Don't Try To Make Sense Of LinkedIn Share Price

from the it's-a-game dept

The big Silicon Valley IPO today was LinkedIn going public. In many ways, it's a great story, in that LinkedIn isn't an overnight sensation by any means, but really was a company that built up a strong and loyal user base over many years. However, Silicon Valley has been pretty starved of "celebrity" IPOs for quite some time. Of course, in typical Silicon Valley celebrity IPO fashion, the stock shot up much, much higher than its offering price. In the past I've talked about how this is really about a company having left a ton of money on the table (i.e., LinkedIn only got $45 for all of the shares that hit the market, so the stock trades over $100 are between others, and doesn't directly -- immediately -- impact LinkedIn's cash position, though later stock sales can obviously benefit).

I've always found the obsession with the "first day pop" kind of a weird infatuation in Silicon Valley, often done by people who don't recognize what it really means (i.e., that it was priced low). However, there's been a lot of hand-wringing about how LinkedIn's valuation from the super high share price seems ridiculous based on its revenue. And, I agree. It's nearly impossible to match the valuation to the company's actual financial situation. However, this is the nature of the game. Certainly one part of the problem is that some of the buyers and sellers in the market don't really understand what it is they're buying and selling and how to value it. That's just the way things are with the stock market. However, the bigger issue is that people buying and selling the stock are really judging price on two separate factors. The underlying value of the stock is certainly important, but for many people, rather than betting on that, they're betting on everyone else. That is, they're not buying and selling based on a long-term concern for the actual value of LinkedIn, but they're trading short-term by betting on what they think everyone else will value the stock at. In the long-term, that's not sustainable, but it's the simple nature of "the game."

On the last Planet Money podcast, they explored whether or not there's a "gold bubble,", but they actually do a nice job explaining how bubbles form, even though "rational economists" suggest it shouldn't be possible. In the podcast, there's a great story about some experiments, in which students (including business students who should understand this) are given opportunities to buy and sell a single stock with a very clearly defined value... and yet bubbles still form, where people (who can't even explain why) overbid on the price of the stock, even though the real underlying value is known.

To some extent, it's that people don't intrinsically understand statistics and value. Part of it is that people get tied up in "the game." And part of it is just psychology. But the fact is that bubbles form all the time, and trying to rationally value something in a bubble isn't a particularly fruitful game in the short term, because the length and extent of a bubble are nearly impossible to determine (long term is a very different story). So, for everyone fretting about the price to value question on LinkedIn, unless you're looking for a long term investment, at this point, it's a meaningless question. What's happening now is gambling and entertainment masquerading as a serious "investment" issue.

Filed Under: ipo, price, value
Companies: linkedin

The Secret Contagious Mojo That Makes People Value Stuff Connected To Famous People

from the celebrity-cooties? dept

There is sort of an odd article in the NY Times that looks at some of the psychological research that goes into why people like to own stuff that celebrities owned or touched. The report suggests that it comes back to a subconscious belief in "celebrity contagion" and "imitative magic." That is, people sense that if they own something that someone famous touched, they somehow get to "capture" some element of that person's essence. The report covers two separate things. First there is the obsession with owning something someone touched -- where it's noted that people value it less if it's been washed (highlighting the whole "essence" concept). Second, is a look into why people want to buy exact replicas of a celebrity's things. For example, the report highlights an exact replica of a famous Eric Clapton guitar. The replica is right down to the specific nicks and scratches on the guitar -- even though Clapton has never touched this one. So if it was just "essence" this guitar wouldn't be valued that highly. And while it's obviously valued less than the real version it's based on (which sold for just under a million dollars), it's expected that the replica will still sell for $20,000. The thinking here is the value of "imitative magic." That if you have something just like what a famous/successful person had, you'll be able to get some of the same "magic" powers out of it.

Frankly, some of this sounds pretty ridiculous -- a sort of inflated market version of cargo cult science -- but if you're looking to understand the psychology behind people who go to great lengths to feel some sort of connection to celebrities, it seems like worthwhile reading just to understand the underpinnings. Indeed, over the years, we've seen artists incorporate this kind of thinking in their own business models. They can often sell off things that they're closely connected to, for a premium, and the buyers are quite happy. We sometimes hear from our usual critics that these business models involve finding "suckers." But the buyers don't seem to feel like suckers, and some of this research seems to explain why.

