since it talks directly to the brands, Skyrock could, in theory, bypass media buyers, but it would expose itself to retaliation in other parts of its business. It’s OK to cause some to go a bit hungry for a while, but, in the end, a certain balance must be preserved in the food chain….

What’s next for Skyrock.com? Last week it put all its special advertising unit under a new umbrella called Springbird. The goal is to send the market a message about its new revenue model, one that shifts from classical, “one-size-fits-all” marketing campaigns to tailored-made operations.
The next big step involves mobile communication. The network plans to launch an experiment in cellphone-based coupons. User involvement in the marketing operation results in sending a coupon to his/her cellphone. The coupon is a barcode image to be redeemed in a supermarket chain, for instance. Teenagers are good targets: you have to spend an hour with Sky’s marketing team to get an idea of what your teenage kids are willing to enjoy. Fascinating, and a bit chilling…

The private equity market closely monitors Skyrock’s evolution. Late 2007, Yahoo! Inc. had agreed to buy Skyrock’s internet operations for almost $300 million. But the deal collapsed when Microsoft declared its intention to acquire Yahoo!. In themselves, Skyrock’s internet operations were valued at three to four times the entire company when, in March 2006, Axa Private Equity jumped in.  Since then, even in the current downturn, Skyrock’s valuation has been holding well. It is recent analysis tilted Modeling the True Value of Social Networks, TechCrunch prices Skyrock at $589m. Such number is based on Facebook’s most recent valuation. Even if this figure is inflated by a couple of hundred million, Skyrock is a nice business. With time is on its side. —FF

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The joke comes to mind as I watch Steve Jobs introduce the iPhone on stage at San Francisco’s MacWorld Expo, on January 9th, 2007.
It is too good to be true, especially the part about running OS X. The demo looks magical, as with most of Steve’s acts. The iPhone looks like one shocking product. But is it real? Nothing specifically aimed at the demonstrator, I’ve seen – and given – too many demos, it’s a sinner speaking.

Six months later, I’m relieved. The first iPhones ship, enterprising programmers manage to inspect the firmware’s insides and, yes, it is OS X. A trimmed-down version, of course, but the core of the iPhone’s software engine is the genuine article.

But it’s not all roses. The iPhone misses obvious features such as Cut-and-Paste, accented characters; the browser crashes; there are no third-party applications; the connection to Microsoft Exchange is problematic, and so on.
OS X is modified to run on a slower 400 MHz ARM processor, compare with the 2GHz Intel CPU in a low-end Mac, 256Mb of RAM, vs. at least 1Gb on any PC — the result feels shoehorned. Having worked inside a couple of sausage factories in  earlier lives, I imagine the engineers’ frantic weeks before the June 30th ship date. (Actually, Apple lore says the most frenzied days happened around Christmas 2006, right before the January 2007 MacWorld announcement. The peak of tension took place backstage, during Steve’s demo: the individuals most involved with what went into the sausage had the hardest of times.)

But, if the iPhone missed so many “must-have” features, how come it sold so well so quickly?
That’s an interesting question and reasonable answer(s) could explain why so many industry pundits and competitors misjudged the iPhone phenomenon. (Obviously, I’m guilty of another sin, here: predicting yesterday’s weather. And to add to my rap sheet, I once thought Apple was wrong coming out with “another” MP3 player and I initially dismissed the Apple stores as a bad move: you don’t compete with your retailers. I now thoroughly enjoy both “mistakes”…)

First possible answer: marketing hype. Yes, the power of Steve’s Reality Distortion Field is legendary, and rightly so. It worked on AT&T’s CEO: he signed on the iPhone deal without ever seeing a prototype. We’re grateful for that feat, for Apple controlling their newborn’s future instead of letting the carrier decide, with the well-known freedom-enhancing results.
But you can’t fool consumers for long, ask Detroit. Word-of-mouth is still the most powerful promotion tool for consumer products. All the publicity around the iPhone’s launch wouldn’t prevent unhappy iPhone users from going on Internet forums and blogs and telling everyone they’d been had. Instead, early iPhone adopters raved. Which leads us to another possibility or two.

One such solution is iTunes, the component I didn’t see at first when I only focused on the iPod as a device, as opposed to a part of a system, all right, an ecosystem as the 5 billion songs, podcasts and videos have proved. The proverbial light bulb went off when I took my first iPhone home in July 2007. First, the activation worked through iTunes, not perfectly, it took a couple of attempts, but activating a phone without the phone carrier’s “store experience” was a novel pleasure. Even more important, iTunes provided a truly seamless backup and software update experience, the power and quality of which is still unparalleled. While I felt the iPhone was a glorious hack, I also pictured how Apple would provide fixes and upgrades. We know what happened. None of the other smartphones I’ve owned (or still own) provide their customers with such a path out of trouble and into new features. (We’ll see if such an advantage lasts, I haven’t been able to buy a Palm Pre yet. I suspect reproducing the whole iTunes ecosystem won’t be so easy. But, sometimes, good enough is great.)

Another factor was/is the browsing experience. There was mobile browsing before the iPhone, annoying, crippled and there was, for the first time, a device that rendered most Web pages, with a touch interface for scrolling, panning and zooming.

Which leads us to the general factor of style and user interface. No hack, no shoehorning there, the iPhone looked like a finished product, another one from the maker of well-loved iPods. Jobs actually introduced the iPhone as the iPod of phones, it looked exactly like that, slick, minimalist and yet highly functional.

Enough, we get the point: the pluses overwhelm the minuses. And the march of fixes and updates starts, proving the early adopters right and yielding the highest rates in consumer satisfaction surveys.

Regarding third party applications, at launch time, the official line is: Web 2.0 apps, they’re grrrreat! Everything in the cloud, that’s the way of the future. You don’t need “native” apps, programs running on the iPhone. There isn’t and won’t be an iPhone SDK (Software Development Kit). Behind the propagandastaffel’s raised chins and stiff upper lips there was a reality: the iPhone was “in progress”, that is not quite finished. A gloriously loved, highly successful hack, but a hack nonetheless. Which is no criticism, au contraire, it is high praise for the high-wire act.

