I’m sorry, I just can’t resist, even if I’m a bit late. I have to chip in my two cents on Eli Noam’s recent FT article on infopocalypse, as summarized by Om Malik.
Like most people, I also think Noam’s one sandwich short of a picnic on this one. For those unaware of the debate, Noam is arguing that information industries are caught in a deflationary death spiral due a market failure. He claims the failure is inherent in information distribution business models. This point of view has caused a lot of debate, particularly because of Noam’s proposed macroeconomic interventionist remedies.
My response is: who cares? He’s talking about information as a product, not a service. Lumps of ones and zeros, untailored to the user, mass distributed. That market’s vanishing, and good riddance. I mean, you’re reading this super quality blog, written at unimagined effort by someone educated at great pain and expense — and all for free! I’m unable to charge you. It even costs me money to host the blog. Why? My voice is just one of thousands clamoring for your precious attention. There’s no shortage of quality opinion on the web. No shortage of quality music on P2P networks. No shortage of news and reportage. Just a shortage of time to track down the interesting stuff. Economics is the study of allocation of scarce resources. No scarcity, no market, no problem.
So, have we run out of information businesses that we can charge for? Have we reached the bottom of the value mine? Well, value in communications essentially comes in two forms:
This is what I was referring to in my previous Telecom Theory article by saying:
In product terms, I believe the purpose of a telco is to maximize the number and value of user communications events, whilst simultaneously protecting the user’s attention from unwanted interruption.
(I would now modify that to include “protecting the user’s attention, reputation and assets”. No matter. We can also debate which activities are or aren’t aligned with the connectivity provider another day. I personally believe a telco can enable the above without defining or controlling end user services, which is a subtlety lost on most people.)
I can’t begin to imagine the number of possible but unfulfilled connections still to be made between people, places and things. We’re only five minutes into the information age and already Noam’s declaring it all a failure and he wants to get off! I’m sorry, but my imagination tells me we’ve a lot of excitement and economic activity still to come. Just not from selling undifferentiated blobs of bits a-la analog information industries.
So, the real market is for customized information products. Information as a service. Noam is surely aware of the mass customization trend — so why ignore it? Services can’t be replicated by KaZaA. Selling proprietary and dynamic data is a sustainable business model. This is not news to the millions of people in those businesses.
For example, I subscribe to Listen.com’s Rhapsody streaming music service. To me, the value largely comes from its ability to recommend new music to me, and show what the most popular things other people are listening to. If all I had was a plain Google-style search box, but access to every song ever recorded, I would paradoxically get far less value. I don’t want to schedule my own listening at the individual song level. It’s the service, not the content, that matters.
To quote Noam directly:
The basic structural reason for this problem is that information products are characterised by high fixed costs and low marginal costs. They are expensive to produce but cheap to reproduce and distribute, and therefore exhibit strong economies of scale with incentives to an over-supply.
Bzzzt! Nul points. Is there an oversupply of credit rating agencies? Auction sites? Operating systems makers? Metals exchanges? They all look suspiciously like information products to me. Each with a small pool of highly rewarded participants, and large barriers to entry. His argument chokes and dies at the first step, because the definition of “information product” he uses is so narrow as to be useless. He’s forgotten about the explosion of interactive possibility that cheap, versatile and pervasive connectivity brings. Staring in disbelief at the price collapse of bypassed industries and technologies is classic telco think! The rest of us are moving past that stage — do come join the party.
Now, for a laugh, let’s dismember the rest of the carcass.
The main result of these factors is that prices for content, network distribution and equipment are collapsing across a broad front.
So, abundance is a problem? Perhaps information and connectivity famine is his ideal state, because the scarcity produces such wonderfully clean market effects.
It seems to have become difficult to charge anything for information products and services. The music industry is unable to maintain prices.
Music distribution has yet to transition to a service model, so bye-bye. As Clayton Christensen would have it, music is bought to scratch a specific itch. The itch is “entertain me” or “stimulate me” or “calm me”. In a world of multiplying entertainment possibilities, it’s no wonder music is declining in price. Would Sir like a facial spa treatment or another listen to some ambient electronica?
Online publishers cannot charge their readers, except for a few premium providers such as the FT.
Sorry, no banana. Adverts are the staple of publishing, not subscriptions. Paid subscription is a filter to ensure only truly interested readers are attracted, and boost the price of adverts — since the audience is more tightly defined and relevant. Publishing is about connecting eyeballs to adverts, not lofty goals of journalism and the search for truth. Even for the FT. My apologies for despoiling any reader innocence in these matters.
International phone call prices have dropped, and with internet telephony will move to near-zero.
Errr, ending decades of over-charging for a simple duplex audio stream application. This is a feature, not a bug. Superabundance of cheap connectivity adds to human happiness. Even if it reduced GDP (and it doesn’t) then it just suggests he’s measuring the wrong thing. GDP is a contributor to well being of the species, not an outcome.
Web advertising prices have collapsed.
Which would be very interesting, except for the minor inconvenience of the facts. They haven’t collapsed. Have you tried buying an ad on Google? Interactive, presonalized ads are expensive. Static, old style bag-of-bits ones are cheap and ineffective.