Filed Under: contagious, culture, eric clapton, mojo, value

Why The Arguments That The Huffington Post Must Pay Bloggers Is Misguided: Payment Isn't Just Money

from the you-made-the-choice dept

We didn't mention the whole AOL buying Huffington Post story earlier this week, because there just didn't seem to be that much to say about it. It was an interesting deal, to be sure, and I'll be curious to watch what AOL does with the property, but, beyond that, it seemed like just another content acquisition deal. However, almost immediately after the deal went through, I started seeing some rumblings on Twitter, picking at the scab that has always annoyed a certain group of people about The Huffington Post: that it doesn't pay most of its writers. Sure enough, it didn't take long for this issue to start to spread, with the inevitable summary line of: "Hey, HuffPo became famous because all these people worked for free, and yet, they don't get a cut of the sale."

That story is now snowballing. Dan Gilmor wrote a blog post arguing that it was the "ethical" thing to do to start paying bloggers. Douglas Ruskoff said that he'd no longer blog on the site for free. And, of course, a bunch of cranky HuffPo contributors have created a whole campaign arguing that Arianna Huffington had no right to sell the site, since it was built off of their free labor.

They're all wrong.

Of course, we've been through this before. Five years ago, Nick Carr tried to argue that all the various big Web 2.0 sites like (at the time) Digg, YouTube and MySpace were really digital sharecroppers exploiting labor. As we argued at the time, this was hogwash. People were using those sites because they provided a valuable service. The reason they provided labor was because they got something of value in return -- whether it was attention or hosting or distribution or reputation.

Three years ago, we saw an almost identical controversy after AOL bought Bebo and musician Billy Bragg demanded some of the $850 million AOL paid (in retrospect, a massively bad decision). Bragg argued that Bebo made this money based on all of the "free labor" of musicians who used the site. But that ignored the fact that those musicians got tremendous value in using the Bebo platform to connect with fans and distribute their music... all for free. The folks who got to keep the money were the ones who took the actual risk. The ones who had to cover the expenses to keep the site and the service running, even when it wasn't making enough revenue. They took the risk, they should get the reward. The people who used the site did so of their own free will knowing quite well that the benefit they got from using the service was worth it to them at the time. Along those lines, if Bebo had struggled and faced bankruptcy instead of a massive buyout, would Bragg have felt obligated to give them money to keep it going? Similarly, if HuffPo had been running out of money, and Arianna had gone back and demanded that those who used the platform pay up retroactively, how would these people have reacted?

There are more ways to "get paid" than with money.

The reason that people chose to blog for free at the Huffington Post was because it's a fantastic platform for exposure. It brings traffic like no one else out there, and if you want to present something in a way that's likely to get more attention than on your own blog that no one visits, posting at HuffPo can be quite a good way to go.

And that's the point: the people who chose -- of their own free will -- to post at the Huffington Post for free did so because they clearly got value out of doing so. Otherwise, why would they have done so in the first place? To then say that the only proper thing is to pay them is completely missing the point. It's an attempt to retroactively go back and change the terms of a deal. If you wanted to get paid directly for what you write, fine, don't write for the Huffington Post. It's that simple. Go out and pitch your stories to publishers who pay freelancers. But don't go back and complain afterwards when the folks who actually did take the risk of putting together the site, financing it, organizing it, hiring the staff, buying the servers, paying for the bandwidth, and building it up so that it was such a successful platform, then get paid for their efforts.

