David Liddle: Thank you.

I want talk about three particular brief perspectives about this new information economy, which seems to be struggling to break out of its shell. Then, at the end, I will talk about three recent commercial experiences with trying to build companies that take advantage of and accommodate to these new realities.

First I want to talk a little about value, sort of an abstract discussion of value in this new economy. When I'm saying "new economy," I mean in the situation where what is being exchanged or accessed, whether it's free or paid for, is available in an online, electronic context.

First of all, information itself. It seems long ago now, but once we considered it to be scarce. And the trick was to find the information at all; that is, did that crucial item possibly exist anywhere? Now, of course, it's the opposite, where it's absolutely certain that it exists somewhere, but the chances of finding it nowadays are entirely related to the problem of abundance. And so what has changed, therefore, is that the valuable commodity is no longer the information itself but rather it is our attention.

Attention and its allocation are the coin of the realm in the new information economy, and I don't simply mean that in terms of business information that's somehow "useful." I mean, once there are hundreds of emergent channels of digital television, for example, we face the same problem. The vast amount of entertainment and other material that's available makes it harder and harder to choose how to allocate our attention. We need a key indicator or a way to make critical choices about allocating our attention to this flood of information.

In a generalized way, trust, therefore, is the thing that we need to have in place. Trust is what we use to decide how to allocate our attention. Now I'm using the word "trust" in a very generic way; in a sense, it means editorial quality, if you will. That is, I may choose to look at a particular online source of information because I believe that it's well and responsibly edited and that its facts will have been checked and so on. Or, I may subscribe to the Wine Spectator because that's simpler than, with my jaded palate, tasting lots and lots of wines for myself. And if I find that I tend to concur with those choices, then I decide to place my trust there.

This business of trust as the guide to allocating our attention is a new idea. You can even imagine people selling their own reading lists somewhat profitably. I certainly would gladly subscribe to Roger Needham's reading list. If he really promised me that he was telling me everything he had read, I would definitely read it. There are lots of folks that I know whose judgment I greatly value, so I would pay to - in a sense trust them - to guide me, rather than to dig through all the splendidly available information.

Now, in this setting, we've heard earlier today about the painful splintering, slivering of what was once a very fat oligopolistic market. I think Terry made the point that because of underlying technology and other things, there was now so much available in television, for instance, that the most highly rated of shows today get a rating and share much lower than rather mediocre shows of the past.

What this is about is the economics of diversity. Mass markets, that great American second-half-of-the-20th-century economic engine, rely on there being a uniform dimension to the underlying demand for the product. Whether it's a television show or a toothpaste or an automobile, to have a truly mass market the dimensionality must be low; in other words, there has to be only one or a very small number of relevant factors that affect a very large number of people.

Only popular culture can create the necessary trusts to build a mass market. Now here I'm using the word "trust" in its stylistic sense, meaning, OK, I'll wear that aftershave because Paul Newman wears it. That is, trust in the sense of deciding that, rather than trying to figure out how I feel about this, this embodies a style that I personally like and approve of and will thus follow. And so, popular culture is the thing that must be used if you really want a tens to hundreds of million-sized consumer mass market, this underlying, very low, simple dimensionality.

Now, diversity - a wide range of product types, a wide range of television programs, a vast number of Internet sites appealing to many different people - shrinks markets, because each of those becomes more specialized, and the dimensionality of the underlying demand becomes higher. Meaning, it's a smaller group of people because they must have more things in common. You are appealing to them in a more complex way. Now, diversity means that we have smaller, more focused markets.

However, diversity also raises trust for the people in that particular market. So now you can watch the Middle-Aged Surgery Channel, if you want, and see something that gives you all the details of the likely operations that you may encounter in your life if you're in a particular age bracket. Now if you're not in that age bracket, this is terminally uninteresting, but if you are in that age bracket, it will breed a loyalty that can't be touched by anything else. So this, understanding the way these economics of diversity and a higher dimensionality to the demand from a smaller segment of the population, is very important. Now, if you're an already established big company, this is the plague of the information technology economy of the Internet. On the other hand, if you're starting something new, it's a great opportunity, because instead of having a big business, which you see fragmenting, you have no business, which turns into one that seems big to you even if it's small, because you can build strong loyalty and deep trust.

