Duelling Web 2.0 Scenarios: Boom/Bust

Has Tim O’Reilly’s Web 2.0 meme become a high-tech bubble about to burst?

Origins of the Web 2.0 Boom

O’Reilly’s vision of a new Web platform originally fused two developments.

The first development: C, Smalltalk and object oriented programmers devised design patterns in the early 1990s to reuse software code and workaround solutions across projects.  A 1995 catalog catapulted its four authors to software engineering fame.  To capture the rapidly growing number of design patterns programmer Ward Cunningham created the first wiki: the Portland Patterns Repository.

The second development: a re-evaluation of dotcom era business models to encompass new technologies that enhanced the end-user experience including the site interface and information architecture.  Industry buzz around News Corporation’s acquisition of MySpace (18th July 2005), Yahoo!’s purchase of Flickr (21st March 2005) and del.ico.us (9th December 2005), and Google’s stock-for-stock deal for YouTube (9th October 2006) made O’Reilly’s vision the ‘default’ vision for Web pundits and investors.

The media’s buzz cycle soon went into warp speed as Facebook frenzy replaced MySpace mania.  In a move that exemplified the pivotal role of complementors O’Reilly & Associates morphed into the juggernaut O’Reilly Media.  Ajax and Ruby Rails soon replaced Java and C# as the languages for new programmers to learn.  For activists in community-based media, angel investors investing in scalable programming prototypes and international conglomerates seeking to control their industry white-spaces Web 2.0 provided an all-encompassing answer to venture capitalists on how they would change the world.

Two Scenarios: Web 2.0 Boom & Bust

For industry pundits Google’s decision in October 2008 not to acquire Digg may signal the Web 2.0 boom has become a bubble.  If true Google’s decision could be the mirror of News Corporation and Yahoo!’s acquisitions in 2005.  Slate‘s Chris Anderson points to several factors: no tech IPOs in the second quarter of 2008, the cyclical nature of the digital consumer market, the exit of Yahoo! as a potential buyer due to internal problems, market noise due to low barriers of entry for startups, and a smaller “window of opportunity in which startups can think of a new neat trick, generate buzz, and cash out.”  YouTube’s co-founder Jawed Karim adamently believes that Silicon Valley is in a bubble.

Twitter is the latest startup in the duelling scenarios of Web 2.0 boom versus bust. New York Times journalist Adam Lashinsky experiences a similar euphoria to Facebook and YouTube when he visits Twitter’s co-founder Jack Dorsey.  Sceptics counter that Facebook and YouTube have not ‘monetised’ their business models into profitable revenues.  Portfolio‘s Sam Gustin raises the ‘monetisation’ problem with Twitter co-founder Biz Stone who believes that service reliability is a priority over the “distraction” of revenue pressures.  In support of Stone’s position Anderson observes that cloud computing and open source software are lowering the operational costs and slowing the burn rates of startups.

Yet monetisation remains a primary concern for Sand Hill Road entrepreneurs and other venture capitalists.  They differ in their decision-making criteria to Web 2.0 pundits and high-tech futurists: for angel investors and first round VC funding the entrepreneurs will demand a solid management team, the execution ability to control an industry whitespace, and viable sources of future revenue growth.  This is the realm of financial ratios and mark-to-market valuation rather than normative beliefs and ideals which probably influenced the acquiring firm’s decisions and valuation models in 2005-06.

Furthermore, if a Web 2.0 bust scenario is in play, the ‘contrarian’ sceptics will look to Charles Mackay, Charles P. Kindleberger, Joseph Stiglitz and other chroniclers of past bubbles, contagion and manias for guidance.  With different frames and time horizons the Web 2.0 pundits, high-tech futurists and venture capitalists will continue to talk past each other, creating still more Twitter microblogging, blog posts and media coverage.

Several preliminary conclusions can be drawn from the Web 2.0 boom/bust debate.  In a powerful case of futures thinking O’Reilly’s original Web 2.0 definition envisioned the conceptual frontier which enabled the social network or user-generated site of your choice to come into being.  The successful Web 2.0 startups in Silicon Valley have a distinctive strategy comparable to their dotcom era counterparts in Los Angeles and New York’s Silicon Alley.  Web 2.0 advocates who justify their stance with MySpace, YouTube and del.icio.us are still vulnerable to hindsight and survivorship biases. There’s a middle ground here to integrate the deep conceptual insights
of high-tech futurists with the quantitative precision of valuation
models.