Filed Under: business models, payment, platforms, value
Companies: aol, huffington post

If Artists Don't Value Copyright On Their Works, Why Do We Force It On Them?

from the questions-to-ponder dept

In William Patry's book, Moral Panics and the Copyright Wars, there's an excellent chart that highlights the fact that many content creators who have copyright available to them clearly don't value that copyright very much. The chart looks at the rates of copyright renewals in 1958 and 1959. As you hopefully know, back then, you had to register your work to have it covered by copyright, and you had to renew it to keep that copyright. Yet a huge percentage of content creators simply chose not to renew their copyrights, because they knew there was little or no value in the copyright itself. Depending on the type of product, the lack of renewals paints a pretty stark picture: only 7% of books had the copyright renewed. Only 11% of periodicals. Only 4% of "works of art." Music was only 35%. In fact, the only type of work that had a renewal rate higher than 50% was movies, which came in at 74%. If looked at with a common sense filter, it seems obvious that this suggests that the content creator clearly is no longer getting any benefit out of the copyright at that stage, and thus reverting the work to the public domain makes the most sense. So it was quite disappointing when we changed our laws in 1976 to the point that people didn't even have to register their copyrights in the first place, and never had to review, but that they automatically get a copyright for a ridiculously long amount of time (much longer than was available in 1959). Now, you can still register, and there are significant benefits to copyright holders for doing so, so many people still do.

So it's interesting to see Tunecore ask the musicians who use its service whether or not they register their copyrights, with only 56% saying they absolutely do (found via Hypebot, who incorrectly suggests that the others don't get a copyright at all): What's fascinating here, of course, is this means that there are 44% of the musicians on Tunecore who don't really see the need to have a registered copyright, and yet they still end up with a copyright which they're unlikely to ever use or enforce. That suggests a system way out of whack with the stated purpose of copyright law. This is content that can and should be available to make the public domain more fruitful and to enable new creative works -- and yet it gets locked up anyway, even though the very people copyright law is supposed to protect clearly don't value what copyright gives them. So why do we still automatically give them copyrights, thereby harming the public domain, while adding little to no benefit to the content creators themselves?

Filed Under: copyright, formalities, registration, value
Companies: tunecore

Will Hollywood Kill The Golden Goose By Squeezing Netflix Dry?

from the watch-those-numbers... dept

Back in December, we did a little back-of-the-envelope calculating to show how much more expensive it is for Netflix to license movies for streaming, as compared to just buying DVDs and shipping them out. The differences are staggering. And apparently it's only getting more expensive. The Hollywood Reporter has an in-depth article highlighting the love-hate affair that Hollywood has with Netflix, including details on the sorts of prices that the various players are demanding (and often getting) from Netflix. What's not surprising is that they keep asking for more and more (and some are still complaining that Netflix doesn't pay enough). But the numbers being thrown about are simply staggering. And at the rate they're going up, it will make it increasingly difficult for Netflix to actually afford all of those deals. Once again, it seems like a situation where the content providers are overvaluing their content, and undervaluing the services that make that content more valuable. That is, they look at how Netflix is succeeding (especially as they're failing to adapt themselves online), and they start to get jealous, and assume that Netflix really should be paying them more money. Basically, they don't think Netflix deserves to profit at all, since it's really all "their content." What they ignore, of course, is that (despite multiple weak attempts) they were the ones who failed to provide a compelling streaming service themselves. Either way, if Hollywood keeps pushing those numbers up, they may discover that they end up killing the golden goose.

Filed Under: content, licensing, movies, streaming, value
Companies: netflix

Movie Studios Purposely Crippling Rental DVDs In Misguided Effort To Get People To Buy

from the taking-away-features-is-not-a-strategy dept

What is it about the entertainment industry that actually makes them think that it's a smart move to take features away from consumers? They seem to focus on building business models by pissing off as many people as possible, and then wondering why those people seek out alternatives. Case in point, visual77 points us to the news that movie studios are increasingly offering up feature-limited DVDs for the rental market, and then encouraging you to buy the DVD itself if you want all the features. As Consumerist reports:

Consumerist reader Joseph brought this to our attention after he spent $3.99 to rent the DVD of Scott Pilgrim Vs. The World from Blockbuster. When he went to the disc's main menu and attempted to watch the Blooper Reel special feature, he was greeted by a screen telling him: "This disc is intended for rental purposes and only includes the feature film. Own it on Blu-Ray or DVD to view these bonus features and complete your movie watching experience."

