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Remix (part 5)

May 19, 2009

Part two of Remix digs into the economics, in the broadest sense, of sharing – not so much “file sharing” as idea sharing, compensation exchanges in many forms. Before tackling “hybrid economies,” Lessig addresses “commercial economies,” where relationships are strictly monetary, and “sharing economies” based on non-financial exchanges, the building blocks of friendship or amateur sports teams or good neighbors. You wouldn’t “pitch in” to help Wal-Mart clean their floors, but you would help a friend or neighbor jumpstart a car. CE transactions are impersonal and “one-way,” and rightly so: You expect Wal-Mart to (my example) sell you a box of condoms without criticizing your purchase, whereas asking a friend for condoms might trigger a conversation, a joke, a debate.

Lessig doesn’t want to overthrow capitalism, only to see it perform more efficiently:

The market is the engine that drives this commercial economy; if well designed (meaning regulated to protect participants from force or fraud), the market is an extraordinary technology for producing and spreading wealth. The commercial economy is a central part of modern life; it has contributed to human well- being perhaps more than any other institution created by humankind. We are well beyond the point where it makes sense to oppose the flourishing of the market.

In the Internet economies, the transactional flow is already two-way even when it’s not interactive. He revisits the well known histories of Amazon, Netflix and Google; the “Long Tail” of so many users with so many different tastes lets Amazon and Netflix keep a vaster stock than your local store. (Interesting article on a few days back about how the “long tail” may be N/A in piracy – pirates it seems have crappy taste, preferring the same top 40 slop as the people who buy it –making it hard to find the old, obscure or cult material on torrents which Amazon/Netflix make it easy to access, for a price.)

What makes Amazon, Netflix and Google (and IMDB and CDDB/Gracenote etc.) such powerful tools is that users are sharing data on likes and dislikes from which all other users benefit, a “Little Brother” created who can see but not supervise our actions. He cites Dan Bricklin’s “cornucopia of the commons” idea, that when it comes to data at least, the more each person contributes, the more they get back in value from the expanding pool of contributions. Sometimes your contribution isn’t a direct donation:

You don’t have a choice about helping Google when you use Google’s search engine. Your search is a gift to the company as well as something valuable to you. The company efficiently serves you a product, and very efficiently learns something in the process…One might well say that all of Google’s value gets built upon other people’s creativity. Google’s index is built by searching and indexing content others have made available on the Web…the value Google creates comes from the value others have already created.

He moves on to discuss the pure “sharing economies,” non-financial transactions that form the backbone of friendships or non-commercial organizations (anything from AA to a research community), and the motivations behind them:

Sometimes these motivations are “me-regarding”— the individual participates in the sharing economy because it benefits him. Sometimes these motivations are “ thee-regarding”— the individual participates in the sharing economy because it benefits others…Obviously, me and thee motivations are not unrelated. One can always view motivations that are thee- regarding as being ultimately me-regarding— I choose to help my neighbors because I want to be, or I want to be seen as, the sort of person who helps my neighbors.

He then slices sharing economies into “thin sharing,” in which one’s self interest is primary, and “thick sharing,” in which “the motivations are at least ambiguous between me and thee motivation.” Thin sharing is participation in and donation of resources to a common pool in order to benefit directly and immediately from the contributions of others: the stock market, in which information must be shared (PE ratios, company statements, SEC filings, the rantings of Jim Cramer) for anyone to profit; a tool like Skype, where each user is contributing to the power of the network in exchange for cheap calls; and “networks” whose members benefit from sheer numbers, such as English speakers or IM client users.

Thick sharing consists of more “volunteer” contributions of time and effort, to schools or political causes or Wikipedia or Linux (there are also passive sharing contributions, such as the copies of SETI@home and Einstein@home that run on my computer when it’s not doing anything else, allowing me to “contribute” resources without lifting a finger). This kind of sharing generates

[A] community— not in some abstract sense of a bunch of people with a common interest, but instead in the very significant sense of people who have worked together on a common problem.

Wikipedia could make serious bank, but rejects advertising because it would dilute the value of the end product, an objective resource whose slant is not for sale. “Open source” projects from Wikipedia to Linux benefit from an economy of human scale; the broader the diversity of participants’ experiences and viewpoints, the easier it is to “fill in the blind spots inherent in any particular view.” Thus [heads up, Google]:

[B]etween two projects, one in which the workers are extremely smart but very narrow, and another in which the workers are not quite as smart but much more diverse, the second project could easily outperform the first.

