New Economic Models

February 14

The rise of the networked economy is changing economic possibilities around the world. From the call centers in India to eBay and the new Internet entrepreneurs, there are many signs that suggest a flatter world fueled by innovative production and marketing strategies. In this session, we will explore the promise and reality of the changing economic tides associated with rising Internet use including those marketing to the long tail and the new oligopolists.

Readings

• Wikipedia, Dot-com Bubble
• Chris Anderson, The Long Tail
• Kevin Kelly, Better than Free
• Eric von Hippel:
  • The Economics of Open Content Symposium: New Models of Creative Production in the Digital Age Collaboration and the Marketplace - Video stream of the 30-minute presentation: new improved link! (requires RealPlayer). See below for alternate links to the presentation in video and audio format.
  • Democratizing Innovation, Chapter 8: Adapting Policy to User Innovation

Additional Resources

• "Wikipedia Long Tail"
• Free by Chris Anderson[1]
• Larry Lessig's Code 2.0

Class Discussion

I really loved the Wired article and its point that this next era will be more about “misses” than “hits.” The internet and new technology remove almost all the related costs that created this all-or-nothing dichotomy; once I read it, it seems so obvious to realize that “misses” still can generate reasonable profits, just not ones that could overcome the expenses inherent in our older distribution systems (movie theater, an actual record store in a small town, etc.). The concept of the Long Tail and the 3 Major Business Rules he gives at the end are all great.

I’m a reasonably expense-conscious person in the just post-college age range with a low income, but I am also quite active in pursuing media I enjoy (movies, tv shows, music, books). With so much available free online (illegally) I tend to only pay (whether by actually paying or by getting it through a medium that provides ad revenue directly to the creator) for around 1/3 of all the media I enjoy. Those are the songs by artists I like best and truly want to support, or the movies that I am so impressed with that I want to contribute to their box office take and that simplemindedly measured “success.” Following the second Long Tail Rule, I would be very happy to pay SOMETHING for almost everything I enjoy. Lowering the prices dramatically or providing a “pay what you feel” option would actually increase what I’m happy to pay pretty significantly. And I know this is totally anecdotal, but I feel like most of my peers have the same sentiment.

Does that sound about right to everyone else in the class? Would you pay at least something for everything if that was an option?

Democratizing Innovation echoes a lot of discussions/other readings we have had about the importance of having both the manufacturers and users able and willing to innovate. The phrase “Policy makers should be aware of ‘collateral damage’ that may be inflicted on user innovation by legislation aimed at other targets“ really summed it up well for me. As cliché as it is now, “thinking outside the box” is sometimes only possible when people have the ability to ignore the boundaries that create that box. This is something very difficult for major organizations or corporations to do, but easy for individuals. Unfortunately, with acts like SOPA even being proposed, we seem to be moving in to opposite direction of the more user-innovation focused world the chapter argues for.

And just briefly on the dot com crash: I’ve studied the housing bubble/foreclosure crisis quite a bit in the past few years, but was too young to really grasp what was happening with these comparably massive dot com crashes at the time. This look back was pretty jarring. AlexLE 17:46, 11 February 2012 (UTC)

I personally had no knowledge al all of the dot-com bubble system. It seems to me that these bubbles were more of a financial scheme rather than a legally oriented invention. Creating something that people will invest in just because of the e- prefix or the .com at the end seems a bit naïve and risky but surprisingly enough many people fell for this and as a result some made money but the majority lost their funds and companies went bankrupt. I really enjoyed reading the Long Tail article. I never would have guessed that thanks to modern systems such as the internet and Amazon.com for example, old hits or even more surprisingly “misses” would turn out to be hits. I often noticed while buying merchandise on Amazon.com that at the bottom of the page it would show me related items and trends and I must admit that a few times while buying books or DVDs specifically, I have also bought related items suggested by Amazon. Another article that I enjoyed reading was the one Better than Free since I agree with the author and find myself in similar situations. I believe that most people emphasize one of the generatives rather than all eight of them. Personally I like having something immediately delivered to me rather than doing several searches for something that would take me time, and therefore I also agree with the Findability generative as well. I also enjoyed the last article and found it to be really accurate. Users looking for or in need of a certain device either continued with their lives without it or in the case of the article, built it or developed it themselves…the majority of inventions are user centered rather than discovered and developed by manufacturers . I personally think that some of the most important inventions took place because of the user’s need for a given device. Large corporations don’t usually see what people could use on an everyday basis but aim to invent spectacular devices in order to sell and make profits. Emanuele 16:50, 12 February 2012 (UTC)

@AlexLe I wanted to reply to your question about paying at least something for everything if it's presented as an option. My husband and I developed a catchphrase while traveling that went something like, "Why won't you let me pay you??!!" Sometimes this had to do with things like trying to find a place where we could do (or pay someone to do) laundry but oftentimes it had to do with companies not getting their act together online. One classic (hypothetical, of course) example was when my husband wanted to read a particular comic book while we were in Malaysia. So he went to the publisher's website and searched for it. They didn't have any digital copies and print copies weren't available either (not that they would have been much use to him in Asia). So he then went "elsewhere" and found exactly what he was looking for. He even contemplated sending money directly to the author because he really liked the guy's work and wanted him to get something for his efforts. Generally speaking, we try to go through proper channels first but if those don't work, we'll take our business elsewhere.