This is the same thinking that leads the studios to seek to have rental places delay movies for a month. The entire business model seems to be centered on creating artificial scarcities that piss off people. Is it really so difficult for the industry to realize that they can make more money by adding value and actually delivering what people want?

Filed Under: dvds, features, movies, rentals, value

Viacom Plays The Insane Hyperbole Card In Claiming YouTube Ruling Would 'Completely Destroy' Content Value

from the get-real dept

It should be no surprise, of course, that Viacom has now officially appealed its rather complete loss at the district court level concerning YouTube's liability for users' posting infringing works. What is a little surprising is the level of insane hyperbole Viacom chooses to use in its filing (included in its entirety after the jump) -- where it claims that if the ruling is allowed to stand it, would "completely destroy" the value of content:

If affirmed by this Court, that construction of Section 512(c) would radically transform the functioning of the copyright system and severely impair, if not completely destroy, the value of many copyrighted creations. It would immunize from copyright infringement liability even avowedly piratical Internet businesses.

To put it mildly, this is hogwash. First of all, it's exactly how the system has functioned since the DMCA came into being in 1998. If you see infringing content on a site, you issue a takedown and the site takes it down in order to keep its safe harbors. The idea that it would "completely destroy" the value of content makes no sense at all. First, you have to understand why it makes no sense that YouTube should be liable: it has absolutely no way of knowing, for certain, whether or not specific content is infringing. As it showed in the case, even Viacom itself had trouble figuring out what was infringing, and had sued YouTube over a bunch of videos that it had put on YouTube itself. How do you make YouTube responsible for determining such things when even the copyright holder can't figure it out? It makes no sense.

Second, the idea that the value of the work is "destroyed" again makes no sense. After all, the value of any particular content is intrinsic to the content and how any individual feels about it. The value of a piece of content doesn't change if someone puts it up on YouTube. Furthermore, YouTube quickly does remove content when it receives a takedown notice, so if Viacom is that concerned, it can send the takedowns. In fact, that's exactly what it did and the company complied. That's exactly what the law says it should do. On top of that, nothing in the DMCA's safe harbors immunizes those who actually upload the content, who are still very much liable for their own actions.

But the biggest evidence that Viacom's claims are complete and total hogwash is the simple fact that even after the ruling, there has been no "mass destruction" in value of content. As we've pointed out for years, the overall revenue for the entertainment industry continues to go up all this time -- though, perhaps less of it goes to the gatekeepers like Viacom. But those are normal market changes, not anything nefarious. Who knows how the appeals court will rule in the case, but Viacom seems to be going off the deep end with hyperbole in making its own case. They must be hoping that the judges don't do much thinking for themselves.

Filed Under: copyright, dmca, hyperbole, safe harbors, value, videos
Companies: google, viacom, youtube

Debunking The Claim That Giving Away Music 'Devalues' It

from the debunker's-forum dept

One of the popular claims from critics of this site is that giving away music (or even offering it much cheaper) "devalues" it. We've posted many times explaining how price and value are two different things. A lower price does not inherently change the value of a product. The simplest way to think about is the example we've used before: all of us value air a whole lot. We use it to stay alive. And yet, we don't pay for it directly. But I don't think anyone claims that this "devalues" air. Value is more a determination of the demand curve. How much you value something tells you whether or not you'll buy it at a certain price. If you value something highly, and it's offered at a lower price, you'll buy it at that lower price. That doesn't mean that the value to you has decreased, it means that you've received a surplus (you got more in value than you paid). That's a good thing.

Yet, recently, the whole "low prices devalue music" thing has come back again. There was the former record label exec who suggested selling albums at $1.60 and got trashed for wanting to "devalue music." Then, of course, we've written a few times about the indie label Asthmatic Kitty, which had worried that having Amazon offer its new album at $4 might devalue the music, since they believe music "is worth more than the cost of a latte."

Thankfully, Ian Port, at SF Weekly has come along to do a nice job of debunking those claims:

Several have argued that selling an album for less than a cup of coffee or a bottle of water would devalue the art of music. But people -- at least, young people who don't buy much music anyway -- don't judge the artistic value of music by what it costs. If they did, they would look down on artists who give away free MP3s and whose albums were obtainable on file-sharing sites. They don't.