Come November 2007, never mind what we said about Web 2.0 apps, behold the iPhone SDK, shipping next February. Perhaps Google’s Android helped, it was coming with both Cloud and native apps, perhaps it was planned all along, but not a word of the App Store, yet.
Another death march starts: the first milestone is the initial release of the SDK, the end goal being a major OS release to support the native apps written using the SDK.
Early March 2008, the SDK ships and Apple reveals the App Store, a simple but profound iTunes extension. Consider this: a song is a string of zeroes and ones, it lands in a directory (a place) inside the iPhone which knows what to do with strings at that location; a native app is merely another binary string, the difference from a song is the place, the directory where it lands telling the system what to do with it. (A slight oversimplification.) For iTunes, that’s it, the infrastructure is there already, nothing new to build in order to download, charge for and update the new native apps. For its services, Apple charges a mere 30% of the app price.

Programmers love it, especially Mac programmers as the SDK, incomplete as it is in its early release, is very Mac-like, powerful, flexible. But what really takes the cake is the App store, a simple, affordable sales an marketing channel with a fullu-debugged technical and micro-payment machine.

In July 2008, Apple introduces a new iPhone running on the “even faster” AT&T 3G wireless network and the new OS, the iTunes App Store and the MobileMe service. The markitecture name for the new iPhone OS is 2.0, in reality it’s more like 0.8 as basic features such as Copy/Paste are absent and MobileMe, initially touted as Exchange for The Rest of Us, needs more work.

Again, not a problem, the release of the App Store and a torrent of new native apps overwhelm shortcomings, and rightly so. Suddenly, “veteran” competitors such as Windows Mobile or Symbian look old. RIM, the maker of the Blackberry, keeps doing well because its product is so well implemented for its enterprise customers, for its mail/calendar/contacts use, for its unbeaten integration and synch with Exchange. On this very set of features, the iPhone makes substantial progress but the Blackberry remains the reigning champion.

Months go by, the App Store surprises everyone, Apple included, reaching one billion downloads in the Spring of 2009. Behind the scenes, fixes and improvements are added to the iPhone OS, MobileMe becomes nicely functional, providing a good way for happy iPhone users to synch their mail/calendar/contacts if they don’t use Exchange.

On a personal note, I witness an amusing example of Microsoft’s changing (waning) competitive advantage. Our firm decides to update its Exchange server to the “2007” version. (I failed to convince my partners to get a hosted Exchange server instead of boxes in our office…)
Everything stops working at once: Blackberries, Outlook and Entourage (Microsoft’s lame version of Outlook for Macs). Everything but my iPhone. It kept syncing my Exchange mail, contacts and calendar, untroubled through the transition, the only device not running Microsoft bits. For Entourage, the solution was provided by the tech support people at Intermedia.net where I host the Gassée family Exchange server: delete your Exchange account on Entourage and recreate the exact same one. Indeed, everything reloads after a while, about one hour to repopulate the local cache, and works without further ado. Why just zap and recreate the account? We don’t know but it works…
In the meantime, the first Android phone ships, I buy one and, as reported here, find it interesting but not ready for big time. We’ll hear more from Android as Google isn’t devoid of money, imagination, good engineers and a strong motivation to promote its services on mobile devices without being beholden to a maker or carrier.

Finally, almost, Apple announces a new version of the OS, called 3.0, one that provides the last missing pieces. If you’re really, really into details, iPhone User Guide (not affiliated with Apple) provides a compilation of the more than 100 improvements found in the new version.
From landscape email composition to searching the contents of the entire iPhone, locating or even zapping the contents of a lost phone, nice details all over, including a surprisingly well done Cut-and-Paste. Surprising because the touch interface, combined with big fingers presents challenges to a fine-grained definition of what to copy from a Web page with tiny characters. Yet, it works well, makes the user feel competent.
That is why I call the latest release 1.0, the complete one, with a tip of the hat to the engineers who, in less than two years, moved the OS from a painfully trimmed down port of OS X to a tiny ARM platform, creating a polished new user interface in the process. And giving birth to a new applications ecosystem, an unforeseen outgrowth of the iTunes platform.

Understandably, the advent of the “finished” (as if software were ever so) iPhone OS, combined with a new, more capable iPhone, isn’t viewed as momentous as last year’s introduction of the App Store. But, in my opinion, now is when things start getting even more interesting. With the “1.0” work now done, Apple is no longer catching up with a promise, plugging holes in the product. It will be fun to watch where the company now directs its engineering efforts: hardware variants, probably, although we shouldn’t hold out for a clamshell iPhone with a hardware keyboard; other carriers, more likely; a second video camera for mobile conferencing, we can hope; a bigger screen a.k.a a tablet, perhaps; but, unlike the iPod family, no iPhone nano, I don’t quite see fat fingers on a smaller screen making users drool.
Lastly, we hear more good news: Steve Jobs is indeed coming back. —JLG

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The idea for this column came to me last March; I was flying back from Stockholm. Schibsted, the Norwegian media group I work for, had asked me to be part of the jury for its yearly Schibsted Journalism Award. I was both honored and curious to be part of such a delicate process. The group’s publications, in Scandinavia and abroad, submitted entries in several categories: best storytelling, best innovative entry, best scoop. Altogether, 27 entries were compiled in a hefty kit sent by Fedex to each member of the jury; the kit included a couple of binders — facsimile of original pages, translation in English, CDs, memory stick, etc. Serious work. Then, we gathered in Stockholm to select the nominees and the winners.

Of course I’m bound to secrecy, I’m not going to be specific about the discussions.  But I feel an urge to write about the event because I was surprised by the level of journalistic ambition demonstrated by many of the entries. Among them were several investigative pieces: a bribery scandal in Russia, a huge Bank fraud in Norway, or revelations of a hidden part of Norwegian war history, just to name a few. We were faced with difficult choices — happily.  On my way back to Paris, I thought this was the perfect illustration of how, true, genuine journalism differentiates itself from blogs — even good ones, simply because news organization will invest time and money in the genuine article, so to speak.

