Category: Tech

During the flight back from Canada I read Freakonomics. Nothing freaky to literates. Anyhow, the book’s simple approach to deterrence somehow struck me. Accordingly, deterrence is a trade-off between three incentives: economic, moral and social. Start giving penalties (economic incentive) and people might think it is no longer unethical to commit unwanted behavior (moral incentive). The example in the book was the introduction of a $3 penalty for parents who picked up their child late from the kinderkarten. The result was more late pickings as the parents didn’t feel guilty anymore and the price of late picking was neglible.

Apply this to file sharing on the Internet. Statistics show that file sharing has been increasing the last five years save for the first half of 2004. In late 2003, the recording industry started to push through penalties to individuals and managed to get one of the most popular network at the time (FastTrack) practically down.

But that victory was short-lived. Users switched to more robust and secure networks. By attacking technically weak networks, the recording industry makes sure the sharing technology keeps on advancing and new technology gets adopted quickly. File-sharers unite!

The fact that there are now penalties hasn’t helped. The risk of getting penalized is next to nothing. Moreover, with an arrogant policy the recording industry has arguably lost moral ground. Why should I deter from sharing some widely-available Madonna or Rolling Stones hit with other users? I don’t think those artist will lose anything from sharing and besides, they seem to be both arrogant and too-rich. Sharing brings friends!

Thus, I’d argue that the social incentives encouraging sharing outweigh the moral and economic incentives to deter from sharing. The penalty-policy has perhaps added a marginal economic deterrent but, at the same time, it has weakened the moral deterrent and strengthened the social incentives. The outcome of this equation can be read from the statistics.

Just came back from Joi Ito’s talk in Helsinki. He talked about the future of music business largely based on a recent Wired article.

Don’t get me wrong. The talk was great and thought-provoking. I did enjoy it. I just happen to have second thoughts of most of the stuff he said. His talk was like a troll-post to me and I’ll post my second thoughts here as I’d post them to any troll. Keep this in my mind if you go on to read my harsh critique in what follows.

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The main message as I got it was that the music business is going open source. You’ll have the commercial “head” which is shrinking and is doomed. You’ll also have the long “tail”, which has all the future talent, and the real creative force. Folk, karaoke, Garageband, the stuff you really want to do. CDs are history. Big labels who do physical distribution and search artists at the moment will suffer and need to fundamentally change their “business models”. Mass media made us believe they had a role but in reality what they produce us is just crap (in terms of quality). We won’t have new Michael Jacksons’ anytime soon…

And the business in this new world of music? Mr. Ito claimed “prosumers”, for the lack of a better word, at the tail’s end will pay to get more attention. So one idea is to make some platform stuff (obviously software) for them. What else? Niche groups around folk bands and artists will be the center of action – so you can for example sell T-shirts to your audience. Great! Moreover, if you release just some of your stuff free you might later get bought by the big Hollywood-guys!! This is getting better and better – still more ideas!? The real bomb: DVDs!! They won’t disappear, there is a lot of development potential in music DVDs.

What a mess of “ideas”. Let’s refute them quickly:

1. Platforms won’t be business to anyone. If it’s going to be popular, it’ll be open source and free for all. Read IT doesn’t matter.
2. T-shirts… remember dot-com?
3. Get attention to get bought by the big labels – what is exactly new in this? And doesn’t this go against the very idea of p2p, open source and amateur revolution?
4. DVDs… again, what’s new? Ironically, to refute his earlier arguments, mr. Ito went on to show enthusiastically a new Rolling Stones DVD (which has camera angles to exite the audience and make them not to connect this to the earlier bs about marginal-artist revolution and the death of CDs)

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The main impression I’m starting to get is that all this open source, open content, free/open whatever Internet-related stuff is at the moment the worst kind of hype available. The problem is people are getting interested, they want gurus to speak and the cycle starts to feed more and more belief in us. Success story here, success story there. Somebody makes a business proposal and mass psychology takes care of the rest. Open is the answer! Freedom or death!

I don’t doubt that this hype reflects the cultural and social impact of the Internet. Obviously people will share more, and it is indeed possible to cooperate and get “creative” in some ways unthinkable a few years back. Richard Stallman is the real guru of creativity and freedom in this sense.

However, mr. Stallman has nothing to say about business. Guys like mr. Ito make that mistake. Further, they go on to generalize open source to open whatever without much reality checks. We should not believe that the open/free/power-to-the-people trend has any business impact in the first place. Money is conservative. Money doesn’t follow the free. Money loves control and hierarchies, it wants to be in a safe place.

I bet Gekko would said to freaks like mr. Ito something like this: “You’re walking around blind without a cane, pal. A fool and his money are lucky enough to get together in the first place.”