A White Paper: The next generation social media business opportunity

for cultural networking and micro-commerce

“For too long we've been suffering the tyranny of lowest-common-denominator fare, subjected to brain-dead
summer blockbusters and manufactured pop. Why? Economics. Many of our assumptions about popular taste are
actually artifacts of poor supply-and-demand matching - a market response to inefficient distribution.”

Chris Andersen, The Long Tail

http://www.wired.com/wired/archive/12.10/tail.html

Context
The last two decades of technological evolution have introduced many fundamental and revolutionary
disruptions in the way we live, network, entertain ourselves and do business. Dramatic though such
changes already are, they are mere previews of the shape of things to come and many of today's fresh
technological innovations are in nascent stages of evolution, awaiting harness of their true potential.
Sustainable and transformative businesses of the future will be those that unlock the potential of such
new technologies by focusing them at specific unmet market needs, and tuning them to remove existing
inequalities in such markets, reduce current customer costs, deliver new value. Finding the right
crosshair of the two vectors involved – a sharply defined market segment with a significant unmet need,
and an appropriate technology innovation with a potential to disrupt and transform this market – holds
the key to such futures, as always.

This business idea is at the crosshair of the culture/entertainment market and the next generation of
social media technology.

The market: culture and entertainment

Industries that deal with buying and selling of cultural (or entertainment) products – music, books, film,
theatre, etc – are uniquely fascinating especially in today's context, because they offer a study in stark
contrasts:

• On the one hand, a tsunami of technological disruptions have recently crashed on the shores of
these industries, shaking its very foundations: the internet has nearly eliminated the costs of
global distribution and ubiquitous storage of the vast inventories involved; high quality self
production/publication is increasingly easy and commonplace; peer to peer technologies are
making the illegal rampant; smart and powerful consumer devices are transforming the way
entertainment is consumed.

• Yet, on the other hand, the business model in these industries has largely remained unchanged
over many decades: monolithic intermediary moguls still dominate the industry, sitting in
between a diversity of fragmented producers (artistes) and mass consumers (audience); they
drive a “hits and misses” economy by backing a micro-subset of the available product range,
using “formulae” that are empirical extrapolations of past mass appeal successes; the majority
of their earnings are spent to package and distribute the product, rather than to compensate
the producer/artiste; only 1-2% of the published product range contributes 99% of the industry
revenues while the remainder forms a vast “long tail” of under-exposed inventory, and even
larger productions remain in private unpublished collections of individual artistes; a handful of
artistes become “stars”, while majority remain in various degrees of penury and obscurity; and
vast swathes of consumers remain in ignorance of the majority of the inventory; and over the
last decade or so, the constituent industries (music, film, books) are almost universally
flatlining, and some are even on the decline.

Contact: saugata chatterjee, at saugata.chat@gmail.com

The technology: social media
Among the many emerging technologies of the current era, arguably the advent of social media has
already had the largest effect on the largest number of people in the shortest period of time. Some of
the most recent statistics are as follows:
• Social networking now accounts for 22% of all time spent online in the US.
• Twitter processed more than one billion tweets in December 2009 and averages almost 40
million tweets per day.
• Over 25% of U.S. internet page views occurred at Facebook in December 2009, up from 13.8%
a year before.

Already the adoption of social media by individual consumers has been pretty staggering, and its value
is evident through the (intuitive) mathematics of Metcalf's Law and (indirectly) via the soaring valuations
of social networking firms. But, it may be fair to say that mastering this medium for predictable and
consistent business results is still some distance away. When reporting earnings from Q4 of 2007,
Google also opined on the difficulty in monetizing social networking sites. Sergey Brin noted, “I don’t
think we have the killer best way to monetize social networks yet.” And because the DNA of this new
medium is by definition dispersed amongst the millions of users of the medium, traditional approaches
of controlled, one-to-many messaging is breaking down ever so often, and businesses are as much
threatened by the chimeras of privacy violation and negative returns on investment as they are excited
by its potential.

That said, there are already exciting glimpses of untapped future commercial potential in trends such as
the one I recently heard a leading e-retail CIO speak of: while only 20% of the visitors to his site make a
purchase, nearly 80% of visitors who come to the same site from a leading social networking site end up
transacting. A recent CNN study resonates a similar theme: http://www.c21media.net/news/detail.asp?
area=89&article=57782

The opportunity
The business opportunity arises out of two significant common characteristics between a
disintermediated (free? open?) culture and entertainment market and the social networking medium,
both of which are fundamental, powerful yet largely unmonetized as of today:

• The first one is the many-to-many nature of interactions inherent to both. All social media
technology's raison d'etre is to enable its user communities to interact in this way. And the
culture/entertainment market is defined by the variety of artistes-audience communities and
their many-to-many interactions with each other.