To make my point, I’ll just focus on the cost, yes, in euros or dollars, of such journalism. It could sound like a trivial way to assess editorial performance but I believe money remains a much-needed fuel for good journalism.

One of the nominees for the Schibsted Journalism Award featured amazing reporting by the Swedish daily Aftonbladet titled Do we dare to get old in Sweden (see the story and video here).  It led to a series of in-depth reports about the failing care system for the elderly. Tips, letters, calls to the newsroom triggered an ambitious journalistic project. The job involved in-depth research on the root of the problem and an undercover operation in which a 28 years-old reporter transformed herself into an 82 years-old lady (see below) using professional movie make-up. In total, about 100 people were interviewed for this story, 20 cases of outrageous shortcomings in the public care system were unveiled. Needless to say, it became a national issue in Sweden.

How much did it cost, roughly? Well, Maria Trägard, project manager at Aftonbladet, sent me manpower data. Altogether, a team of 10 people were involved: 3 reporters, 3 photographers, a project manager, 3 journalists from the web, plus an assistant editor-in-chief. The cumulated workload totaled 4 months-persons: the senior reporter, Monica Gunne, took most it by working full time for two months doing research, field work, and writing.  Starting with the manpower data, there are many ways to estimate the project’s total cost. In France, the “loaded” cost of a journalist (social taxes and office expenses included) is about 70,000 euros ($98,000) per year. This translates into €23,000 ($32,000), just in manpower costs for the Aftonbladet investigative piece. We can add technical expenses (for example, the make-up artist required to age the young reporter cost about 4000 euros). To sum up, by most European standards, the Getting old in Sweden story might have cost the paper about €30,000 ($42,000). Now, if you base the estimate on the loaded cost figures of a newsroom such as the New York Times’, the tab would have run above €35,000 ($50,000).

In short, you can expect to spend around  €30k and €40k for prize winning grade investigative piece. As a result, such a project must be planned like a military operation — not all newsrooms know to manage this.

Does this kind of effort pays for itself ? Thanks for asking, that’s a dumb great question. Of course, you can monitor the Aftonbladet’s increase in copy sales as the scandal unfolds. Speaking of revenue, what about tying the price of advertising to the uniqueness of the editorial content? Such long-planned investigations could justify a rise in ad rates. TV has been doing this for a long time. When I mention “dynamic pricing structure” for print advertising to French business people, they invariably roll their eyes, preferring the cozy metrics of how many appointments their sales people are able to harvest.
It is pointless, then, to run a precise analysis of the great story’s impact on Aftonbladet’s revenue numbers. We simply must consider that such journalistic achievement is part of Aftonbladet’s very fabric, a component of its image and stature. This works for the reader’s mind and for the advertising community as well: advertisers are more willing to entrust their clients’ image to a rewarding environment. (This also shows why it is critical to have, once in a while, editorial people pitching their trade to the ad guys).

Investigative reporting isn’t, by far, the only category able to draw a lot of attention. Looking at the 2009 Pulitzer Prize winners list for 2009, I spotted this:

… and I called Bill Adair, the St. Petersburg Times Washington Bureau Chief and editor of PolitiFact. “A year or so before the Presidential campaign, we were looking for new ideas”, he explained. “We had in mind something that happened during the 2004 Republican National Convention”. In his keynote address, Senator Zell Miller criticized John Kerry’s Senate voting record, claiming the Democratic nominee was weak on defense. It was big deal then since Miller was himself a renegade Democrat who chose to support George W. Bush. “Miller’s assertions were completely false, but none of us in the media actually fact-checked it. (…). PolitiFact is a kind of redemption for past mistakes”, jokes Bill Adair. It works as follow: each day, the  staff (5-6 full time, plus occasional contributors from the St Petersburg Times) picks about three subjects a day, using one criteria: “he/she said this”. They fact check the statement, eventually rated using the Truth-O-Meter’s five grades, from good to (really) bad :

Each time, a thorough article documents the fact-checking process and explains the rating. The site is brilliantly executed: the database, now close to a thousand facts, allows multiple indexing by subjects, people, and, of course level of truthfulness. As expected, I searched “Obama/Pants on fire” label; it’s here
and its quite interesting to read, especially to French viewers, since a widely quoted part of the interview given by Barack Obama to the French TV Network Canal+ about he Muslims turned out to be completely bogus (and unnoticed).

Below is a video in which Bill Adair explains how PolitiFact is fact-checking informations.

I see bean counters whispering: 3 stories a day for a staff of 5? Isn’t there any some productivity issue here? I don’t think so. Checking the accuracy of facts, quotes, figures can be extremely time consuming. Sometimes, reporters of PolitiFact will spend hours in research that will end up nowhere, simply because the information is unverifiable. How much the St Petersburg Times spent to win its Pulitzer prize ? Probably between $0.6 and $1m a year. Bill Adair was vague on financial facts.  The SPT is owned by the Poynter Institute, a famous journalism school; as a privately held non-profit institution, it doesn’t disclose any financial information.

