Edge Perspectives with John Hagel

Internet Strategy - Red Ocean or Blue Ocean?

The management shuffle announced by Yahoo last evening is only the latest evidence of strategy decay that pervades the leading ranks of the Internet business world.  Yahoo says it made the changes to allow the company to move faster.

Fine, but in what direction do they want to move? What does Yahoo! want to be when it grows up? And what does that imply for what it will choose not to do?

In our celebrity culture, we love to focus on people.  Decker gained, Rosensweig is out, Braun is out, Semel’s still there, Yang’s mentioned, but where’s Filo and who the Hell is going to head up the audience group (and why can’t Yahoo find anyone internally to take this on)?

People matter, of course, but in this context strategy matters even more. Faster movement is dangerous if you have no sense of direction.  It just means you do more things more quickly, spreading that peanut butter even more thinly.  To paraphrase an old quote by Casey Stengel: “if you don’t know where you are going, you will never get there.”

And let’s not just single out Yahoo.  I have a growing sense that all the major Internet players – Google, MSN, Amazon, Ebay and AOL – have lost their sense of direction and differentiation. Rather than carving out and rapidly enhancing areas of distinctive advantage, these major players appear to be leaping like lemmings into the red ocean. Here are some of the red flags that give me cause for concern:

• Rather than helping people to connect more effectively with resources across the Web, they all seem increasingly focused on aggregating their own resources.

• They are becoming more and more obsessed with advertising revenue and risk losing focus on what is required to add more value to users. Advertising revenue is a dangerous narcotic – it shifts you more and more into a vendor mindset rather than a user mindset.

• They are investing large sums of money on infrastructure, further diverting time and attention away from development of new services for users (infrastructure services like Amazon’s EC2 and S3 are a very different business).

• They seem to be looking more and more at each other and trying to replicate each other’s services rather than focusing on the user and trying to be truly innovative in terms of new services.

Now, this growing homogenization of the leadership ranks might be understandable if the Internet were a maturing business arena.  Given the rapid and sustained pace of innovation in the underlying technology, the rapid growth of usage, the continuing shift of spending to the Internet and the proliferation of new businesses created on the Internet, I find it hard to characterize this space as “maturing” – my sense is that it is still in its infancy.

Some observers have even begun to hail the emergence of “Internet conglomerates” as the wave of the future. Looking from the outside in, one can make explicit the assumptions that seem to be driving the investments, business initiatives and strategies of these leaders. These assumptions seem to converge on this view of the future: leading companies will be vertically integrated and horizontally integrated, offering a broad range of their own resources to users who will “settle” into their spaces.  Certainly, the strategies of these companies seem to assume that Internet conglomerates are the wave of the future. Is this really the way the Internet will evolve as a business platform?

As I have written in Harvard Business Review, I believe that a quite different future will unfold, marked by a distinctive process of unbundling and re-bundling of firms. This perspective suggests that all the Internet leaders confront the same difficult choices that more traditional companies also face.  Over time, will these companies choose to be customer relationship businesses, product innovation and commercialization businesses or infrastructure management businesses? None of the Internet leaders appear prepared to confront these choices yet.

Of course, there’s another interpretation of the initiatives pursued by the Internet leaders.  They may be explicitly avoiding any view of the future and instead spreading their bets across many initiatives in the hope that some of these bets will pay off while others will prove to be dead-ends. Nick Carr refers to this as the spaghetti strategy – “throw a lot of stuff against the wall and see what sticks.”

As uncertainty increases, this has become the preferred “strategy” of many companies, not just in the Internet sphere.  While strategy used to be viewed as the discipline of making choices, this approach proudly rejects the need to make any choices. It is a particularly seductive approach for large companies with lots of resources.

And yet this approach stands in sharp contrast to the strategies that enabled the Internet leaders to carve out their leadership positions in the first place. Unlike the thousands of other dot.com start-ups that embraced hustle as strategy and speed without direction, the founders of these companies started with a very clear, even though high-level, long-term destination in mind.  It helped them to make difficult choices in the near-term and to launch waves of initiatives that cumulatively built very large and successful businesses. It has stood them very well in the first decade of their business.

In my own work, I use a FAST strategy methodology. It emphasizes the need to have a clear, but high-level view of a long-term destination while in parallel focusing on a limited number of high impact initiatives in the operations and organization that can accelerate movement towards this destination. What the Internet leaders seem to have lost is any distinctive long-term view of what kind of business they will need to build to remain successful in a rapidly evolving business landscape.

People can be moved in and out of executive positions. Large, high visibility acquisitions can be announced.  "Strategic" relationships across leading companies can be negotiated. But without a clear and differentiated sense of long-term direction, all of these initiatives will make for good newspaper copy, but count for little in terms of sustained value creation.

The Economics of Attention

Attention economics will reshape business economics.  It is not just a question of re-thinking marketing, but re-conceiving business.  Yet, with a few notable exceptions, we are only at the very early stages of mapping out what attention economics means, much less what its implications are for business. 

As I have written about here and here, attention economics starts with the observation that, as products and information proliferate, attention becomes the scarce resource – we each have only 24 hours in the day.  Where we choose to allocate this attention will increasingly determine who creates economic value and who destroys economic value.

To my knowledge, the first person to highlight this phenomenon was the Nobel prize winning Herbert Simon in an article published in 1971:

...in an information-rich world, the wealth of information means a dearth of something else: a scarcity of whatever it is that information consumes. What information consumes is rather obvious: it consumes the attention of its recipients. Hence a wealth of information creates a poverty of attention and a need to allocate that attention efficiently among the overabundance of information sources that might consume it.