What motivates people in a capitalist system to give their best work away for free, when working at what one is best at is what most of us want to do to earn the living we have to make to survive? In open source software, one study indicated that “Fifty-eight percent of respondents said that an important motivation for writing their code was that they had a work need (33 percent), or a non-work need (30 percent) or both (5 percent) for the code itself.” Another “demonstrates that a significant portion of contributors are motivated by pure intellectual stimulation (45 percent) or to improve their own programming skills (41 percent listed this as one of their top three reasons.)” So self-interest can still be in play, just not in a purely, directly and immediately monetizable fashion. However, many people are contributing purely for the enjoyment they get from problem-solving, the social interaction, the sense of being a valued part of something.

The crossover between the sharing and commercial economies is a “hybrid” economy:

The hybrid is either a commercial entity that aims to leverage value from a sharing economy, or it is a sharing economy that builds a commercial entity to better support its sharing aims.

Linux distributions like Red Hat and Ubuntu are hybrids, in that they take free software and repackage it with additional features (such as GUIs, anathema to purists and essential to the rest of us) and support (documentation, help desk). Animal lovers can connect for free at Dogster and Catster, sharing stories and photos, in exchange for being served ads. Craigslist drives traffic by making “99%” of content free, charging only for job and real estate listings, the value of which are increased by the number of people accessing the site, as both advertisers and shoppers, for free.

Companies who work in the other direction, coming from the all-for-profit model, often fail to understand how to build community by stepping back from their role as salesmen. Flickr succeeded where Kodak failed because it started by building community, rather than attempting to exploit every site hit on contact:

In 1999, Lisa Gansky and Kamran Mohsenin started Ofoto, an online photography service. Ofoto was acquired by Kodak in 2001. Kodak spent millions building Ofoto. But Kodak’s site was crassly commercial. Everything was about buying photographs, or buying albums, or buying T- shirts with your photographs on them. The site encouraged community in just the sense that a Kodak store at the mall encouraged community. This failure at Ofoto wasn’t for a lack of trying. I knew some of the team at that Berkeley start- up. They got it. They worked hard to make Ofoto what it should be. But what it should be was resisted by the powers at Kodak. Kodak didn’t get community, even if its marketing department was good at producing sappy commercials that celebrated it.

Flickr, YouTube, Reddit, Slashdot and other community building sites, in which the comments are as important as the content and people hold “meetups” in real time to discuss their passion for these sites, often get acquired by larger companies (Yahoo, Google, Conde Nast, and, respectively) and thus monetized for the founders in a way they couldn’t have been had they started with purely mercantile ambitions. (Whether these companies in turn can monetize their acquisitions to the tune of what they paid remains to be seen.)

But media companies, usually, discourage community, rolling out torrents of takedowns aimed at 14 year olds “violating trademark” by running Harry Potter fan sites off the Internet. But in the Potter case, the community fought back, their interconnectedness ensuring that the studio’s tactics failed. Hoping to avoid direct confrontation with the 14 year old girl at the heart of the controversy, the girl told a reporter:

They attacked a whole bunch of kids in Poland. . . . They went after the 12 and 15 year olds with the rinky-dink sites. [But] they underestimated how interconnected our fandom was. They underestimated the fact that we knew those kids in Poland and we knew the rinky-dink sites and we cared about them.

In the end, a few key people at Warner Brothers realized that antagonizing the fans wasn’t worth the bad publicity and lost revenue – revenue they weren’t currently losing due to “violations” of IP, as long as the fans weren’t trying to make a profit off their “remixes.” Thus the crux of the RO v. RW culture debate, presented in a quote from the book Wikinomics:

A company that gives its customers free reign [sic, in Lessig] to hack risks cannibalizing its business model and losing control of its platform. A company that fights its users soils its reputation and shuts out a potentially valuable source of innovation.

Customers/community/fans can add value outside the content (Potter fan sites, the “Lostpedia” that helps keep fans on track with the labyrinthine twists of that show, etc.) or within it, such as in Second Life or World of Warcraft – even to the point of generating their own content for sale (clothing, weapons, real estate). Ensuring that the system remains open to user-generated content and collaboration is essential to success in the RW market.

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