As with Aftonbladet, the Swedish paper, it’s impossible to measure the SPT’s PolitiFact economic impact. But Bill Adair and his staff undoubtedly created a new journalistic genre: treating the political news cycle simply according to a true/false rating system supported by thorough journalistic research. PolitiFact is considering an extension to other news categories, such as local news at the state level. (The concept can actually apply to many areas…)

What makes the value of PolitiFact — and of its Pulitzer Prize — is precisely its focus on small but high quality output. That’s the opposite of the dominant part of the internet culture where many sites tends to publish first and check later (on their best days). Performance is measured by the level of controversy created more than by the information value.  In physics, it is called the signal-to-noise ratio; it compares the level of a desired signal (in that case: genuine journalism) to the level of background noise that tends to corrupt the signal. — FF

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AT&T can’t seem to catch a break. A couple of weeks ago, at All Things Digital, an industry conference, Randall Stephenson, AT&T’s Chairman, got the audience to snicker and roll eyes. The conference is held by the Wall Street Journal, led by its digital guru, Walt Mossberg and, “by invitation only”, $5K a pop, gathers movers, shakers and wannabes of what is now broadly called the digital media industry.
Mr. Stephenson was on stage, answering Walt Mossberg apparently softball questions. But, when you look more closely, Walt applies a trial attorney’s precept: Only ask questions for which you already know the answers, let the jury see how the witness responds. We were the jury as Walt asked the AT&T top dog about its wireless network performance problems. The witness got off to a decent start: “Yes, when the iPhone 3G came out we weren’t ready.” Then, he proceeded to claim things had significantly improved. That’s when the snickering started. In Silicon Valley, we all know the blank spots, the bad 3G coverage, right in the heart of high-tech’s garment district. See the full interview here.

Later, Stephenson committed a faux pas of Detroit proportions: he claimed everything (phone, Internet connection, TV) worked well when he moved to his new home in Texas. Really? AT&T’s Chairman, CEO and President gets a good connection? In a further misguided attempt to connect with his audience, he even mentioned his Apple TV. Clearly, he’s one of us, a discerning Apple customer…
By sheer coincidence, the very same morning, AT&T had announced the HSPA (High Speed Packet Access)
upgrade for its wireless network, twice the current speed, 7.2 Mbps. More snickering as no one had ever seen the promised 3G speed and as the HSPA deployment dates were vague. More on that in a moment.
Queried about the iPhone exclusivity, Randal Stephenson pronounced himself very happy, quoting a $100 ARPU (Average Revenue Per User) for iPhones.

That number got me thinking and googling. Looking through AT&T’s latest filings,

I found the company’s wireless ARPU to be $50.80. I whipped a quick spreadsheet to try and estimate the proportion of iPhones in the 78 million subscribers, and to extract the difference between non-iPhone ARPUs and the $100 for iPhones. In other words, I wanted to know how much extra (not total) money AT&T made from an iPhone subscriber. That number isn’t $100 minus $50.80 because the latter number averages all subscriptions, iPhones included.
With 15 million iPhones, the extra ARPU is close to $61. With 10 million iPhones, the numbers is $56. (For reference, Apple says it shipped over 40 million iPhones and iPod Touches – worldwide.)
Using a conservative 10 million iPhones and a $55 ARPU bonus, one could say AT&T makes an extra $6.8bn (billions) per year compared to what 10 million average phones bring. How much of those $6.8bn AT&T ships back to Apple isn’t known,  carefully obscured on both companies’ regulatory filings.

This gets us to more snickering and worse.

Two weeks after the Mossberg interview, Apple announced its new iPhone 3G S. The new model uses higher speed HSPA networks (a.k.a 3.5G) available around the world but not here in the US. Not yet says AT&T without offering a date. Same for MMS messages (think SMS with more media such as video) or tethering, the ability to use one’s phone to connect one’s laptop to the Internet, with a cable or with Bluetooth. You can picture yourself with the iPhone in your pocket acting as your laptop’s Internet gateway.
At Apple’s developers conference, the venue for the iPhone 3G S announcement, the audience booed AT&T.
Later, customers got in the fray. The prices, $199 for the 16Gb model, $299 for the 32Gb unit, looked normal. But for customers still under contract, that is still inside the 24-month duration of the agreement, the upgrades were slated at an extra $299 or $399 on top of the subsidized price. This doesn’t make AT&T more popular with already frustrated iPhone users.

On the other hand, irate iPhone users appear to forget they signed a contract. The $199 price for a 3G iPhone included a loan of the difference between the $199 number and the true, unsubsidized price; said loan to be repaid over 24 months.

There are two problems with this view.

First, assuming you get an unsubsidized iPhone, a March 2009 rumor had AT&T planning to sell one for $799, your plans, voice and data, will cost the same. In other words, carriers don’t want you to buy an unsubsidized phone, they’ll penalize you if you do by not reducing the service rates.
Second, cellular carriers got into the habit of breaking their own agreements: if you wanted to take your business elsewhere, a “retention specialist” would offer you a nice upgrade before the nominal end of your contract. Customers got the joke and stopped taking the 24-monyhs contracts seriously.
Today, iPhone users can’t go elsewhere because of the AT&T exclusivity. But what about tomorrow, when the exclusivity expires?

When looking at the $6.8bn premium on top of average subscriber revenues brought by iPhone customers, we can be tempted to think AT&T ought to try and resign existing iPhone customers with a big smile, with an enticing financial offer.
Perhaps AT&T knows something we don’t know yet, perhaps they know the exclusivity will expire soon, perhaps they see a big Verizon campaign to attract iPhone users and their fat ARPUs – this could explain why AT&T wants more money upfront now. But this theory isn’t consistent with the attractive new customer pricing. Perhaps I ought to look at the exact wording of the new 24-months agreements. In particular, what is the ETF, the Early Termination Fee for the new iPhones. AT&T’s wireless site is down for maintenance as I write this, I can’t check if the new agreements are available.
We’ll see. —JLG

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Two thoughts to be drawn from this anecdote. First, the relationship a great media brand such as a Public Radio enjoys with its audience. Second, how such bond can be boosted by a clever use of digital technology.

In France, we praise ourselves as being the champions of public broadcasting. We have many brands around Radio France, great shows, excellent journalistic crews and so on. Brands such as France Inter or the all-news channel France Info appeal to a large audience; others, France Culture being one example, target only small circles and feel themselves totally liberated from vulgar strictures such as attracting large audiences. Fine. Personally, I don’t mind having a fraction of my taxes (including a specific line item) diverted to the feeding of the public broadcasting beast. Unfortunately, in my country, public broadcasting is the permanent epicenter of political battles. When the government appoints new management, the new princes replace the next layer on the org chart and reward their friends in the process. The staff (i.e. people performing actual work) prides itself by being in a permanent state of resistance and denounces other media as the free market devil’s henchmen. This under siege mentality, combined with a certain remote hauteur toward the tax-paying public, limits the French public radio system’s audience. The same attitude also puts the brakes on the adoption of digital media.