Unfortunately, Simon never really developed this insight further.  Michael Goldhaber picked up this theme and developed it significantly and provocatively in a seminal on-line article "The Attention Economy and the Net" published in First Monday in 1997. At the time, he indicated that he intended to write a book on the subject but, alas, the book has yet to appear. Independently, Georg Franck, an Austrian professor of city planning, published an article in 1999 on “The Economy of Attention” that picked up on a number of the same themes.

In the meantime, two books have been published on related subjects. My friend and former colleague Tom Davenport wrote a book with John C. Beck in 2001 called The Attention Economy: Understanding the New Currency of Business. While providing very interesting perspectives, the book focused much more on management techniques rather than taking on the task of mapping out a more systematic view of attention economics.

So, I was quite excited when I came across a book called The Economics of Attention: Style and Substance in the Age of Information by Richard Lanham, a professor emeritus of English at UCLA.  I hoped that we might finally see a systematic exploration of attention economics, made all the more refreshing because it came from someone outside the profession.

The book is a fascinating exploration of the dynamic that exists between stuff and fluff – physical goods and information about physical goods.  Lanham’s basic thesis is that, in an attention economy, stuff recedes in importance and fluff increases in importance. Any book that can draw connections across the Dadaists, Gregory Bateson and Friedrich Hayek is well worth a read. In Lanham’s perspective, rhetoricians and artists like Andy Warhol and Christo are the new economists of attention. Yet, I left the book feeling dissatisfied – I did not yet see any systematic exposition of the economics of attention.

In a recent review of Lanham’s book, Michael Goldhaber gives voice to my dissatisfaction:

One of the consequences of the intensive mathematization of standard economics is that a humanist like Lanham is utterly snowed.  He wears his innumeracy on his sleeve, and so declares repeatedly that he cannot be a “real” economist. . . Nonetheless, certain economic thoughts, not requiring mathematical sophistication, still ought to be considered for possible relevance in discussing a new economy. Lanham fails to make the attempt.

We can try to pin down something of what a simple “attention transaction” is, and what it means to pay attention in the first place. We can talk about what makes attention scarce, what makes it desirable, how it can be used to obtain various sorts of wants, how one person may channel or divert the attention of another, how attention is multiplied by having an audience, what causes people to pay attention to a particular other person in the first place. We can try to understand larger chains, networks, or loopings of attention, as it passes, say from person to person. We can view the entire economy, or some large subset of it as a system, and try to show how people respond to relative scarcities of attention and how they might be attracted to those who have lots. And so on. An economics of attention should encompass any and all of this.

Reading Goldhaber’s review confirmed my view that Goldhaber is still the best candidate to map out the economics of attention, even though I disagree with some of his early formulations that seem to suggest that attention will become a currency that will replace money. The good news is that Goldhaber has posted a draft of one of his chapters of his long-awaited book The Emerging Attention Economy on his blog.  I strongly recommend this to anyone interested in the topic.

While his work is too rich to summarize easily here, I wanted to pull out some key points that I think makes Goldhaber’s approach so promising:

• Unlike many people who have written about the relative scarcity of attention relative to information overload, Goldhaber never loses sight of the fact that attention is ultimately about the connection between people, as illustrated in the following quote

In paying attention to the words, then, we are actually paying attention – as best we can – to the person who seems to have uttered them . . .  This suggests that the prime purpose of words is to make possible this kind of connection between people.

• Goldhaber appears genuinely intent on mapping out a systematic set of economic principles that will shape where and how value gets created and captured in the attention economy

• Goldhaber also avoids the trap of viewing attention as a commodity – “Commodities are usually standardized, more or less generic things or substances that can be bought and sold in measurable amounts. None of this holds for attention.”

In fact, Goldhaber is close to viewing attention as a flow, rather than a stock – something that must continually be refreshed, if it is to be maintained.  One can only continue to attract full attention if one offers something new along the way.

Goldhaber’s rich view of attention as an “aligning of minds” helps to make it clear that the multi-tasking and continual partial attention that many digerati believe will reduce attention scarcity is at best a weak remedy. His perspective helps to explain why, as Linda Stone has suggested, full attention will become the new aphrodisiac.

In reflecting on what I have seen of Goldhaber’s work, there are some areas that I hope he will develop in much more detail:

• Right now, Goldhaber’s writing seems focused on the consumer sphere and, as a result, the connection between attention and talent development is much less explicit than it could be – the bottom line is that attention becomes critical for production/creation and not just consumption, as I have briefly suggested here and here.  It also helps to explain why the demand for attention will rapidly increase while the supply remains limited.

• Goldhaber’s perspective on attention provides an interesting lens to view the distinction between transactions and relationships and I hope he will explore this distinction in greater depth. One important way to amplify the value of attention for all parties is to build relationships.

• Goldhaber makes an interesting observation that “the norm in attempts at getting attention, the sine qua non of this new economy, are more in the line of self-revealing than either self-concealing or merging into some mass.”  I hope he develops this theme more – it will help to draw together a broad range of phenomena including the demand for more corporate transparency and the success of social network sites in creating more visibility for its participants.  Transparency may paradoxically become an increasing requirement for visibility.

Now, for most executives, this can seem like a pretty abstract discussion without any clear relevance for near-term actions.  That impression would be a mistake.  The attention economy is surfacing around us today – it is not some distant future. As with most economic trends, those who spot them and act on them early are most likely to create significant value. Here are some early action items:

• Explore the implications of attention scarcity for firm structure – I view attention scarcity as a key catalyst driving the unbundling and rebundling of firms that is occurring on a global scale

• Master the management techniques required to increase return on attention, not only for customers but for employees and business partners as well

• Create mechanisms to help customers and employees attract the attention they need to become more successful in their endeavors, especially in terms of their talent development.

We don’t yet have a road map for all of this, but some of the early paths are starting to become visible.