The User Illusion and Media's New Golden Age

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by: Keith Woolcock
Without bandwidth everything sucks. But the big bandwidth problem is not the speed of your ADSL or your 3G connection. The bandwidth of human consciousness is the real bottleneck that slows internet access. Anyone who cracks this has a chance to be rich and powerful like Steve Jobs, Mark Zuckerberg, Page & Brin or Rupert Murdoch
The human bandwidth problem has googlesque implications for the sale of content and applications on the internet. One of the best surveys of the problem can be found in a classic study called The User Illusion.
We are only consciously aware of about one millionth of the data flooding into our subconscious minds from our senses. Apple (NASDAQ:AAPL), Google (NASDAQ:GOOG) and Facebook grasped the issue of human bandwidth better than other companies. Their success might lead to a golden age for media companies like New Corp. That's the good news. The bad news is it might lead to the balkinization of the internet.
When you're sat at a desktop you have the time to doodle around the internet. You don’t have that time when you use a smart phone or an iPad. This year, according to Ericsson, most access to the internet will come from mobile devices. Over the coming two to three years the number of users on the internet is likely to increase from 1.7bn users to close to 3 billion - nearly half the population of the world!

The masses will not be able to use smartphones and other handheld devices unless designers crack the human bandwidth problem. Make access easy and quick. Yet, ensuring that devices and applications adhere to high levels of simplicity will change the nature of the internet as we know it.

The first wave of internet growth was dominated by the PC. PCs are open devices that can run any software the user chooses to put on them. In fact, users can write their own applications. By contrast, devices like the iPad and smartphone surrender openness for great simplicity. Technically they are called embedded devices, which means they cannot be programmed by their users.

Firms like Microsoft and Intel depended on the fact that open devices would always beat embedded devices in terms of units sold because there was more software and content written for them. PCs were open and flexible, which is what users and developers wanted.

Then up popped a mutant device called the iPhone. The iPhone is an embedded device, you and I cannot program it. However, the creation of the Apps store meant that this embedded device now has a mind bogglingly rich ecosystem of content and applications that supports it. Like a true embedded device however the iPhone remains tethered to its manufacturer, Apple, and to a lesser extent the network that supports it.

Internet libertarians will complain that the Apple's Steve Jobs is a control freak. They will hanker for after the past when PCs gave them more freedom. The problem is that if content and applications are to be finely attuned to our limited conscious bandwidth someone somewhere needs to be in control. This is why books and newspapers need editors, free and open doesn't work when human bandwidth -attention time- is the main concern.

The iPad is another tethered device, which I believe will probably usher in a new golden age for media. Putting content behind a pay wall is not the way to generate wealth. However, imaginative content companies will be able to use the graphics, touch based user interface, together with the sound and mobility of the iPad, to create a new type of content. Think of highly graphic magazines where you can move the graphic around or turn on a video. This, combined with an easy payment systems, such as the one provided by iTunes and you are ready to rock and roll.

In the US each year about $16bn dollar is spent on newspaper and magazine subscriptions - now lets wait and see how much of this migrates to an electronic platform like the IPad over the coming couple of years.

Devices like the iPhone and iPad, or the Android, need content and applications to make them popular. Because they are tethered to their producer or network operator these companies are in a position to either pay for content or to make it easier for the content generator to collect payment for their wares. This was not the case in the old PC dominated internet where it was easy for users to pirate content.

As we saw with the case of Amazon and Macmillan books recently, the arrival of devices like the iPad could lead to more bidding wars for good content.
From an investment point of view it's time to look at content again. Content stocks are often on very low ratings, yet as we have just seen with results from New Corp, Disney and Time Warner these companies are trading strongly.
The flip side of all this is that the Web is going to become more corporate. Each of us is going to have to make a Satanic bargain - ease of use and richness of user experience in return for a lack of privacy and freedom. Are you prepared to make that bargain?

Author's Disclosure: I own no positions in any stocks mentioned.