By comparison, NPR is close to what a public broadcasting system ought to be: independent, content-rich, mass market, local — and fully digital. Here are key figures (some are extracted from a great story published this spring in Fast Company magazine):
•    NPR weekly audience: 26.4m listeners; by comparison, Fox News has 2.8m viewers in prime time.
•    NPR listenership doubled since 1999; again, by comparison, newspapers audience fell by about 20% in the same period
•    NPR productions are broadcast by 860 local affiliates; this local dimension is a crucial component of its success: NPR is seen as a national medium embedded in a local one.
•    Its financial structure appears quite sound, compared to other public broadcast entities worldwide:
-    43% of its funding comes from membership fees paid by local affiliates
-    29% come from corporate underwritings (ads in public’s information parlance), 15 seconds announcements: “This show is brought to you by…. ”
-    15% come from foundation grants and private donations, including listeners
-    Less than 2% is coming from the government (this should come as a surprise to my French friends who see public broadcasting inherently dependant on public funding). NPR is privately-funded public radio.

This structure provides with much NPR leeway in setting its news strategy, with in-depth reporting, long segments, and explanatory pieces — all unthinkable in a purely advertising-driven system. This led to a faithful and growing audience, which enjoys its reliance on great journalism — a precious tool with which to retrieve the signal from the noise…

But NPR’s most remarkable achievement remains its digital diversification, based on two basic concepts: ubiquity of platforms and openness. Coming back to the iPhone app, it relies on NPR’s API created just a year ago. In this issue of the Monday Note, we explored the advantages of opening news content through API (Applications Programming Interface). APIs allow anyone to tap into structured content, by sending requests aimed at specific items. APIs are not platform-dependant: the XML feed can either go to an iPhone application or a website. In the last months, big news organizations such at the New York Times or The Guardian started to provide APIs.  A move justified by the following rationale: stories tend to accumulate; over the years, this growing (and amortized) inventory becomes difficult to monetize. The choice is between trying to sell it by the piece (a dollar/euro or two per article — that’s the penny pinching approach), or to use it as the brand-awareness vector. Hence the API that allows the spread of a branded content that doesn’t bring significant cash otherwise.

NPR pushed the idea a bit farther with the introduction of its Twitter-based  NPR Backstory project.
It works like this: using the Google Hot Trends system, a program automatically creates a Tweet relevant to the moment’s hottest item. For instance, as I’m writing this article, Saturday night, the day’s biggest story is the D-Day celebration in Normandy with Nicolas Sarkozy and Barack Obama.
On Twitter, the NPR Backtstory page look like this:

And it sends to this page on NPR’s site, which revives archives (see at the bottom of the page).

This project was created by a guy named Keith Hopper who was willing to experiment NPR’s API on his own (he was later hired by the Public Interactive, the digital arm of NPR, making Backstory a quasi official initiative…)

Again, some interesting data:
•    NPR Twitter accounts have more than 900,000 followers
•    These followers make NPR n°3 among the news organizations on Twitter, behind CNN Breaking News (1.6m followers) and the New York Times (1m)
•    NPR’s Facebook page has 409,000 fans, slightly less than the NY Times (452,000) but more than CNN (386,000)
•    As a comparison, two big French Media, Le Figaro (a major daily and the biggest newspaper site) and the French public radio France Inter have about 1200 fans each on Facebook. Needless to say, they don’t have APIs.

This exemplifies how an assertively open, technology-savvy approach can boost a media brand. We are not talking big investments, here, just confidence in the strength of a franchise.  Both the iPhone app and the Backstory project were implemented by individuals. Bradley Flubacher and Keith Hopper used publicly available data streams from a media company whose reach has become, as a result, larger and more global than ever.  —FF

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But enough Norman Rockwell.

‘Who is this guy?’ My spouse is pointing at the NYT story. I had avoided it because we’re a couple of days away from Apple’s WWDC. Every year, in San Francisco, Apple holds the Worldwide Developers Conference for individuals and companies writing programs (applications) for its computers and, now, its smartphones. The rumor mill makes too much noise. Writers, bloggers, anal-ysts, pundits and kremlinologists attempt to top one another with predictably bad results.
Still, who is this guy? Is Brigitte referring to the article’s author, Brad Stone, a respected writer, or to Benjamin Reitzes, the Barclays Capital analyst quoted above? The doubt points to an all-too-common problem with business writing in our Valley: Cut-and-Paste stories, formulaic and, if not content-free, bland and devoid of insight or explanatory value.

Here’s the formula: First, take a topic that’ll sell, meaning it’ll attract readers to be pimped to advertisers by the newspaper’s sales department. Check. Apple always sells, especially around events or announcements such as the WWDC.
Next, round up the usual suspects, analysts, industry observers, research reports and market statistics. Skillfully tortured, they’ll confess and say what the writer (or his/her boss, we’ll get to that) wants to hear. Check. We have three analysts and one software developer. We also have truncated market statistics: Mac sales went down 3% year-to-year, true and not exactly surprising in this once-in-a-lifetime (we hope) recession. But, here, the writer fails the reader. The story would be more helpful, it would provide a better view of the industry if it offered comparative data: Dell revenue went down 23% year-to-year; HP’s numbers fell by a similar percentage (24% for desktops, 13% for laptops). The story then moves to the operating system licensing question: Apple doesn’t but Microsoft and Google (Android) do. True but followed by a misbegotten point: “Apple builds its own hardware and software and carefully strikes exclusive relationships with wireless carriers that are willing to heavily subsidize its devices. The strategy depends on a constant flow of new products that people are willing to switch wireless companies and pay extra to use.”

