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We think of Google and Facebook as Web gorillas. They’ll be around forever. Yet, with the rate that the tech world is moving these days, there are good reasons to think both might be gone completely in 5 – 8 years. Not bankrupt gone, but MySpace gone. And there’s some academic theory to back up that view, along with casual observations from recent history.
When I was a PhD student 15 years ago, I studied with Don Hambrick who is a scholar known for a career showing the effects of management teams and directors (for good and for ill) on their organizations’ strategies and performance. One of the central tenets of this school of thought on organizations is that senior teams and directors have an outsized influence on organizational outcomes. What’s more, their backgrounds (including education and career paths) have a big effect on how they see the world, various competitive situations and the choices they make.
There’s another school of thought which takes the opposite view called population ecology or organizational ecology which put forward that managers don’t really matter all that much. This view grew out of sociologists who’d taken to study organizations in the 1970s. They assert that organizational outcomes have much more to do with industry effects than who the CEO is and the choices he or she makes. They study birth and death rates of populations of organizations, as well as the effects of age, competition and resources in the surrounding environment on an organization’s birth and death rate. Most of these organizational ecology scholars come out of the University of California at Berkeley.
As a graduate student, I didn’t have much time for this ecology line of thinking. I believed in the power of the individual executive to overcome all challenges in the external environment. We can always point to dynamic CEOs as case studies, even though the sociologists would say those are the equivalent of celebrating the smarts of lottery winners.
As I age and watch what’s happening in the world of technology and mobile, I can’t stop thinking of these ecologists though.
More and more in tech, it seems that your long-term viability as a company is dependent on when you were born.
Think of the differences between generations and when we talk about how the Baby Boomers behave differently from Gen X’ers and additional differences with the Millennials. Each generation is perceived to see the world in a very unique way that translates into their buying decisions and countless other habits.
In the tech world, we’ve really had 3 generations:
Web 1.0 (companies founded from 1994 – 2001, including Netscape, Yahoo! (YHOO), AOL (AOL), Google (GOOG), Amazon (AMZN) and eBay (EBAY)),
Web 2.0 or Social (companies founded from 2002 – 2009, including Facebook (FB), LinkedIn (LNKD), and Groupon(GRPN)),
and now Mobile (from 2010 – present, including Instagram).
With each succeeding generation in tech, it seems the prior generation can’t quite wrap its head around the subtle changes that the next generation brings. Web 1.0 companies did a great job of aggregating data and presenting it in an easy to digest portal fashion. Google did a good job organizing the chaos of the Web better than AltaVista, Excite, Lycos and all the other search engines that preceded it. Amazon did a great job of centralizing the chaos of e-commerce shopping and putting all you needed in one place.
When Web 2.0 companies began to emerge, they seemed to gravitate to the importance of social connections. MySpace built a network of people with a passion for music initially. Facebook got college students. LinkedIn got the white collar professionals. Digg, Reddit, and StumbleUpon showed how users could generate content themselves and make the overall community more valuable.
Yet, Web 1.0 companies never really seemed to be able to grasp the importance of building a social community and tapping into the backgrounds of those users. Even when it seems painfully obvious to everyone, there just doesn’t seem to be the capacity of these older companies to shift to a new paradigm. Why has Amazon done so little in social? And Google? Even as they pour billions at the problem, their primary business model which made them successful in the first place seems to override their expansion into some new way of thinking.
Social companies born since 2010 have a very different view of the world. These companies – and Instagram is the most topical example at the moment – view the mobile smartphone as the primary (and oftentimes exclusive) platform for their application. They don’t even think of launching via a web site. They assume, over time, people will use their mobile applications almost entirely instead of websites.
We will never have Web 3.0, because the Web’s dead.
Web 1.0 and 2.0 companies still seem unsure how to adapt to this new paradigm. Facebook is the triumphant winner of social companies. It will go public in a few weeks and probably hit $140 billion in market capitalization. Yet, it loses money in mobile and has rather simple iPhone and iPad versions of its desktop experience. It is just trying to figure out how to make money on the web – as it only had $3.7 billion in revenues in 2011 and its revenues actually decelerated in Q1 of this year relative to Q4 of last year. It has no idea how it will make money in mobile.
The failed history of Web 1.0 companies adapting to the world of social suggests that Facebook will be as woeful at adapting to social as Google has been with its “ghost town” Google+ initiative last year.