Yet, in current context, the only “successful” many-to-many models visible are either illegal (p2p
sharing) or not adequately monetized. Despite the millions of many-to-many user interactions it
facilitates, Facebook makes most of its revenues through brand and performance advertising,
which are essentially web extensions of the traditional one-to-many advertising framework.
Exceptions in the nature of TenCents (China) do exist, but the long-term sustainability and
scalability of their model remains to be seen. And in the culture/entertainment market, there
has always been a dire absence of any platform for many-to-many interactions between multiple
artistes and a multitude of audiences, except possibly within the limited arenas of multi-artiste
workshops or events.

• The second common characteristic is the role influencers play, in social media as well as in the
culture/entertainment arena.

Much has already been written about the crucial importance of influencers – figures who
command social authority and credibility – in a social network. However, it is vital to note that
most such analysis has so far been driven with a tacit one-to-many marketing agenda by
businesses keen to gain influencer acceptance, and thereby gain favor with the communities
such influencers represent. No matter how you look at this, there is an inescapable counter-

Contact: saugata chatterjee, at saugata.chat@gmail.com

 intuitive element involved in such exercises: in trying to “influence the influencers”, who,
paradoxically, enjoy their social credibility and authority position largely because they are
perceived by the community to be neutral, independent voices, under no vested influences.

The role of the influencer, in the context of the culture/entertainment market, is possibly even
more vital, and yet even less recognized, leveraged or monetized. While media-driven marketing
blitzes today drive public entertainment choices along lowest common denominator “pop” fare,
it is through context-driven conversations with and recommendations offered by our real life
community influencers – the film buff, the music aficianado, the literary expert amongst our own
friends and family – that many of our “significant discoveries” of cultural/entertainment
artefacts occur. And because many such discoveries typically fall beyond the pale of today's
“pop” options (the 1% of the total fare that is being promoted in media), this also appears to be
a severely under utilized but really high potential route to allow the majority of the consuming
audience the opportunity to discover the “long tail” of cultural/entertainment treasures (the
balance 99% of published cultural inventory), thereby unlocking the opportunity for monetizing
the vast under-selling resource base of the industry as well.

It is important to establish here that statistical algorithm based techniques analyzing past
browsing, preference or purchase patterns (e.g the collaborative filter technology) cannot
substitute the community effect here. It is the credibility of the commender, and the context of
the conversation that holds the key which allows us to transcend our past experiences and
habits and break new grounds, which of course is the very essence of “discovery” and the soul
of cultural value.

There has been some recent sporadic initiatives in mixing social community with entertainment,
mostly in the sector of internet radio (or streaming music) so far – e.g. Last.fm, blip.fm, pandora,
etc. However, all of these have been mostly restricted to experiential “sharing of preferences”
within communities, largely un-monetizable and totally lacking the advantage of any context-
driven, holistic conversations within such communities.

Integrating all above, it can be concluded that the next transformational opportunity lies in building a
social media platform specifically architected for context-rich, many-to-many conversations within
culture/entertainment communities, actively rewarding influencer recommendations in order to trigger
a virtuous cycle of commerce down the “long tail” of under-exposed current publications and
significantly lowered cost of artiste self-distribution/promotion (self publication costs are already on a
steep decline) and micro-commerce.

As this community achieves critical mass, the associated industries (labels, production houses,
equipment makers, event organizers, brands, etc) can be offered paid, anonymized and intelligent views
into the community (to analyze real-time entertainment trends of any chosen target segment, to sample
audience reactions to previews, to discover new talent, to detrmine the right target segment for
marketing their own services/products, etc) and be allowed premium opt-in access to specific chosen
artiste/audience members/groups in the community.

Apart from adverts, the business revenues accrue from commissions (eBay model) earned for every
commercial transaction it enables (for referrals to existing etail sites of published fare or for sale of
artiste self-publications), and subsequently in the second phase through premium industry
subscriptions linked to network strength and pay-per-connect modes.

Contact: saugata chatterjee, at saugata.chat@gmail.com