The writer forgets or chooses to omit facts that destroy the point he’s struggling to make. For example: RIM (Blackberry), the US smartphone market leader, doesn’t license its software and it, too, makes its own hardware. And so on. The piece doesn’t bring a single bit of original information or explanation and, as a summary of the state of affairs it is mangled.
(A side note: as I troll my usual set of blogs this morning, I see Gizmodo mocking the same insight-free quote from the Barclays gent in the NYT piece.)

Unfortunately, this NYT story isn’t the exception; it merely is a polished instance of a long-standing genre. Years ago, I asked people in the know why there were so many cut-and-paste jobs. The reply? This is “the way things are done around here”. A reporter isn’t supposed to analyze or opine, s/he’s trained to go around, gather information and report. Just the facts ma’am.
This is avoiding the real question; this is an attempt to frame the discussion. Who can be against objective reporting, against gathering facts, getting experts to speak for the record, all this in the service of a professionally written and edited story? No, the trouble lies with the implementation of the noble idea, with the pretense of objectivity, with getting too comfortable, with the gaming of the formula and, trying to be fair, with the pressure on writers.

For the latter, the pressure, I’ll speculate a bit. The editor calls his reporter: Brad, we’re being scooped by the WSJ, they’re writing an “above the fold” piece on Steve Jobs returning to work at Apple, perhaps on the occasion of Apple’s WWDC, perhaps not, we don’t know. I need 1,000 words by 5pm. Your piece will also run on page one of the business section, also above the fold. A quick spin of the Rolodex, a few phone calls and the tried-but-not-so-true-anymore formula helps meet the deadline.

As for the experts, my calling them the usual suspects isn’t entirely a joke. Once upon a time, I was parachuted as chairman of a software company. I found a well-known industry analyst on the payroll. Not as an employee, just a retainer for his product strategy and media relations advice. The individual, name withheld, once bragged to be the Valley’s most often quoted expert. Actually, he wasn’t really bragging, he was a veritable quote machine and the company, being practical, made sure to be commented upon in the best of objective lights. The arrangement didn’t last. Not because I objected to it but because the company got promptly sold.

One has to wonder: Do newspaper editors and writers know about such arrangements?

But, one will object, can this be avoided? Am I being naive to suggest reporters should be given more time to write a more deeply researched piece, to hope editors would demand better quality or even push towards more analysis and opinion as opposed to warmed over factoids and a pose of objectivity. Perhaps.

But I love newspapers, and I pay for them, I read them off-line and on-line. I want them to survive, I have high expectations for them, and I don’t want them to lose credibility.
We don’t need business stories that end with: “Apple has had a nice rally because they put up very strong numbers, and at the end of the day it will still be all about numbers,” said Mr. Reitzes of Barclays Capital.

A coda, without venenum, au contraire: I checked with a friend, a veteran of Silicon Valley journalism. Was I out of line? Here is what he says in defense of his colleague:
“Having been in the situation many, many times myself, I am always sympathetic with journalists who are forced by their editors to write something when there is clearly nothing new to say. Which is essentially the life of an Apple beat reporter. Having lived through this at [redacted], I’d bet a lot of money the conversation in the SF bureau of the NY Times went something like this.

Place:
NY Times tech bureau in San Francisco
Time:
Wednesday morning

Damon Darlin (Tech bureau chief; smart guy; former WSJ’er in Tokyo): Hey, Brad, New York wants a curtain raiser for the Apple Developer Conference next week.

Brad Stone: When do they want to run it?

DD: Tomorrow

BS: TOMORROW? Why the fuck do we want to run it tomorrow? Why not Saturday or Sunday, like we usually do.

DD: Because New York wants us to have ours before the Journal has theirs.

BS: Oh, but that’s so LAME. Besides, there is nothing new to say.

DD: Well, come up with something. You know analysts will say anything we want them to.

BS: But we’ve said everything we need to say a thousand times already.

DD: Stop whining. You want to cover Cisco instead?

BS: But what about all those Pre stories we just wrote? Those said everything there was to say.

DD: Look, it’s a slow news day, and everyone likes reading stories about Apple. Plus, everyone wants to know if Steve Jobs is going to die or not.  The story doesn’t even have to say anything; it just needs to be 900 words long and say “Apple” every other paragraph. New York can’t be talked out of it.

BS: Shit, this is ridiculous. When do you need it by?

DD: You have plenty of time. 90 minutes.”

My friend adds: “I think you understand: This is not a knock against Brad, who I don’t know, but who seems like a great reporter, and certainly not against Damon, who I do know, and who I have enormous respect for. The point is that when it comes to grossly over-covered topics like Apple, it’s inevitable that some of the stories will be on the lame side.”

I half-heartedly agree. This is the way the system works. But is it the best way to save it? —JLG

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Let’s see who makes money and who doesn’t. Altogether, LG is going to spend $75,000, to be distributed among 43 awards ($20,000 for the winner, $10,000 for second best, $5000 for the third and $1000 for the remaining 40 contestants — they rounded it to $80k by adding a bunch of phones). Let’s face it: for a company such as LG, seventy-five grands for what could lead to a revolutionary phone design is pocket change. For a tenth or a fiftieth of the cost of a classical business-to-business competition, LG will end up with a vast array of proposals.
For Autodesk, this is a great (and free) marketing coup: they manage to get all participants to the contest (thousands of designers pros or would-be) to download a free copy of its software, play with it, test it. Here, Autodesk can expect a high rate of trial to purchase conversion.

As for CrowdSpring, this is business as usual, their fee is 15% fee of the amount committed by LG.  $11,250 for a link and a page of text (provided by the client) is easy money by Internet standards. The Chicago startup is built on a clever idea: matching designers and clients on a single, easy-to-use and transparent marketplace. You want submissions for a design job, you commit an amount of money — capped, no hidden stuff here –, you provide a brief and you’re in. Minimum commitment is $200, CrowdSpring takes its 15% cut, nothing if your brief yields less than 25 proposals. The creatives are reasonably protected (the client’s money is in an escrow account, security features prevent stealing ideas, etc.). In its first year of operations, CrowdSpring handled 3700 projects generating 270,000 proposals (that is, on average, 73 proposals per project).