The devaluing-the-art argument misses two other important points: First, coffee and water bottles can't be downloaded quickly and anonymously at no cost, while digital music can. Second, paying $3 or $4 for a tangible good (i.e., a cup of coffee you watched a person make especially for you) seems intrinsically reasonable in this day and age, even, I would guess, to a 13-year-old. But paying $10 to download a digital file that's a copy of a copy of a copy -- all of them made at no additional cost -- somehow doesn't.

I'm not saying musicians shouldn't be paid for their work. Selling digital albums for $1 or $3 would not stop superfans from paying $10 or $20 or even $50 for elaborately packaged CD or other hard-copy releases. Vinyl lovers will still pay cash money for virgin 180-gram translucent red plastic with big art. And even the $1 digital album, if it made piracy less attractive and increased sales volumes, could bring artists more revenues than they're currently getting.

It's good to see more people pushing back on the silly "low price devalues music" claim.

Filed Under: devaluing, music, price, value

Asthmatic Kitty Clarifies: It Never Meant To 'Guilt' Fans Into Avoiding Amazon

from the words-are-futile-devices dept

A few weeks back, we had written about the small indie label Asthmatic Kitty, who earlier this year, had impressed us with a really forward-looking attitude, when it came to the music industry, saying (in part):

I operate under the conviction that people buy records because they want to own them, not because they want to hear them. It is too easy these days to hear a record without having to buy it. I don't resent that fact, rather I feel we at Asthmatic Kitty embrace it through streaming albums and offering several free mp3s (even whole free albums). And why do they want to own it? They want it to illustrate to others their taste and identify who they are as a person. I also believe they want to be part of something bigger than themselves, they want to belong.

Our job is no longer to sell folks things they want to hear. They want an experience and to identify themselves as part of a community. Ownership then becomes a way of them supporting your community through investing in that community. Fostering that in an honest, transparent and "non-gross" way takes a combination of gracefulness, creativity and not taking oneself too seriously, while still taking art and music seriously.

So, we were disappointed last month when the label appeared to have sent out an email concerning the release of the band's biggest act, Sufjan Stevens, suggesting that Amazon's promotion of the album for $3.99 was somehow devaluing the music, telling fans:

We also feel like the work that our artists produce is worth more than a cost of a latte. We value the skill, love, and time they've put into making their records. And we feel that our work too, in promotion and distribution, is also valuable and worthwhile.

This seemed like a bit of an about-face, and we were also confused as to why the label would allow Amazon to promote its album if they didn't like the price. I also wondered if such promotional discounts even impacted the label's bottom line, as everything I'd heard suggest the labels still got the same cut on such discounted albums as they normally would.

John Beeler, who works for Asthmatic Kitty, now points us to an interview with the label's A&R guy, Michael Kaufmann, where he more or less admits that the label goofed in how it presented the email, and that it was never intended as a guilt trip or to suggest there was anything bad about the Amazon promotion. In fact, he now claims, they were actually excited about the Amazon promotion:

Unfortunately we poorly communicated this point. As Sufjan sings, "words are futile devices." When we first heard about the potential Amazon deal we were very excited to participate. For a small label like our own this was a great opportunity for essentially free marketing. It is a great program, Amazon is doing this as a loss leader, and therefore we still make the same amount of money we would have made at the regular sale price.

So I am sure many folks are thinking, "What in the world is our problem?" What gave us pause was that we were also offering the album at a higher price and we wanted to make sure our customers knew that it would be available for half that price on street date through Amazon. We wanted to be honest and transparent about the coming deal so that folks who preordered at a higher price didn't feel like they have been misinformed, or had a lack of information to make an informed choice.

We never wanted to impose any sort of guilt on our consumers. To me this is in large part of what the record industry has been doing wrong: criminalizing music lovers. However, the message when taken away from the intended audience and often taken out of context read as if we were guilting people into buying direct from us. This was certainly not our intention, and if we had known this was how it was going to be perceived, we certainly would not have sent the email.

