Krugman: The economics of abundance

New York Times columnist and economist Paul Krugman started a bit of a scuffle with his column about how “freeconomics” is affecting various content industries, including music and books. In a post at Silicon Alley Insider, Hank Williams slams Krugman for joining what he calls “the freetards” — and says that he expected better from the NYT columnist because he’s an economist, and accusing Krugman of basing his theories on an article in Rolling Stone magazine (about the Grateful Dead and their use of free music to drive sales of other merchandise).

Of course, Krugman isn’t basing all of his comments on an article about the Dead. But then, Hank seems to have a way of selectively quoting from things in order to make a point, to judge by his response to Mike Masnick of Techdirt, after Mike dismantled Hank’s earlier post on copyright. In any case, Krugman is making the same point that many people have made (including Masnick and Long Tail author Chris Anderson in his new book Free, which is about the “economics of abundance”).

For example, Paul refers to the excellent and prescient essay by Esther Dyson in Wired magazine almost 15 years ago — when many of those who are now running music companies and movie studios weren’t even aware that the Internet existed — in which she talked about the future of much “intellectual property” in the digital age (Rex Hammock also references this essay in his post):

“The problem for providers of intellectual property in the future is this: although under law they will be able to control the pricing of their own products, they will operate in an increasingly competitive marketplace where much of the intellectual property is distributed free and suppliers explode in number.”

and she went on to say:

“What should content makers do in such an inverted world? The likely best course for content providers is to exploit that situation, to distribute intellectual property free in order to sell services and relationships. The provider’s vital task is to figure out what to charge for and what to give away.”

Mike Masnick made a similar point during his presentation at mesh 2008, in which he described how the abundance of digital goods — goods whose cost of production and/or distribution has fallen to the point where they are effectively free, or are perceived by users or consumers as free — can actually be a beneficial thing for an industry, if it chooses to adapt rather than spending all of its time moaning about how things aren’t the same any more and people are stealing from it.

Newspapers are actually a pretty good example, I think. Their product is given away effectively for free (or, in the case of commuter papers, actually for free), but the publisher still makes money because of the relationship that is created between the reader and the advertiser. Are the people who pick up those papers “freetards” who are “stealing” the news? Hardly. And as I said to Hank in a comment on his blog, if more musicians could find ways of eating into the vast overhead of the record industry — in other words, make it more efficient — then the transition wouldn’t be nearly as hard as he makes it out to be.

LOLcatz on Canada and net neutrality

I just had to point to this (hat tip goes to Dave Fleet, who posted the link on Twitter). It’s a blog post at the Privacy Commissioner of Canada’s site, with some photos from a demonstration about net neutrality and “bandwidth shaping” by carriers like Bell Canada. As the post says, the office “is currently looking into a complaint about deep packet inspection – no decision has been made, and this post is not meant to endorse one side or another. It’s simply funny.” Photo is by Jason Walton.

Ballmer on papers: Wrong, as usual

There’s lots of buzz out there about how Microsoft supremo Steve Ballmer figures the newspaper will be dead in 10 years — oh yes, and magazines too (Erick Schonfeld has just added his two cents over at TechCrunch). Here’s what Ballmer said to the Washington Post:

“Here are the premises I have. Number one, there will be no media consumption left in 10 years that is not delivered over an IP network. There will be no newspapers, no magazines that are delivered in paper form.”

The former basketball coach and Peter Boyle (as Young Frankenstein) lookalike immediately qualified his comments, of course, saying that “If it’s 14 or if it’s 8, it’s immaterial to my fundamental point.” So there you have it. The end of the newspaper, as foretold by the guy whose company completely missed the importance of the Internet, not to mention the importance of Web-search, and about a dozen other things I don’t have time to go into. No doubt Microsoft will help out with Newspaper 2.0, a piece of shrink-wrapped software that only costs $350 and takes a Pentium Quad Core and 3GB of memory to run.

Seriously though, this is the kind of thing people say to get attention — and I’m not just saying that because I happen to be employed by a newspaper. If anything, I am even more convinced of the digital revolution that Steve is. But will newspapers as we know them disappear in 10 years? No. And not in 14 years either — or 20 for that matter. Will a lot fewer people be reading a printed paper than read one daily now? Undoubtedly. I got asked about the future of papers as part of a panel discussion on recommendation engines at mesh 2008 a few weeks ago, and I said what I always say: I think lots of people will continue reading papers — just not as many as are reading now.

People still listen to the radio, don’t they? Many of them listen to talk shows, and “radio plays” that consist of actors in a studio somewhere reading their lines. Lots of people still go to live theatre, and to the opera for that matter — heck, people still read books, and that technology is hundreds of years old. But not as many people do those things as used to do them when those forms of entertainment were at their peak. I think it will be exactly the same with newspapers — I fully expect to see people reading them for the remainder of my lifetime; they will just be fewer in number, and younger folk will see them as quaint.

