A tipping point can be defined as “the culmination of a build-up of small changes that effects a big change”. It is many times tied to an event that adds a missing catalyst or critical amount of energy to achieve a self sustaining reaction. In Gladwell’s book (The Tipping Point) he refers to the mechanics of this being related to “three agents of change” which he calls “the Law of the Few, the Stickiness Factor, and the Power of Context”.

On the other hand, critical mass might be defined more clinically as an “an amount or level needed for a specific result or new action to occur”. For a general purpose social network the chances of a person being interested in or staying in that social network are greatly increased if they already know someone in that network.

Since according to Dunbar any person should be able to keep relationships with about 150 friends, you can surmise that a critical mass would be 150th of the total number in the community. For example if you take a network of 300 million people (US population) and divided that by the maximum size of each persons social graph (150 people) we come up with 2 million people. At that point everyone is likely to have at least one friend that is using the network.

This is of course simplistic, but in practice works as a good rule of thumb for determining when you have achieved critical mass. If we consider smaller regional social networks (e.g. Los Angeles) this rule can be applied as well. For 12 million LA metro residents we would get a critical mass at about 80,000 for a general purpose network.

The problem with simple critical mass calculations is that most social networks are not general purpose. In narrow demographics the effect of connectors and mavens is exaggerated. In order to cost effectively reach the tipping point within a narrow demographic you must be very conscious of Gladwell’s agents of change and how they are related to your objective.

Now here is the fun part. One path to a tipping point is to capture mind share in your demographic. Thanks to search, by influencing the domain mavens and connectors you can effectively control and capture a much wider demographic. If you manage to become popular with people who review a product, you can dominate information and opinion related to a product in the marketplace.

Capturing definitive mind share can be achieved with a much smaller number of people. With a demographic of 800,000, and a critical mass may require 8,000, pervasive mind share may be achieved by influencing the most influential 80. In creating a social network for a specific demographic it is critical to create a strategy that effectively leverages Gladwell’s agents of change to to achieve your goals.

When we amortize most work over millions of consumers it becomes practical, and sometimes more profitable to make the product “free” and support it through advertising or ancillary sales. Because of this trend there is a growing expectation among some people that all content should be “free”.

I received a twitter today from Scott Sigler about an article on Cory Doctorow’s blog Boing Boing talking about Scott’s new book “INFECTED” being a “free download”, but “inexplicably limited”. Cory as usual has many good points, but I still feel that he is a bit harsh with regards to the publishers and what is appropriate at this point.

I have followed Cory’s work for a while and been terribly impressed by some of his forward thinking. His book Down and Out is a must read and a book I recommend to anyone who is trying to get a feel for the concepts behind a Free economy. No I don’t think we will be turning in our greenback for Wuffie any time soon, but I do think that we are gradually moving closer to an Entertainment Economy.

At this point monetization in many domains is still tied to retail. One of those industries is book publishing. Yes in time (probably a short time) book publishing will have to adapt to the new market realities or suffer a similar fate as the now maligned record industry. At the same time we are in a time of transition. Most people would still rather read their books on paper rather than a screen.

For now releasing a book for “free” online does not necessarily hurt the retail sales of the book and may actually strengthen it due to the strong network effect on book sales. For some books the smartest thing you can do is release an “free” version to prime the pump.

That said, the industry is going to change. When Apple released the iPod the record industry didn’t understand that Apple had changed the playing field. While previously people put up with the inconvenience of physical media, the iPod cut the chains and gave them a more convenient way of interacting with music. Physical media was dead, the record industry just didn’t realize it yet.

The same will happen soon for books. While there have been a few eBook readers that have been release and had a tiny amount of success, they have not been convenient enough to make a dent in consumer habits. The same was true for the predecessors of the iPod. In the same way there will come a product that will change that game.

I have seen a glimpse of that future on my iPhone and that future will be here any minute. It will take time for the change to really impact society as profoundly as the ipod has, but it will happen as the next generation again helps change how we think about media. When it becomes common place to have all of your books in your pocket on your phone it will change the game.

So in thinking about Cory’s post I wondered, if indeed that future is upon us, what will it look like? The model that is being pushed by the “free” believers is that you should release content for “free” and then expect people to monetize it via retail sales or donations if the consumer liked it. In this case the retail sales are dependent on the generosity of the reader rather than the previous gating of content via retail. In effect, even retail sales then becomes a Donation.

In this model less adept authors who perhaps relied on taking advantage of current culture or coining Memes to sell books, may find they can no longer compete. Content is king and the flood gates will be opened, if your book is boring fluff it is likely to not get donations.. and perhaps any attention at all.

At the same time, unless publishers hop in bed with the new portals and gatekeepers (iBooks, instead of Borders) they are likely to become irrelevant as the artists go directly to the gate keepers. Of course all of this is evolutionary. Even the record industry has to wake up to the fact that the new gatekeepers are the publishers and they have to fulfill a different role as marketers and managers to continue to add value for the artist.

I do not think that the “free” AKA donation-ware strategy will work for all content. We need lots of layers in the pyramid and not all models work everywhere. It will take time for this all to shake out, but it is going to be fun to help it along.

The format of the screening event was geared for fast presentations (less than 20 minutes) rather than 1 minute elevator pitches. This allows the presenter to paint a much more elaborate picture of what they are doing and why you might be interested in investing. As it turns out it can help, but it also masks some basic communication problems.

By luck one of the presenters at the Screening event, HauteSpot Networks, was one of the winners at the Fast Pitch event. HauteSpot is a solution for streaming CCTV and HiDef video over wireless. At the fast pitch it was unclear what the target market was and how the product was used. The questions from the judges aimed at a consumer play and that didn’t seem to jell or make sense with what I knew of the competition in that space.

The presentation at the screening presented a much different picture of what the company was about and I had an opportunity to talk to HauteSpot’s CEO Bob Ehlers after the event. It turns out that the technology developed by HauteSpot is geared towards government, large public installations and the media. In those markets they had done a lot of work to get government approvals, partnering relationships and start the ball rolling on lucrative contracts.

The interesting thing here is that Bob was using the same type of language in both presentations. In the screening with his PowerPoint there was enough context to see exactly what the business was, but in the fast pitch there wasn’t. Instead the judges assumed that it was yet another consumer play based on their experience and context. If it looks like a hammer we know where to find a lot of nails.

As I talked with Bob afterwards we recounted some of this and that the miscommunication was simply the lack of understanding of the context of the investors. In Bob’s case he assumed that he used some of his terminology that everyone would instantly know his market. That in a way the market speaks for itself. His context was the presentations he had been so successful with in government meeting rooms.

In business as anywhere we need to start by understanding our audience, what they are looking for, what they need to understand. We assume that many things are obvious that just aren’t. Lessons learned, drop the domain specific thinking and adopt the language of the audience. Focus on what the audience understands and build a bridge to your vantage point.

HauteSpot is great technology put out by a company that knows its market and to my view is making the right moves to capture it. They have enough on the ball that most investors can see potential past the delivery, but Bob is also taking his experience to heart and will be tuning his presentations to address defining his market, its potential and their exit strategy in the language of the investor. I look forward to seeing his company grow and have no doubt they will be a great success.