Much of world and national news is provided for free.
Much of the world and national news is boring and irrelevant to me. You’d have to pay me to read it. But I’d pay to have it filtered for me, as a service. I’m running out of time to even read The Economist in full. That’s serious!
A lot of software is distributed or acquired gratis.
So what? A lot of software engineer careers are being built on those skills and reputations. And if you’ve ever tried to buy a support licence for an open source product, you’ll quickly discover the difference between “free speech” and “free beer”. Service, service, service. Get it?
Academic articles are being distributed online for free.
With open publishing they even pay to get an article into print. The scarcity is attention, not words. Who cares if the market for words collapses if there is no scarcity? The market for attention is working like clockwork.
TV and radio have always been free unless taxed.
Crap TV has always been free. You get what you pay for. I distinctly remember receiving and endless stream of invitation from my local cable company to part with significant lumps of my disposable income. Would Mr Noam please tell us where to get free HBO access?
Even cable TV, at 20,000 programme hours a week, is available to viewers at a cost of a 1/10 of 1 cent per hour.
That’s because the real money is in the TiVo, not in the TV. Quantity is not value. Indeed, as noted, excessive choice degrades value.
Newspaper prices barely cover the physical cost of paper and delivery; the content is thrown in for free.
The market is for attention, not for articles. Again. How much of the content of the newspaper is there because someone else wants you to believe it, not because you need to know it to have successful and fulfilling life?
OK, so we’ve had our fun blowing raspberries at the FT. Where is all this value going to come from?
Firstly, by tying the fixed bag-of-bits-or-atoms asset to the dynamic data, you can still charge for the fixed asset. The blobs of bits can be tied into distribution channels that reward the content creators for providing raw material for services or other products. Just like iTunes is a loss leader for iPods.
Secondly, by cranking up the middlemen roles in matching people to other people, places and things. Hence social networking, IM, syndication, etc. You know all that stuff already. Either get someone to pay for the data or idea you’ve got, or else grab their attention with loss-leader content and use it to sell them some other capability you have.
Thirdly, look at the underbelly. Look for the social problems the connectivity causes, and find a fix. Prevent the unwanted connections. Just look at the recent headlines…
Firewall VPN sales soar …
Enterprise security spend to hit $6bn …
Trojans as spam robots: the evidence …
UK Watchdog bites mobile spam scammers.
It just goes on and on.
History has been full of “end of the world” predictions, and every time it turns out to be the opposite. Our limited vision of how amazing the future will be blinds us to the possibilities that will open up. The information economy is no different. You too can look forward with confidence, as long as you understand information is a service, not a product.
PS — the article title is a pun, if somewhat British, old and obscure. Kudos to anyone who cracks the code.
Posted by Martin Geddes at 05:11 PMTrackBack URL for this entry:
http://www.telepocalypse.net/cgi-sys/cgiwrap/mgeddes/MT/mt-tb.cgi/163.
Failing to have time to read The Economist in full is serious. Could it not be that fatherhood has eaten into your media consumption time? Hence, the content creator must compete against a 1 year old who has gained a competency at "Daddy! Daddy! Daddy!" :-)
Meanwhile, "Bits and Bobs" are literally "things you have lying around the house" or "junk". However, I assume that you mean "Bits" literally and "Bobs" as a reference to a Shilling (12 pennies or 5 New Pence). The common expression "Not the full shilling" is used synonymously with "One sandwich short of a picnic". Hence, the implication that your post "Is the full shilling" whilst Mr. Noam's offering was not.
Or am I over analyzing this???
PS This was perhaps the best piece I've read on this site.
Posted by: at February 27, 2004 12:31 AM"Volunteerist activities such as open-source software, shared information or public hotspots will not solve the problem, because they, too, are subject to the instability known as the "tragedy of the commons", in which individuals' free-loading and over-utilisation destroys the communal effort."
Firstly the "Tragedy of the Commons" is no where near as inevitable as the dolorous would have you believe. Second, its hard to imagine a tragedy occuring where, as Noam defines elsewhere, the marginal cost of the goods are near zero.
Perhaps the capability of a single hot-spot AP is subject to this exhaustion, but its a ways off happening yet.
Regarding your observations about the "attention business" here's a link to a piece by "Dan Fendel. He has many a project, one of which includes being the Secretary-Treasurer and/or philosopher/prince of the Director's Guild of America."
http://www.stretchingthought.com/stories/storyReader$139
And as far as the changes being wrought by the plummeting cost of entry/participation in information industries, I agree with you, its not a bad thing.
Eben Moglen has much to say about the style and scope of the revolution, “We are running a civil rights movement… Freedom Now!"
http://cyber.law.harvard.edu/home/home?wid=10&func=viewSubmission&sid=232
Posted by: at February 27, 2004 08:03 PMDavid's got it, although I wasn't particularly referring to "not the full shilling". To old-timer Brits, "bits and bobs" is "bits and money".
Posted by: at February 27, 2004 08:45 PM