Friday, March 24, 2006

On Measuring the Ability to Innovate
It may help to keep a simple principle in mind

Bruce Nussbaum of Business Week provides an example of how Wall street is hopelessly amiss in the knowledge economy. Apparently, Apple Computer is being considered to be flagging in its innovativeness, because it's R&D budget has been declining as a percentage of revenues!

This got me thinking. Admittedly, analysts need yardsticks to evaluate companies, but these yardsticks must truly measure whatever is being sought to be measured, and not just the closest possible proxy. A "something is better than nothing" approach simply does not work!

The Horse Sense take on this would be that, measuring success in innovation by looking at the size of the R&D budget is like figuring out how successful a song (or a film or a book) will be by measuring how long the creator took to write it.

An approach such as the above fails because it assumes that, while measuring a company's ability, output is "proportional" to input. This may be true for attributes that are fairly stable and well-understood - for example, if you are a car manufacturer, spending more to buy raw steel of higher quality would probably be expected to result in cars that are stronger or safer. This is because most manufacturers can be expected to be pretty similar in terms of how they use the raw steel to make the car - in other words, different manufacturers wouldn't differ much on "how well" they use the raw steel.

However, such an approach breaks down when the attribute under consideration can be considered a "differentiator" for the company, as then by definition, "how well" the company uses the input becomes critical. Thus, throwing big money to recruit the best designers may not necessarily help a car manufacturer produce cars that are superbly designed - that would depend on "how well" the company uses the design talent it recruits!!

Further, the "how well" principle holds more strongly as the attribute under consideration becomes less well-understood, less well-structured, and less algorithmic. In other words, as you measure an ability that is less well-structured, the "output-is-proportional-to-input" argument grows increasingly weaker.

And the principle perhaps applies most strongly while measuring innovation, which is arguably the most arcane of corporate skills today!

Friday, March 17, 2006

The Wisdom of the Wiki
What's the secret of Wikipedia's success?

The Wikipedia is a manifestation of a concept that seems astonishing at first: an encyclopedia that consists entirely of entries written and edited by volunteer, anonymous contributors. But isn't that almost a contradiction in terms? Aren't encyclopedias (or encyclopediae to be precise) supposed to be the epitome of accuracy, authority, and accountability? Welcome to the world of social computing, which eschews hierarchical, centrally-driven ways of doing things, instead valuing interactions between peers.

Take a look at the Wikipedia statistics: it appears in 215 languages, has 83000 contributors (up from 10 in Jan 2001), features 2.6 Million articles, and adds 6000 new articles per day. A search for 'wikipedia' on Google produces 361 Million hits. These are hardly statistics that represent a product that is struggling to get off the ground - indeed, they offer ample proof that the Wikipedia has taken off and gained a huge following. It crossed the 500,000-article milestone two years ago, in February 2004 - date that can thus roughly be taken to represent the "take-off" stage for the project.

Opinion on the success of the Wikipedia is, of course, not undivided. The concept has many detractors. Reams of newsprint, websites and blogs have been dedicated to arguing its merits and otherwise. It is of course prone to malicious use too.

Here's the horse sense view: The wikipedia is a phenomenal source of information - arguably the single best source of information on any topic under the sun. It has gotten to the stage where, when looking for information on many topics, I often look directly in it rather than first do a Google search (which is of course the default way to look for information!). The only caveat is that, if you're researching material for an article or business report then it may be a good idea to treat what you find in Wikipedia as only a starting point and then verify it independently, but otherwise the material in Wikipedia is good enough for most uses.

What's the secret of its success? At one level, it's success is simply the success of social computing in general - the steady march of advances in computing that have put more computing power in the hands of the masses, allowing them to use it to achieve ends that they truly consider useful. At another level, its the 'Wisdom of Crowds' phenomenon - a large number of people tend to be smarter than a few individuals, no matter how qualified.

In the final analysis, however, the Wikipedia is emblematic of the steady powershift that technology itself embodies - from Governments, large institutions and organizations to the individual. Nobody decides on behalf of the user - the user is in charge, for better or worse. This stunningly simple principle is what has made Wikipedia, and indeed wikis in general, a phenomenon so powerful that it can be termed a profound social megatrend.

Thursday, March 02, 2006

Google: Searching for More...
Can Google be more than a one-trick pony?

Google is undoubtedly one of the most innovative companies around. However, despite several laudable initiatives, the company still remains woefully dependent on one source for its revenues - getting people to click on ads embedded in web pages.

I find such a business model less than inspiring - personally I have clicked on such embedded ads perhaps less than 10 times in the thousands of sites I have surfed. Why should I, when I know it will only open one more window on my already-cluttered desktop, sidetrack me from the task I was accessing the Web for in the first place, and probably only try to sell me something I don't really need?! To get me to set myself up like that, the ad would need to say or show something very alluring indeed - and that's not easy, given that the average embedded ad in a web page occupies perhaps a few square inches.
Print ads do not suffer from at least the first two of these drawbacks - the whole ad is already present right there on the page of the newspaper or magazine you're reading, and it can also be quite large, giving more play to the copywriter's creativity.

Besides, the click-thru revenue model is rife with fraud - people can spoof, use bots, etc. to artificially boost or skew such clickstream data. Google can - for no fault of its own - find its credibility undermined by such fraud. And the fraudsters, whoever they may be, are only likely to get better at it.

Tuesday's sell-off appears to confirm that the belief, widely held until a few months ago, that Google has huge upside was overblown.

Admittedly, Google has many aces up its sleeve, but one only wishes they would convert these into actual revenue streams as fast as they can.