Now, if anything that I've said there is even slightly encouraging toward entrepreneurship, I hope you feel that way. After all, I'm a recovering entrepreneur and so I need to keep self-encouraging.

There's another problem that can counterbalance this sort of fresh idea of the economics of diversity that are possible. That's a version of the old-wine-in-new-bottles problem.

The classic case of this, at the beginning of the CD-ROM industry for example, was the "shovelware" phenomenon, in which material that had been successful and valuable in other contexts was simply loaded onto CD-ROMs and shipped out. Now in some cases that's quite fine. Reference works, in many cases, worked very, very well in that setting. But why would you read a novel on a computer screen? Now, really, you wouldn't, and novels were among some of the better things that were loaded across by shovelware. The underlying value of many important pieces of intellectual property is strongly dependent on the medium that they're in.

I will claim that Dickens is pretty interesting in any format, and that there's no amount of suffering which is too much to go through to read Dickens. So, there's one. However, there are damn few other works that really survive transmedia production very well, without a great deal of very serious reworking. One of our sister companies produced a splendid CD-ROM that recapitulated the life and films of Clint Eastwood. Well, they still have a warehouse full of them, because the film genre just didn't move to CD-ROM in a compelling way.

This is a problem that I call the Lumiere Brothers Syndrome. At the turn of the century, the Lumiere brothers really beat Edison all hollow in the area of making motion pictures. He had the Kinetiscope, which was ingenious, but you put your head into a thing and turned a crank. The Lumiere brothers had excellent projection and film and very good projection screen technology, and they made very, very good black and white films. And yet for the first 10 years of the existence of that technology, here's what they did. They bolted the camera down and pointed it at a proscenium arch and people performed Shakespeare. And this was taken around out in the provinces and shown on church walls and other things. Now, this was a nice effect. But it wasn't until 10 years later that people began to pick up cameras and pan and zoom and shoot close-ups and that Griffith and others invented movies as a medium.

We're stuck there in many respects in the information technology revolution that we are in. We've begun to realize the weaknesses of shovelware. But our problem isn't in not inventing the technology fast enough; it's in doing the things that the technology allows.

Now if you trust us engineers with this, you're in trouble. We always begin with doing something we already know how to do, just better. This saves us from facing the problem of marketing. My wife, a venture capitalist red in tooth and claw, categorizes her investments into "FBC" for "Faster Better Cheaper" - she does 80 percent over there - and "BNW" for "Brave New World, " and she's only willing to do 20 percent in Brave New World. We haven't even begun to scratch Brave New World here in terms of the new experiences, the new designs of media of all types that are possible in this new setting. Instead, we tend to want to rely on borrowed interest - if you liked it in the Little Golden Book, if you loved it on the screen, you'll think it's fantastic on our Web site. This is manifestly not true, but somehow it seems easier to do.

I'm going to quickly tell you about three different businesses that I've been involved with in the last few years that took different approaches to this problem and from which we learned some different things.

Starwave Corporation. Starwave is a low-visibility name because it's a company that produced a number of very important online Web sites - I mean, sorry, not important, just big in volume: ESPN SportsZone and NFL.com and NBA.com and NASCAR.com and Major League Baseball and NHL Hockey. As you might imagine, these are busy Web sites, very, very big volume Web sites, and we worked this deal out with ESPN to get the rights to the material and so on, and ESPN was bought out by Cap Cities/ABC, which was not too longer after bought up by Disney. Just in time, in a sense, because this company grew so fast, it was growing faster than the ability of some of original technology-oriented entrepreneurs to manage.

But the people from the broadcasting industry knew a great deal about all this advertising. As a matter of fact, they knew more than anybody. We thought, "Gosh, but this is a new world. It's a new medium and no one has any experience in this and we have no idea what selling this kind of advertising should be like." And they said, "Baloney. It's exactly like selling TV ads. You just discount it after the 15th of the month and you change the incentive plans in the following way" and so on and the next thing we knew, it worked. We just had to get out of the way and let it go.