It’s possible that the high-visibility Web 2.0 acquisitions in 2005-06 were due to a consolidation wave and strategic moves/counter-moves by their acquirers in a larger competitive game.  There are two precedents for this view.  Industry deregulation sparked a mergers and acquisitions boom in Europe’s telecommunications sector in the late 1990s comparable to the mid-1980s leveraged buyout wave in the United States.  Several factors including pension fund managers, day trading culture and the 1999 repeal of the US Glass-Steagall Act combined to accelerate the 1995-2000 dotcom bubble.  Thus, analysts who want to understand the boom/bust dynamics need to combine elements and factors from Web 2.0 pundits, high tech futurists and venture capitalists.

If the Web 2.0 boom has become a bubble then all is not lost.  Future entrepreneurs can take their cue from Newsweek journalist Daniel Gross and his book Pop! Why Bubbles Are Great for the Economy (Collins, New York, 2007): the wreckage from near-future busts may become the foundation of future bubbles.  Web 3.0 debates are already in play and will soon be eclipsed by Ray Kurzweil‘s Transhumanist agenda for Web 23.0.

Anvil! The Story of Anvil & Prospect Theory

Music lasts forever . . . and sometimes the debt does too!
– Steve ‘Lips’ Kudlow, Anvil

Sacha Gervasi‘s Anvil! The Story of Anvil (2008) is more than a documentary on the Canadian heavy metal band Anvil: it’s one of the most poignant films yet on how our beliefs and emotions affect our decision-making abilities.

Gervasi’s film begins with Anvil’s triumph: a support set at Super Rock ’84 Japan where lead guitarist/vocalist Steve ‘Lips’ Kudlow wears bondage gear and plays a guitar solo with a dildo whilst drummer Robb Reiner unleashes fast blast beats.  Anvil’s albums Metal on Metal (1982) and Forged in Fire (1983) combine two different strands of heavy metal music: the New Wave of British Heavy Metal movement of the early 1980s that Def Leppard and Iron Maiden popularised, and outrageous tactics that Motley Crue and other Los Angeles bands would adopt in the mid-1980s.  The other bands at Super Rock ’84 sold millions of albums: Scorpions, MSG (Michael Schenker Group), Whitesnake, and Bon Jovi.

But Anvil didn’t and Gervasi explores why.

Anvil’s peers offer several explanations.  Metallica‘s Lars Ulrich suggests Anvil’s Toronto home disadvantaged them compared to the US heavy metal subcultures in Los Angeles and New York.  Motorhead‘s Lemmy Kilmister believes Anvil’s original lineup had talented musicians who never received their due recognition.  Slash the iconic guitarist from Guns ‘n’ Roses and Velvet Revolver contends that other bands took what Anvil did well and just ripped them off.  Anthrax guitarist Scott Ian just wonders where did Anvil go in the past 25 years?

Gervasi tracks down Kudlow and Reiner who are Anvil’s sole original members to Toronto.  Kudlow’s day job is a driver for Choice Children’s Catering whilst Reiner is a sandblaster.  Bassist Glen Five and guitarist Ivan Hurd struggle to survive.  Anvil’s only gigs are at a local sports bar.  They have no management, no producer, no record label contract and will rely on luck and perseverence to get to the ‘next level’ of their careers.

Anvil! documents Kudlow and Reiner’s attempts to achieve the heights of their Super Rock ’84 Japan success: a disastrous European tour and the recording sessions for This is Thirteen (2007).  Gervasi captures Kudlow and Reiner’s decisions during this process, their rationalisations when things go wrong, and the reactions of other band members, friends and collaborators.  Anvil! is thus less a mockumentary like Bad News (1983) and Spinal Tap (1984) and closer to a great case study in Amos Tversky and Daniel Kahneman‘s Prospect Theory: decision-making about risk where there are differences, known outcomes and unconscious biases.  Despite the improbability of achieving the rockstar dream after 30 years Kudlow and Reiner continue to strive because of their ‘Loser Take All’ passion and self-image, their early success at Super Rock ’84 Japan and the path dependence of their past decisions.

The European tour becomes a series of bad decisions: the tour manager doesn’t book train tickets for transport, Kudlow and Reiner fight with a club owner to pay a gig when only seven people turn up (‘We aren’t getting paid!’), and only 174 people turn up to a Transylvanian heavy metal festival in a 10,000-capacity venue (‘How much love could one person put into something?’).  The tour manager expresses remorse due to hindsight bias, falls in love with and then marries guitarist Ivan Hurd who leaves Anvil in 2007.  Kudlow and Reiner also have to fend against adverse selection when lawyers and others cluster around to take Anvil’s money.  Kudlow takes five weeks off work for the tour in which Anvil makes no money: ‘When we’re on tour we’re on vacation’ he tells Gervasi.