What we wanted to do was provide choices. And in the process we thought it would be an interesting opportunity to give food for thought on the perceived worth (or value) of an album. But that discussion should have taken place in a different context. The intent was certainly not to criticize of Amazon's approach. Rather, we hoped to spark conversation and examination of our methods of doing business real time with our customers. We didn't realize this spark was going to blow something up in our faces. Again, what we intended as a cursory thought of the email became the main focus of its criticism.

That makes a lot of sense, and I apologize for contributing to blowing the story out of proportion, and apparently not providing the proper context, which I was unaware of at the time. I'm still a little confused about the claims in the original email about the "value" of music, but I understand that's a different discussion. In the meantime, the label seems back to recognizing that it's important to connect with fans in whatever manner possible, rather than guilting them:

We want them to have the opportunity to hear our releases. We want them to have the opportunity to listen. We want them to take active part in deciding what it is worth to them to own our music by deciding how they purchase. The last thing we want to do is dictate price or guilt someone into a particular point of sale. That is pretentious for us to think we even can. It is a complex mechanism that involves supply, demand and all the other facets that make a market economy. We have our opinion, but that isn't meant to be an authoritative statement.

We do want to encourage folks to support us, and they are supporting us whether they buy it from Amazon, iTunes, eMusic, Bandcamp or from their local record store. So ultimately their decision of where they buy and how much they pay is trivial, because they chose to support us in an age where it is so easy to just download for free.

Filed Under: music, pricing, sufjan stevens, value
Companies: asthmatic kitty

Label Complains That Amazon Devalues Artists By Making Music Cheap

from the you-got-it-backwards dept

This is unfortunate. Nearly two years ago, we wrote about the indie music label Asthmatic Kitty, which seemed to take a really forward looking attitude towards the new music market. In that interview, the label noted the reality of the new world, and why it was important to focus on reasons to buy, rather than assuming that people would just pay to hear music. This is what was said at the time:

I operate under the conviction that people buy records because they want to own them, not because they want to hear them. It is too easy these days to hear a record without having to buy it. I don't resent that fact, rather I feel we at Asthmatic Kitty embrace it through streaming albums and offering several free mp3s (even whole free albums). And why do they want to own it? They want it to illustrate to others their taste and identify who they are as a person. I also believe they want to be part of something bigger than themselves, they want to belong.

Our job is no longer to sell folks things they want to hear. They want an experience and to identify themselves as part of a community. Ownership then becomes a way of them supporting your community through investing in that community. Fostering that in an honest, transparent and "non-gross" way takes a combination of gracefulness, creativity and not taking oneself too seriously, while still taking art and music seriously.

Apparently, however, they do resent Amazon for making music available cheaply. Reader Colin points us to a recent article about how Asthmatic Kitty has sent out a letter to fans of artist Sufjan Stevens, complaining that Amazon's pricing is too low and asking people to go to Bandcamp and pay more instead. They do admit to being somewhat conflicted about this, at least:

"We have mixed feelings about discounted pricing," the label explained.

"Like we said, we love getting good music into the hands of good people, and when a price is low, more people buy. A low price will introduce a lot of people to Sufjan's music and to this wonderful album. For that, we're grateful.

But we also feel like the work that our artists produce is worth more than a cost of a latte. We value the skill, love, and time they've put into making their records. And we feel that our work too, in promotion and distribution, is also valuable and worthwhile."

While they're certainly not attacking Amazon or fans, the whole email does feel a little off. The simple fact is, if people want the music (as the label seemed to recognize last year), they can find it somewhere for free. Amazon's prices are meaningless when it comes to the "value" of the music. Price and value are not the same thing. Rather than complaining about the price that Amazon sets on the album, why not give people additional reasons to pay directly at Bandcamp -- such as providing valuable extras if they do. Or discounts on other merchandise. There are all sorts of positive ways to get people to find it worthwhile to spend money without making them feel guilty and bad for paying a price that is legitimately offered by a retailer.

Filed Under: business models, labels, music, sufjan stevens, value
Companies: asthmatic kitty