Why should that work? Because the Web is a very, very natural match to sports. It's important not overlook that and not make more of it than it is. People who like sports like it a lot, and they care 6.3 times a day what the score is and what the standings are and so on and so on. Lots of them are males between 20 and 30 who have jobs that sit them in front of a work station all day so they can just clickety-click and take a quick look and so on and so on, and this is a good match. And some of the advertised products that sell well on sports programs - Nike, Reebok, Gatorade and so on - are big advertising spenders.

So then we did a news site, ABCNews.com. That's a pretty interesting site. If you look at it, it's got wonderful editorial; it's very broadly based and so on. But we just couldn't get over the fact that somehow there wasn't the same demand. It took us a little while to figure out: "Oh, that's right. Television stations don't make any money on news. News is sort of a public service." My point is that the underlying demand is still the same, even if you're tremendously imaginative about how you reconfigure what you're going to produce.
In a very different context, a company which my partner owned and that we have subsequently sold to Home Shopping Network is Ticketmaster. We had a terrible time to get the president of Ticketmaster to even think about selling tickets online. That was the whole reason we bought the company. He just didn't believe in it, didn't like it, didn't think it would work.

Twelve months ago, we sold the first tickets online. Now that company sells about 5 million tickets a month, and we sold 2,000 tickets online in that first month. They now sell 800,000 tickets a month online. But that's a much bigger number than you might think. You see, we don't sell rock concert tickets online, because those sell out in the first two hours, and you don't need to go online to sell them, and that's what most of Ticketmaster's tickets are. So, the stuff you wind up selling online are more things that are inventories, like bleacher seat tickets at hockey games of losing teams, stuff like that. Nevertheless, those actually sell in this way. So, there's a particular model there at work. It's not what you might imagine, but it's become very, very successful in that regard. It's been now acquired by Home Shopping Network, which has now been renamed USA Networks and really has turned out to be one of the highest-volume transaction-oriented consumer businesses online.

Finally, there's a company that we started from scratch as a spinoff from my laboratory, which is called Purple Moon. If you want to see it on the Web, it's purple-moon.com. Purple Moon makes software only for girls between 8 and 12. It was founded on the idea, the observation that boys and girls are roughly equally likely to have some use of computers up through about age 6. With boys that continues on smoothly, up to age 12, and with girls it goes nearly to zero between 7 and 12. We found this surprising. It's not true here in Ann Arbor, of course. It isn't true in Silicon Valley. It's also not true in Cambridge, Austin or Madison. But otherwise on planet Earth, it's true. And we did our research in Indianapolis, Hartford, Baltimore, Atlanta and Torrance, and found this to be the case. I don't care to speculate as to why it's true. We promised ourselves we wouldn't try to figure how true it was; we would just find out what girls would like that we could put into an online product. And you don't do that by asking them about computers. You do it by asking them about life and what they choose and what they like and what games do they play and what books they read and what they and their friends talk about and so on.

So we spun off a company called Purple Moon Media, which has become quite successful. It has shipped already three products and done very well. They are aimed just to girls, but if you feel like looking at the Web site, you'll see some really surprising, amazing things in terms of the way girls have chosen to use it online. Particularly, they send e-mail to the characters in the stories, and we have a roomful of people busily answering the e-mail that the characters receive. But we've also learned a great deal about how they would like subsequent products to be and what kinds of questions they think would be interesting to pose. The characters are very real-life eighth-graders. As you'll recall, for girls under 12 years old, eighth-graders are almost movie stars in terms of the sort of far-away and mystical appeal that they have to those younger girls. So this has been a case where this is not particularly a for-profit site. We sell a few ads, but the main purpose of it is just to introduce the products and give people a glimpse of it, but it has created a very particular community structure. It's very tightly moderated and so on to be safe. But the point is that it has this underlying dimensionality. Now girls between 8 and 12 in the United States of America is not a tiny market. But up until now there has been no product in information technology aimed to them, so it's still, dare I say, a splinter market, even though it's enormous

But this simple economic model hid from us the fact that introducing the product to this market is a very expensive proposition, requiring lots of advertising on TV and other expensive promotion to cut through the noise produced by all the lower- dimensional (less specialized) adds to which kids are subject today.