The organizational ecologists talked about the “liability of obsolescence” which is a growing mismatch between an organization’s inherent product strategy and its operating environment over time. This probably is a good explanation for what we’re seeing in the tech world today.
Are companies like Google, Amazon, and Yahoo! obsolete? They’re still growing. They still have enormous audiences. They also have very talented managers.
But with each new paradigm shift (first to social, now to mobile, and next to whatever else), the older generations get increasingly out of touch and likely closer to their significant decline. What’s more, the tech world in which we live in seems to be speeding up. Tim Cook had an interesting line about the velocity of change in his earnings call last week:
through the last quarter, I should say, which is just 2 years after we shipped the initial iPad, we’ve sold 67 million. And to put that in some context, it took us 24 years to sell that many Macs and 5 years for that many iPods and over 3 years for that many iPhones. And we were extremely happy with the trajectory on all of those products. And so I think iPad, it’s a profound product.
Yahoo is already a shell of its 2000 self. There is increasing chatter (including from me) about how Google’s facing a painful multiple contraction, once its desktop search business (still accounting for the vast majority of its revenues and profits) starts to fall off a cliff as users dramatically drop traditional search for new ways of getting information they want in a mobile world. Is Amazon destined to decline? There seem to be no signs of it today and people will still need to buy stuff in a mobile world, but the new mobile platform will certainly open the possibilities for new entrants that Amazon can’t even imagine today.
Facebook is also probably facing a tough road ahead as this shift to mobile happens. As Hamish McKenzie said last week, “I suspect that Facebook will try to address that issue [of the shift to mobile] by breaking up its various features into separate apps or HTML5 sites: one for messaging, one for the news feed, one for photos, and, perhaps, one for an address book. But that fragments the core product, probably to its detriment.”
Considering how long Facebook dragged its feet to get into mobile in the first place, the data suggests they will be exactly as slow to change as Google was to social. Does the Instagram acquisition change that? Not really, in my view. It shows they’re really fearful of being displaced by a mobile upstart. However, why would bolting on a mobile app to a Web 2.0 platform (and a very good one at that) change any of the underlying dynamics we’re discussing here? I doubt it.
What about Apple? Where does it fit in to this classification scheme?
Apple is really a hardware company, so it’s difficult to put it into a bucket related to web apps. It certainly seemed very Web 1.0 with its Ping social application. Yet it’s succeeded in mobile from making the best hardware and software ecosystem for apps to proliferate on. In some ways, as long as it has a successful iOS platform, it doesn’t care which Web 1.0, 2.0 and mobile companies fail or succeed on top of it. Maybe that’s why so many non-mobile companies seem to want to emulate Apple. Google bought Motorola Mobility (MMI) to get into the hardware business. Facebook and Baidu (BIDU) are rumored to be launching their own mobile OS.
The bottom line is that the next 5 – 8 years could be incredibly dynamic. It’s possible that both Google and Facebook could be shells of their current selves – or gone entirely.
They will have all the money in the world to try and adapt to the shift to mobile but history suggests they won’t be able to successfully do it. I often hear Google bulls point to the market share of Android or Eric Schmidt’s hypothesis that Google could one day charge all Android subscribers $10 a month for value-added services as proof of future profits. Yet, where are all the great social success stories by Web 1.0 companies? I imagine we’ll see as many great examples of social companies jumping horses mid-race to become great mobile companies.
It’s a lot easier to start asking Siri for information instead of typing search terms into a box compared to thousands of enterprises ceasing to upgrade to the next version of Windows. Google’s 76% market share. Facebook’s 900 million monthly users. They just aren’t as sticky as they seem.
And does anyone think the pace of change is going to increase in the next 5 years versus the last? That we’re going to see fewer innovations, fewer start-ups trying more stuff on cheaper and more powerful processing power? In all likelihood, we could have an entirely new way of gathering information and interacting with ads in a new mobile world than what we’re currently used to today.
The Googles and Facebooks of tomorrow might not even exist today. And several Web 1.0 and 2.0 companies might be completely wiped off the map by then.
Fortunes will be made by those who adapt to and invest in this complete greenfield.
Those who own the future are going to be the ones who create it. It’s all up for grabs. Web monopolies are not as sticky as the monopolies of old.
World Renown hit maker Brian Burton aka Danger Mouse stopped by the UCLA Hammer Museum on July 12, 2006 for a wide-ranging talk from the beginnings of his career to his current perch as one of pop music’s hottest artists.