The company’s financials are not disclosed. Why is that? Simply because CrowdSpring is a powerful deflation engine for the design world. Granted, it gives their chances to a pool of 25,000 designers scattered in 140 countries, but the process prices traditional design firms out, it weakens their erstwhile pricing power. Among these firms, only the lightest structures will agree to bid for the LG design job in the hope of winning and thus being able to establish a direct contact with the cell phone maker. Others, bigger firms, are used to ask for stratospheric retainers (in the tens of thousands of dollars) simply to consider the brief. Such entities are definitively out of the game; they will stare in desperation as an increasing number of saving-obsessed big companies migrate to a new genre: CrowdSpring and its soon-to-blossom competition.

Just to put things in perspective. I still have on my shelf a nine kilograms container detailing the entire visual identity of the French film company Pathé. Landor, a San Francisco-based design firm did outstanding work rejuvenating a century-old brand. At the time, 10 years ago, I was told that Landor’s fee was tied to a percentage of Pathé’s revenue (the company, by the way, did very well). Of course, design firms such as Landor cannot seriously be threatened by a small bug like CrowdSpring. In theory, thanks to a strong portfolio of brands that includes FedEx, Danone or Pepsi, to name but a few, Landor is shielded. In theory only, because when you see other big brands such as LG or even ConAgra Foods interested in tapping into the CrowdSpring army, something is really brewing here.

Advertising won’t be spared either. Take OpenAd.net for instance. This two-year-old company, with clients in eight countries, claims to have the biggest creative team in the world: 11,000 people in 125 countries. Theirs is a simple concept: a brand issues a brief; creative people (freelancers or staffers from agencies) submit ideas — a billboard visual, a TV commercial script, a viral campaign; the winners get paid.  Before looking down their bulbous noses at the fledgling startup, big ad agencies ought to think twice: OpenAd.net has landed big brands such as DaimlerChrysler, MTV, Etam, Virgin Atlantic, Emap or LastMinute.com. Although none of these brands is likely to shift large parts of its creative briefs to crowdsourcing outlets, they are all driven by the same rationale. With the standard way of doing business, they pay 100 to a big agency’s creative team; in the process, they contribute to Range Rovers and Armani suits for the top exec they will rarely see, while legion of staffers do the actual work. Instead, by relying on crowdsourcing, not only do they pay a lower 40 or 60, but they will also get a much broader range of ideas coming from a immense reservoir of people – some really talented ones in the multitude.
I wonder: Does the navel-gazing advertising community fully comprehend the magnitude of what’s looming? They missed the search-ad train, they might miss this one too…

Coming back to newsmedia, we now see large segments of the cost structure experiencing massive deflation. Compared to five years ago, a company willing to launch a serious professional news site will now see many budget lines drastically reduced. Let’s name a few:
- Design and visual concept down to a fraction of what it was used to be, as we just discussed. (Another example: Twitter, which purchased its logo for $6 on iStockPhoto, plans to crowdsource the logo for its photo sharing service TwitPic).
- Marketing and ad campaigns with good creation and execution for a fraction of the cost.
- Public relations using dedicated social media outlets. For instance, Pitchengine defines itself as a “dynamic blend of traditional PR and a more progressive, conversational method”. It has been tested by Mattel, IBM, Dove, Xerox (with unknown results, the company is still in infancy — still).
- Production systems built using blog platforms with add-ons and plug-ins, most of them free, and polished by zillions of users/testers/ developers. (French readers can go to the story I wrote on the business site E24.fr)
- Traffic management, statistics, ad serving enjoy a complete ecosystem of free tools, as good as the best ones sold for big bucks just two years ago.
- Photography, cartoons, illustrations of all forms relying on “stock”, that is items licensed for cheap — €8 for good picture from iStockPhoto against €150 from Corbis for the comparable quality. Cost can even go to zero by legally tapping on the Creative Commons on Flickr (free license with some restrictions on uses).
- Text content follows the same trend as improving semantic engines extract scores of relevant consumer reports, reviews, from a corpus of good blogs.

Is the glass as half empty or half full? On the one hand, I’m not ready to show much compassion towards advertising agencies losing their fat margins to more agile crowdsource interlopers. As always, only greed and mediocrity will be affected, outstanding services and competency will always justify substantial fees. But, on the other hand, I’ll feel sorry for the professional photographers or graphic artists whose business is eaten alive by crowd-powered competition. Many talented people won’t be able to extract decent prices from the market and they will be the casualties of this deflationist trend.

Let’s focus on the upside. Journalism in all forms and good editorial work, are, in essence, expensive to produce. Therefore, the duty of the editors is to cut every possible cost — yes, by relying on crowdsourcing as much as they reasonably can; their mission is to focus on core professional values.  It is only by doing so that editors will enable a good product (website, print or a combination of both) to shine and rise… above the crowd. —FF

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For perspective, let’s go back to the previous crisis: the Internet Bubble. Fortunes were lost when Cisco’s stock went down by 90% — with the entire high-tech sector. But new fortunes were about to be made.
First, there were the political fortunes of posturing solons. Seeing the damage done by accounting fraud at Enron and WorldCom, canny politicians seized the opportunity to harness the public’s ire to their career’s progress. Paul Sarbanes and Michael Oxley begat what we now call Sarbox (the Sarbanes-Oxley Act of 2002), a new set of much stricter accounting rules. To the angry investing public, to the recently fired as a result of the downturn the senators’ message was clear: We’re here for you, we’ll throw the Armani-suited thieves in jail and we’re putting in place the safeguards needed to avoid a repeat of such catastrophe.