In the tour’s aftermath Kudlow admits to Gervasi why Anvil have not succeeded: they made bad decisions early on in their career, have no management to promote them, the past few albums have poor material and no production, and the band was ripped off by ‘indie’ record labels who never payed their artists (‘99.9% of bands never get paid’).

Kudlow’s solution is to approach producer Chris Tsangarides who worked with Anvil to record a new album.  Kudlow struggles to raise the $13,000 that Tsangarides requests: he lasts eight hours at a telemarketing job run by Anvil’s fan club president before turning to his sister who is a successful businesswoman and gives him the money.  The band decamps to Tsangarides’ studio in Dover, England, to write, record and mix This Is Thirteen
(2007).  The studio appears to consist of a band gear room, a vocalist room, and an audio engineering room with Protools software and a small mixing desk.  (Although Gervasi doesn’t explore it further the studio shots suggest that Tsangarides is also down on his luck and that his surface altruism hides the more pragmatic motive of generating income from any source to survive and trading on his past with Black Sabbath and Judas Priest).  Reiner argues with Kudlow over the lyrics and poor takes, and storms out.  Kudlow apologises and tries to bring Reiner back with a reminder about their teenage pact whilst Tsangarides tries to de-escalate the conflict and deal with the inevitable group tensions during the recording process.  Kudlow and Reiner reconcile during a Stonehenge visit.

Afterwards, Kudlow uses guerrilla marketing tactics to visit the offices of US record companies, and receives no interest after two weeks.  Kudlow then visits EMI Canada’s officer where an A&R manager turns off This is Thirteen after hearing Kudlow’s over-the-top vocals.  Gervasi ends Anvil! with an unlikely triumph when a Japanese promoter who saw Anvil on their European tour books the band to play a Tokyo festival.  Kudlow and Reiner worry backstage about if anyone will turn up and emerge to find the room full of thousands of fans who remember their Super Rock ’84 Japan performance.

Tversky and Kahneman’s work on Prospect Theory is central to Anvil!‘s narrative about Anvil’s tours and album recording sessions.  Kudlow’s nostalgia about Super Rock ’84 Japan highlights why he has an emotional overinvestment in Anvil’s self-image and appears stuck in a time-warp.  Others share this: bassist Glen Five is an Anvil fan whose belongings are in a garage because he can’t afford a house, the European tour manager has plenty of love and passion but fails in strategic execution, and Kudlow’s wife admits near the film’s end that because of her interest in 1980s heavy metal music and lifestyles she had wanted Anvil to succeed commercially in a moment that has passed.  Kudlow is overconfident about Anvil’s chances, he manages risks through the affect heuristic of immediate problems rather than consequences, and illustrates the knowing-doing problem of knowing what the barriers are and yet not developing mitigative strategies to bypass them.  Gervasi hints that Anvil might have pursued other options, from doing children’s parties at Kudlow’s catering firm to Reiner’s private collection of landscape paintings.  Luckily, Anvil!’s success has opened up new possibilities for Anvil including a MySpace page and street team.

Anvil frequently make comparisons between themselves and the successful bands at Super Rock ’84 Japan.  This is a self-narrative that illustrates Tversky and Kahneman’s anchoring a  cognitive bias which focuses on specific information in decision-making.  Anvil! would be even more interesting if it contrasted Anvil’s underdog failure with the comparison bands who have all run into major problems yet survived due to business savvy managers and major label support: albums recorded for tax purposes (Anthrax), management problems and hostile fans (Metallica and its managers QPrime), lineup, recording and tour problems (Anthrax, Black Sabbath, Guns ‘n’ Roses, Iron Maiden, Judas Priest, Motorhead, Velvet Revolver), and peaks and troughs in their careers (Anthrax, Black Sabbath, Bon Jovi, Iron Maiden, Metallica, Motorhead, Scorpions).  Nor are the costs of these ‘sucesses’ explored: on the first date of Anvil’s European tour Kudlow reunites with Twisted Sister guitarist Eddie Ojeda who looks to be a drugged, emaciated mess.

If that’s heavy metal ‘success’ then Anvil’s hometown longevity, label independence, lifelong friends and supportive family may have been a better long-term choice.