Gmail: Shortening the feedback loop

Good design always benefits from a feedback loop between users and those doing the designing, and the tighter that loop is, the faster a service can learn from and adapt to its users. Google’s newly announced Gmail Labs is clearly an attempt to do this for the popular Webmail service. Google is adding a new tab called “”Labs” that allows users to try out all kinds of new features and then immediately let Gmail developers know what they think. So what, you might be thinking. Isn’t the Gmail service already in beta anyway? In other words, it’s already in testing mode, so what makes this any different?

I don’t think Gmail Labs is that different — it’s just more feedback, faster. Obviously, anyone who uses any Google app or service can send an email to a support address, check an online forum, use something like GetSatisfation, or check support groups or FAQs. But how many users give up before they do all of those things? That’s feedback a designer or developer could use — and eventually, they will probably get it. But the faster it comes in, the faster a service can be smoothed out and made more feature-rich. That’s part of what makes Web services so different from shrink-wrapped software.

It reminds me of Daniel Burka’s presentation from meshU a few weeks ago: In it, the PEI-born Digg designer used one of my favourite metaphors for iterative, evolutionary design — a story that comes from The Whole Earth Catalog many years ago, in which an architect laid out a university, but didn’t put in any sidewalks. Instead, he waited to see where people walked and then paved that. The lesson, in other words, is not to try and anticipate all the ways someone might want to use your service — see how they use it, and then focus on that.

Why Microsoft will never win (again)

There are many great moments in the Wall Street Journal’s retrospective about the changing of the guard at Microsoft, which describes how former CEO Bill Gates fought with — and, in classic Gates fashion, sarcastically undermined — new CEO and friend Steve Ballmer in front of the troops. But one of the things that jumped out at me (as it did at Zoli Erdos) was the part where the article describes the fate of NetDocs, an attempt by Microsoft to grapple with the freight train that was rushing headlong towards the company (and continues to do so): namely, the advent of Web-enabled Office-style applications.

In one case, two vice presidents clashed over the future of NetDocs, a promising effort to offer software programs such as word processing over the Internet. The issue: Because NetDocs risked cannibalizing sales of Microsoft’s cash-cow Office programs, some executives wanted NetDocs killed.

Messrs. Gates and Ballmer were unable to settle on a plan. First, NetDocs ballooned to a 400-person staff, then it got folded into the Office group in early 2001, where it died.

In other words, Microsoft geared up to deal with the potential threat posed by Web apps, and then at some point decided not to. Obviously, the potential for Office-style Web services was mostly that — potential — rather than reality in the late 1990s. So you could argue that Microsoft didn’t really need to deal with it at the time. But just think about how much further along that understanding curve the company would be now, instead of letting the fear of cannibalization push it away. At some point, the company will have to grab that nettle firmly, and it’s not going to get any easier — if anything, it’s only going to get harder.

U2’s McGuinness: Still a moron

Another month, another rant from U2’s longtime manager Paul McGuinness, about how everyone else is to blame for the music industry’s problems, except of course the music industry and the major record labels. Primarily, he blames the Internet service providers — whom he compares to “shoplifters” and says are “rigging the market” — but he also tosses a few grenades at cellphone handset makers, telecom companies and (as far as I can tell) everyone other than your Mom (and he’s keeping a pretty close eye on her too). Seriously — why can’t Bono or the Edge or someone get this guy to sit down and shut up?

McGuinness’s latest rant was a sort of micro version of his speech at the Midem conference in Cannes, in which he said:

“Network operators, in particular, have for too long had a free ride on music — on our clients’ content. It’s time for a new approach — time for ISPs to start taking responsibility for the content they’ve profited from for years.”

This is the music industry’s equivalent of newspaper mogul Sam Zell’s rant about how Google is “stealing our content” and should be forced to pay. And McGuinness thinks that if ISPs don’t cough up some dough, then they should all be forced to do so by the government (something others — including in Canada — have recommended as well). While we’re at it, why not force gun manufacturers to pay a fee to the financial industry because occasionally someone uses one of their products to rob a bank? There is no rational basis for what McGuinness is suggesting, other than the sheer desperation of the music industry.

The same goes for the plan that Jim Griffin has been hired by Warner to try and set up, in which users would pay an “Internet tax” (yes, I realize it doesn’t meet a lot of the technical requirements of a tax, but I’m using the term in the sense of a “forced payment”). The Electronic Frontier Foundation and others have proposed a more voluntary arrangement, in which music fans could pay a monthly fee for the right to download at will, in much the same way that the radio industry was legalized through a compulsory licencing system. That’s something that might be worth talking about — but not with Paul McGuinness.

Search Wikipedia for the word “lame”

Props to Michael Geist for holding the government’s feet to the fire for editing the Industry Minister’s Wikipedia entry. Not just because it’s unseemly for agents of the current administration (or any administration, for that matter) to be editing Wikipedia entries directly, but also because what they added was so, well… lame. I can understand removing controversial comments about whether Prentice delayed the proposed copyright legislation as a result of public pressure (which Michael was instrumental in helping to orchestrate). Some of what was written arguably breached the site’s “neutral point of view” requirements. But at the same time, adding phrases like “he is widely praised in both political and private circles, as he personifies experience, confidence and competence, ability and capability” not only breaches those rules, but breaches the nausea rule as well. Lame, lame, lame.