What nobody wanted to hear then was we didn’t need new regulations. Existing laws and accounting rules were amply sufficient to catch and punish the thieves. We didn’t have a problem of rules, we had a problem of lazy policing, of understaffed regulatory agencies and, above all, of much too much coziness between our elected officials and industry lobbyists.
Further, in order to placate the irate public, a crime was committed: Arthur Andersen, Enron’s auditor, was effectively lynched. Not told to pay a fine, not forced to come up with financial compensation. Killed. As a result, tens of thousands of Arthur Andersen employees who had had no role whatsoever in the very real auditing scandal lost their jobs as the firm was wiped from the face of Earth.
Humor being what the French call despair’s politeness, Sarbox is now called the CPA Perpetual Employment Act (CPA for Certified Public Accountant). Or, as another wag put it, the out-of-work investment bankers sold their Ferraris to members of the rising audit profession.
We’ve now turned to the second type of fortunes.
Sarbox put new, expensive compliance burdens on companies of all sizes. Such compliance comes with high fixed costs that disproportionately weigh on small companies. Our start-ups are among those. Every year, compliance with the new regulations adds hundreds of thousands of auditing fees to the expenses of young companies.

Above all: did these stainless steel new regulations prevent the current meltdown?

Let’s just hope we’ll learn from the past, get a better police and elect more honest officials who’ll what we send them to Washington for: defending the common wealth instead of selling our hide to K-Street lobbyists.

VCs, too, have to waste money on increasingly complicated compliance requirements. In principle, audits are healthy: our LPs (Limited Partners) entrust large amounts on money into our hands, hundreds of millions if not billions for the larger firms. LPs are naturally entitled to have an independent entity, an auditing firm, look into our books and certify our accounting.
But, beyond the simple principle lies a contorted reality. Accounting is a mixture of art and science: the numbers must add up correctly but, when it comes to certain assets, every business has to rely on estimates, hence my use of the word art. Some accountants won’t like the way the word resonates, no one looks forward to “artistic accounting”; but how do you know the value of the invoices you wrote but haven’t cashed yet. Will all customers actually pay? This causes businesses to estimate the amount of likely bad debt, unpaid invoices. The same goes for other assets such as the buildings the company owns, or the machinery it uses. The building ages, the value comes down, but the commercial real estate market is hot, the value goes up. And so on. In order to avoid excessively “artistic” estimates, rules were developed and constantly modified. That’s why we have a Federal Accounting Standards Board.

You won’t be surprised to hear these rules reach a tragicomical level of absurdity, of Byzantine or Talmudic complexity. Paradoxically, these arcane writs bite the very constituency they’re supposed to protect, owners, shareholders and, instead, they generate work and fees for the auditing profession. We end up with a much needed profession becoming a parasite of the business owners whose interests they’re suppose to safeguard.

LPs own a percentage of each company in our portfolio. To them, this is an asset. How do they, how do we value such assets? How do we compute the Net Asset Value, the NAV of each stake?
If we’re lucky, that is if a financing round just occurred, the valuation used for said round is a credible estimate – as long as it wasn’t an insider round. If a third party without a previous interest in the company decides to invest, we have a usable valuation for the NAV reported to our LPs.
If we didn’t get a third party to put fresh money (along with our participation) into the company, this is a sign of trouble. But, in spite of a lack of outside interest, we decide to keep the company alive, we see something outsiders don’t see, we persist. Great. What valuation do we use? Do we see the company as having increased in value because it made progress, albeit unseen by outsiders? Or, did we have trouble, did we bring a new CEO, did we go back and take a new technical path, thus having only a little experience for all the money spent so far? In the previous round $2M bought 20% of the company, what will another $2M buy this time? 15% or 30%? As this is an insider round, there is always the risk of us investors taking advantage of the situation — and why shouldn’t we if there are no takers outside? But non-participating investors and founders could object or, worse, sue. Or, conversely, we want our portfolio to look good to our worried LPs. In this case, what prevents an insider round to be priced artificially high as we prepare to go out and raise a new fund? With rising NAVs, we look good, with sinking valuations, we show a portfolio, a venture firm in trouble.

But wait, the Feds are coming to the rescue.

Our Limited Partners have their own sets of constraints, their accounting rules. Their stakes in our (their, actually) portfolio companies have to be accounted for, reported using the appropriate rules. Enter FASB 157, an accounting rule they must comply with, forcing us to do the same. If you read FASB 157, you’ll see a number of things. First, it cannot be comprehended by normal business persons (even less by normal humans). It makes numerous references to other FASB Statements (115, 124, 133, 107, 155), Concepts and EITF Issues. As a result, “flattening” the Statement, that is writing a single document including the full text of the external references turns out to be not merely complicated but altogether impossible. Why? Because the external references themselves contain external references, and so on, ad infinitum. This is neither new, unusual nor avoidable. But, in the real world, FASB 157 is no help in justifying the “fair value” of a portfolio company.

Let’s say the company is three years old, two rounds of financing already.We decide to report a decrease in valuation: -30% when compared to the last round. A 27-year old CPA, just recruited by the audit firm, freshly out of business school asks: How do we justify the -30% number? (The audit firm actually charges us to train him.) This is a valid question without a clear answer. Industry comparables? None, this is a very innovative company creating a new market. Revenue? None, we’re still developing the product. Again, why -30%, why not -50%? Sure, let’s put -50% instead, we’re two or three years away from a transaction, from an exit, so we can use a range of numbers, it doesn’t not really matter. But the valuation has to be justified says the mystified MBA, that’s what FASB rules demand, you can’t just pull a number out of your hat (he’s polite). And round and round we go as the meter runs.
For young companies, in new technology or market sectors, without past nor comparables, the whole exercise is an expensive charade, kabuki accounting.

We’d prefer a simple rule: the NAV is what the last financing round said it was, unless our judgment says otherwise — in one paragraph. Future results, hard numbers from transactions will confirm or destroy our reputation.

But we’re realists, the audit happens only once a year and we’ve learned to smile and calmly go through the expensive motions. —JLG

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