Archive for economy

Don’t Panic: Scarcity Drives Innovation

Online social activism platforms are, generally speaking, lean operations. The more than 40 platforms we’ve identified here at CauseWired (and supplemented by Christine Egger over at Social Actions) do not boast deep balance sheets laden with venture capital, or vast marketing operations designed to build their brands rapidly. As hard times nip at the world’s heels – and this truly is, in my view, a global economic crisis – the cause start-ups should be well-positioned to survive, and in many ways, to help provide assistance where it may we be needed more than ever.

And as recruiters of CauseWired consumers – wired young activists who believe their work must stand for something great than themselves – the online social activism start-ups can provide a real outlet for soul-satisfying involvement even as markets close and opportunities suffer.

Nonetheless, these platforms are start-ups: from the venerable DonorsChoose (started way back in 2000) to the newest online cause. They require some cash to run, whether philanthropic or of the investment variety (or a combination of both). They are social ventures and are expected to boast models that lead to financial self sufficiency at some point in the future. So the disaster in the markets and the paralysis of the world credit markets may well leave their mark.

That said, I was struck today from some advice published by my old friend John Borthwick, a well-known entrepreneur from my Silicon Alley days who now runs an incubator for social media start-ups. I think some of the hard-charging CauseWired social entrepreneurs could do well to read his advice this Columbus Day weekend. Here’s an overview:

Things look ugly, but with distress comes opportunities. Scarcity drives innovation. Always has, always will. Do more with less: A trite one liner that you need to make part of your companies DNA.

There will be more emphasis on user value, more ways to make money from that value. We will finally fess up to the fact that many of the ad models of web 2.0 don’t yield results, and we will invent ones that do. All around there will be more innovation.

It’s counterintuitive, but during an up cycle people accept conventional wisdom, and during a down cycle people challenge it. That’s good. Very good. And the cycle will winnow competition.

And yes, you do have competition. Sure, it’d be great if all the well-minded social actions platforms grow and survive and help to change the world. But they won’t. Some will become part of the fabric of public life; others will whither. And the competition for attention alone – those precious clicks and minutes online – will eventually winnow the pool. Then other start-ups will come along and innovation will advance. And the big players we currently take for granted in the online world will also change, says Borthwick:

Pieces are going to move on the chess board. Big pieces. This shouldn’t be your focus, but things are going to have change around your business, and they might affect you. Yahoo is going to be sold or bought. Ebay will either be sold or bought or broken up. Facebook is going to have to change (cut spending, focus on revenue) or it will be bought. Same for Linked in. Microsoft, News Corp. TWX and other media companies will be buyers. What does Google do in this cycle — freeze or be bold? The newspapers — do they act out of fear or freeze up? Telco’s and cell cos; cable cos — do they jump upstream? Why should you care? Because as these pieces move around the chess board, they may well affect your future. So watch carefully. If Paypal — which by some estimates is now 50% of the value of Ebay — gets spun out of ebay, then they will accelerate services beyond advertising. Etc. etc. So consider the moves the elephants make. The equation for them, public or private, has changed.

Finally, the big downturn – and we’re looking at a couple of years, minimum, so don’t kid yourself – will help to accelerate another trend, one that favors the zeitgeist of online social activism. Borthwick:

I think this cycle is going to drive another significant shift in how open and interconnected the Web is. This is good news for you, and this is bad news for the Facebooks of the world, who tried to replicate the walled garden strategy of Web 1.0.

Think about what happened through the last cycle. Start with AWS. In the 1990s, Internet companies had to own everything top to tail. Today you can use Amazon and other services to pop up a new box for hundreds of dollars, if that. Thats a huge shift, and it’s also a shift towards interdependency.

We are all now dependent on the Amazon’s of the world for parts of our infrastructure. I think this turn of the cycle is going to drive a lot more openness. This in turn ties to the market figuring out how to rapidly establish bottoms-up standards. This is about working with others and figuring out how to do things without having to do all the work.

John Borthwick was writing about for-profit social media start-ups, but I think his advice is spot on for social entrepreneurs working on the web. It’s going to be a rough go, but I think the stakes of what we’re doing just got higher.

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CauseWired: Unwinding the Financial Crisis

Will it be tougher to raise money for crucial causes over the next couple of years, online and off? The jury’s out: for one thing, the services non-profits now provide will continue to be vital as government faces tighter budgets. For another, down economic cycles rarely smack philanthropy numbers down as a product of GDP; we’re almost always around 2%. (For some numbers, download this Changing Our World pdf authored by my brother Chris on historical philanthropy numbers – it may calm you down). Clearly, the most compelling causes will still move people to get involved.

But is there an opportunity to press for more transparency as the U.S. government moves ever closer to a centrally-controlled economy and dabbles in the buy-out business with our tax dollars? I think so – and now, with everything seemingly on the table, may be the time to push. One of the books that influenced me in writing CauseWired was Don Tapscott’s terrific Wikinomics, a crowd-sourced view of our world in which group-controlled entities build massive societal values. Tapscott spoke last week at the Sibos conference in Austria, and this bit really caught my attention:

“We can’t afford the almost two decades that it took for Japan to recover from its 1990 financial implosion. The US industry requires fresh capital and updated regulations, but that’s not enough to reboot the system. Investors have been burnt badly, and some won’t fully trust Wall Street for many years, possibly a generation.

“Bankers and business leaders should be looking to collaborate around a private sector solution to the chronic problems undermining the financial services marketplace. They need to rethink many assumptions of the basic modus operandi of the financial services marketplace.

“For example, investors should be able to ‘fly over’ and ‘drill down’ into a Collateralized Debt Obligation’s underlying assets. With full data, they could readily graph the payment history, and correlate information such as employment histories, recent appreciation (or depreciation), location, neighborhood pricings, delinquency patterns, and recent neighborhood offer and sales activities. Now that AAA ratings have proved worthless, currently investors don’t have a glimmer of what they are being asked to buy. And they won’t start buying until they fully understand what they are purchasing and know that the price is fair.

Clearly, trillions of dollars leveraged in back-room deals unregulated by the very citizens whose tax dollars secure much of the rest of the banking system is a recipe for disaster.

UPDATE: Jeff Jarvis has some interesting thoughts about what $700 billion could buy – and how it could change this country.