To get a little Cluetrain Manifesto, companies are shooting themselves in the foot if they think they can sit back and dictate the terms of their relationships with consumers. Yes, the profit margins may be smaller to offer products online in easily reproducible formats, but companies are effectively putting themselves out of business by not acting as useful intermediaries. Kevin Kelly does a great job of highlighting the potential value-adds of intermediaries in "Better than Free", while Chris Anderson explores the significant profit opportunities available to companies that exploit the long tail. If companies invested as much time and energy in getting ahead of the on-demand media delivery curve as they did fighting for control of an antiquated relationship between producers and consumers that consumers are opting out of anyway, then those companies might actually have a shot of staying in business for the next five years. /rant Aditkowsky 04:26, 13 February 2012 (UTC)

"Power of the Preview"

During high school, the internet was in its infancy. Therefore the accessibility of lesser-known artists to sell their songs/albums in the open market was limited. I have been involved in music throughout my life and a band’s path to creating a commercial album has been a challenging and structured process starting with signing up with a label, providing upfront costs for production, pressing CD's and so on. In this digital age where physical CD's are no longer required and home studio technology has advanced, the costs to produce an album are certainly less. While I am not familiar with popular music sites such as Rhapsody, I know that iTunes is quite accessible in allowing independent musicians sell their songs on their platform.

In addition to the algorithmic recommendations that have created the Long Tail, I also believe that the “preview” function is also vitally important. To hear a segment of a song is particularly powerful for the Long Tail effect (i.e. iTunes). Prior to the music digital media age, the only way that a listener could preview a more obscure band was by listening to the album through others or seeing live shows. Therefore consumers were less likely to pay full price for an entire album from a band that they were wholly unfamiliar with. However the ability for consumers to hear parts of songs has undoubtedly contributed to the Long Tail affect.--Jimmyh 17:38, 13 February 2012 (UTC)

I find that the generative qualities immediacy, personalization, accessibility, and findability allow Youtube, online radio, and Netflix to become my main source for entertainment in the free copies world. I no longer depend on my TV, which had limited shows and a fixed schedule. On the contrary, I can basically find any video on Youtube and watch them for free. With a Youtube account, I can create a play list and watch my favorite videos at my convenience. I had also watched many seasons of America’s Next Top Model on Youtube for free. I remember the days when I had to call into a local radio station to request them to play my favorite song. Now, I can just go on Youtube and watch/listen to my favorite songs. I also no longer feel the need to run to a store to buy a favorite CD or the need to purchase my favorite songs. I also appreciate the fact that I can stream my favorite local radio station online, even when I am out of the local range. Netflix is another example of a convenience source to access shows and movies instantly. Qdang 04:38, 14 February 2012 (UTC)

I enjoyed the Technium article that mentioned the generative qualities that favor the consumer. Companies like Amazon and Wikipedia embody these qualities the most, with Amazon give us a great example of the Long Tail. As a superstore, Amazon has an incredible amount of adaptability and ability to connect buyers and sellers. Lots of items bought off Amazon are from other sellers they do business with so they are just connecting you to them. I do wish Kevin Kelly touched on advertising which he admittedly omitted. Perhaps he wanted to avoid the discussion of consumer versus producer driven demand and who shaped or steered these generative forces more. Brendanlong 06:21, 14 February 2012 (UTC)

The properties of generative innovation that von Hipple spoke of is quite eye opening, albeit not unexpected. The shift from manufacturing standards to user generative improvements reflects the long tail effect spoke of in the other articles. Unfortunately it seems as though most companies and manufacturers adhere to the antiquated principles of limitation. Von Hipple is quite clear when he states that many of the users and innovators seek a shift of the current legal precedents set through patent law and copyrights. As he noted, the physical world costs time, money, actual physical stuff to be modified. But in the virtual world, anything can be copied and modified without the need for physical items, or even R&D, since that can come through democratization of innovation. Because the virtual world inside computers allows for instant copying and modification, and since the internet allows for the instant communication and copying between systems, the long tail is not only enabled, but it allows for instant results at virtually no cost. But it is precisely because it is virtual and it avoids cost (or profit for that matter) that the application of laws and practices that rule a world of normal distribution don’t apply. Those laws apply to systems of manufacture in which it is difficult or costly to enable that manufacture. One in which all users can be grouped into large groups, instead of millions of small ones. As the world moves closer and closer to the singularity, the laws and rules of the physical world need to be modified in order to account for the virtual world, or new laws and regulations need to be made, ones which address the difficulties of controlling the long tail. And I don’t really see that happening because of the rights that would be infringed upon (freedom of speech, press, expression, et al.).Nthib 20:32, 14 February 2012 (UTC)