Does Bambi like TechCrunch Pitches?

When I first heard about TechCrunch’s new Elevator Pitches site (when a post from Erick Schonfeld popped up in FriendFeed, if you must know), it sounded kind of familiar. A site where entrepreneurs can upload 60-second “elevator pitches” about their companies — so-called because they’re supposed to mimic a pitch you would make to a VC if you met him or her in the elevator? And then it came to me: that’s the exact same model that former Marketwatch columnist-turned-entrepreneur Bambi Francisco uses for her site,

Vator — which Bambi originally tried to run while still working at Marketwatch, until concerns about a conflict of interest led her to resign — has raised a pile of money from a number of investors, including Facebook backer and PayPal founder Peter Thiel, as well as MySpace founder Richard Rosenblatt, and recently raised a bunch more. While Vator has elements that TechCrunch’s offering doesn’t — it also has interviews with venture capitalists and other newsmakers — they are very similar. Is there room for more than one elevator-pitch site?

As for which is better, that’s a tough one. Vator has — well, it has Bambi, and the equally attractive and smart Reena Jadhav, and has built up a fairly large library of content (although the site could use a redesign). TechCrunch, meanwhile, is slick looking and has already gotten some interesting pitches up; but I’m still not sure about using the “cartoonization” of for the videos. For what it’s worth, Erick Schonfeld says that the new TechCrunch site isn’t aimed at Vator.

The early Internet: No business model

One of the things that often comes up when talking about Web-based startups is the debate over whether you should just launch your company or service and see whether people want it, or whether you should wait until you’ve established a sound business model first. One of the most obvious examples of a company that chose the former, of course, is Google. I remember someone telling me that the first two venture funds that invested in the company were scared to death, because Google clearly had no idea how it was going to make money.

That seemed to work out pretty well, all things considered, given Google’s $180-billion market cap. And Mike Masnick’s post at Techdirt about a Vanity Fair retrospective reminded me that it isn’t just Google: the Internet itself didn’t have a business model when it first started — and that fact, ironically, is what arguably made it so valuable that hundreds of companies are making billions of dollars from it now. As the Vanity Fair article makes fairly clear, the CERN research center came close to filing a patent on the Web and trying to control it, something that would undoubtedly have been a disaster (as one commenter at Techdirt notes, the creator of the Gopher protocol chose that path).

Whether as a result of persuasive argument from Sir Tim Berners-Lee and his colleagues, or simply because CERN couldn’t see the commercial applications of such a system — or because the research center was about research — the early building blocks of the Web remained open, and thereby helped to create a platform whose value is effectively unmeasurable, but is certainly well into the billions of dollars. The same goes for AT&T, which literally didn’t see the value of a packet-switching system, and thereby missed an opportunity to be involved at ground level in the development of the Internet. Thank God for that.

Some choice quotes:

— “I get credit for a lot of things I didn’t do. I just did a little piece on packet switching and I get blamed for the whole goddamned Internet, you know?” (Paul Baran, who developed packet switching and later invented the airport metal detector)

— “The culture was one of: You find a good scientist. Fund him. Leave him alone. Don’t over-manage.” (Leonard Kleinrock, networking pioneer)

— “I went over to Charlie Herzfeld’s office and told him about it. And he pretty much instantly made a budget change within his agency and took a million dollars away from one of his other offices and gave it to me to get started. It took about 20 minutes.” (Robert Taylor recalls when he got the idea for Arpanet)

Continue reading “The early Internet: No business model”

Not everything needs to be auctioned

Catherine Holahan has a piece in Business Week about eBay and the decline of the company’s traditional auction business — or rather, the increasing growth of its non-auction “Buy It Now” business, which she says currently generates almost half of the company’s revenue. Nick Carr (always eager to pronounce something dead) asks whether eBay was “just a fad.” Some fad: eBay has a market cap of about $40-billion and year-over-year quarterly revenue growth of about 24 per cent. But it’s certainly worth asking whether its business model is evolving toward something non-auction based.

If anything was a fad, it was probably the idea that the eBay auction model could be applied to almost anything — that online auctions could solve virtually any problem, from disposing of human organs to getting rid of all your life’s possessions after a divorce. In that sense, eBay was seen as a giant hammer, and everything started looking like a nail. But it’s been known for some time that the auction model works for some things and doesn’t work for other things. And if you think about it, one of the main downsides to the auction model — as my friend Mark Evans notes — is that it can be a gigantic pain in the ass.

The auction — whether it’s the English style (used by Sotheby’s, etc.) or the Dutch style (known as a “reverse auction” because the price starts high and comes down) — is a method that is best used for goods that are scarce and for which there is plenty of demand, such as paintings by the Group of Seven or tulip bulbs in the 17th century. Some products on eBay might fall into that category, but certainly not every single one. And the other requirement for an auction model is time — something many prospective eBay buyers don’t have a lot of.

Does the increasing interest in the Buy It Now option mean the online auction is dead? Hardly. But not everything is a nail.