Topic: Economics

I've been reading the autonomo.us blog and even lurking on their email list for a while, so I've been thinking about "free network services," and what it means to have services that respect users' freedom in the way that we've grown to expect and demand from "conventional" software. This post explores issues of freedom in network services, business models for networked services, and some cyborg issues related to network services. A long list indeed, so lets dive in.

I've been complaining on this blog about how much web applications, the web as a whole, and networked services on the whole suck. Not the concepts, exactly, those are usually fine, but suck for productive users of computers, and for the health of the Internet that first attracted me to cyberculture lo these many years ago. I still think that this is the case, but I've come to understand that a lot of the reason that I have heretofore been opposed to network services as a whole is because they're sort of brazen in their disregard users freedom.

This isn't to say that services which do respect users' freedom are--as a result--not sucky, but it's a big step in the right direction. The barrier to free network services is generally one of business models. Non-free network services center around the provider deriving profit/benefit from collecting users' personal information (the reason why open-id never caught on), from running advertising along side user-generated content (difficult, but more effective than other forms of on-line advertising because the services themselves generally provide persuasive hooks to keep users returning,) or when all else fails, charging a fee.

So to back up for a minute, I suppose we should cover what it means to call a network service "free." Basically, free network services are ones where fundamentally users have control over their data. They can easily import and export whatever data they need from the providers system. That users can choose to participate in the culture of a networked computing by running software on their computer. There are ideas about copy-left and open source with regards to running code on networked services that are connected to these ideas of freedom, but this is more a means to an end (as all copy-left is) rather than--I should think--an end in itself.

Basically, data independence and network federation or distribution. Which takes all of the, by now conventional, business models and tears them to bits. If users are free to move their data to another service (or their own servers) then advertising, leveraging personal information are all out of the window. Even free software advocates look at this problem and say, we have a right to keep network services closed. Which is understandable given that there aren't many business models in the free world. While a lot of folks in the FNS space are working to build pillars of free network technologies, I think some theoretical work on the economics are in order. So here I am. Here are the ideas:

• The primary "business" opportunity for free network service is in systems administration, and related kinds of tasks. If the software is (mostly) open source and design and implementation can't possibly generate enough income, then keeping the servers running, the software up-to date, and providing support to users is something that provides and generates real value and is a concrete cost that users of software can identify with and justify.
• Subscription fees are the new advertising. In a lot of ways what a particular service provides (in addition to server resources) is a particular niche community. While federation changes this dynamic somewhat, I think often people are going to be willing to pay some fee to participate in a particular community, so between entrance fees (like meta-filter) and subscription fees (like flickr) you should be able to generate a pretty good hourly rate for the work required.
• Enterprise Services. We could probably support free network services (and the people behind them) by using those networks as advertisements for enterprise services. See a service on the Internet, and have a company deploy it for internal use on their intranet, and have the developers behind it sell support contracts.
• Leach money from telecoms. This is my perpetual suggestion, but while most of us Internet folks and network service developers may or may not be making money from our efforts in cyberspace, the telecoms are making money in cyberspace hand over fist, largely on the merits of our work. It's not really possible to bully Ma' Bell, but I think it's a part of the equation that we should be focusing on.
• Your Suggestion Here. The idea behind business in the free network service space, is that providers are paid for concrete value that they provide, rather than speculation on their abstract value, and as a result we can all think about business models without harming the viability of any of these business models.

I've been thinking, in light of the Oracle purchase of Sun Microsystems, about the role of big companies in our economy, the role of competition, and what open source business models look like. This is a huge mess of thoughts and trains but I have to start somewhere.

• The Hacking Business Model isn't so much a business model, as it is an operations model for hacker-run business. In that light it's a quite useful document, and it's understandable that it mostly ignores how to obtain "revenue" (and therefore, I think, falls in to the trap that assumes that new technology creates value which translates into income, when that doesn't quite work pragmatically.)

I'm interested in seeing where this kind of thing goes, particularly in the following directions:

• Where does capital come from in these systems? For start-up costs?
• Where and how do non-technical (administrative, management, support, business development) staff/projects fit into these sorts of systems?
• The conventional wisdom in proprietary software (and to a lesser extent in free software) is that in order to develop new technology and improve existing technology code-bases need to compete with each other, and I don't really think that this is the case in open environments.

I'm not sure that the competition between Solaris, the BSDs, and Linux (augmented as they all are by GNU to various extents) pushes each UNIX/UNIX-like operating system to improve. Similarly, I don't know that having vim and emacs around keeps pushing the development of the text-editor domain.

At the same time, competition does help regulate--after a fashion--the proprietary market. Having Oracle's database products around help keep Microsoft's database products on their toes. OS X spurs development in Windows (usually). Without serious competition we get things like the ribbon interface to Microsoft Office (ugg), and telecoms.

This ties into my work and thinking on distributed version control systems, but I think in open systems, (particularly where branching is supported and encouraged,) the competition can happen among a team or with one's own history. We pitting code bases against each other seems to not make a great deal of economic sense.

• I wish I had access to demographic data, but I suspect that there are few if any open source projects with development communities that are bigger than ~100-150 dunbar'snumber, and the bigger projects (eg. Drupal, KDE, GNOME, the Linux Kernel, Fedora, Debian) solve this by dividing into smaller working projects under a larger umbrella.

And yet, our culture supports the formation of companies that are many many times this big.

I've written before about the challenges of authenticity in economic activity, and I wonder if having large non-cooperative institutions (companies) is one of the chief sources of in-authenticity is the fact that we can't remain accountable and connected to the gestalt of the most basic economic unit (the corporation).

I wonder if as we learn from free software and open practices, if cooperative-based business are more likely to become more predominant, or how else our markets and economies will change.

This brings us back to the revenue system in the hacking business model from above. In smaller operations we can imagine that some business opportunities would be viable that wouldn't be viable in larger operations. Also, because smaller co-ops can specialize more effectively. These factors combine to signify that competition becomes an internal or "vertical" issue rather than an external/horizontal project and in these situations generating revenue becomes easier.

Thoughts?

More to come?

I've been reading--and by god I hope by the time I post this, I'm done reading--Kim Stanley Robinson's Mars Trilogy. I read (parts of) these once before, but I was busy adjusting to college at the moment and I didn't retain a great deal from that experience. In any case, there's a lot in these stories to pick apart and absorb.

And I enjoy that. I really like science fiction that both tells a good story and contributes to some sort of intellectual conversation that's bigger than it. Surely all literature has some theoretical conception of itself, but work that unabashedly tussles with relevant knowledge is particularly powerful.

Hell, at one point, a character in Blue Mars meditates on Deleuzian philosophy. My heart goes pitter pattter at the sight of people who are willing to mediate on Deleuze and do a good job at it. (Ironically, or perhaps not, I think a lot of academics don't quite know what to do with Deleuze.) Anyway...

One of the things that I've really enjoyed thinking about while reading Green and Blue Mars is that Robinson does a lot of economic theorizing and imagination. I find this an interesting playground as a lesson from fiction, and also as a productive consideration of the issues I began to talk about in my essay on co-ops, competition, and openness.

So read the book, particularly if you haven't or if you're interested in thinking about economic systems and potentials, but the current economy is... boggling.

Robinson posits (a martian) system where land is collectively owned, where projects (research, farming, construction) are undertaken by ~100-person co-ops that workers have to buy-into (with money earned during internships), with everything overseen by a Judaical system that makes judgments on mostly with regards to environmental impact.

My father, upon reading this, made the very apt judgment that, the key here is that--on Mars--there's no countryside, and that farming (because it's attached to cities because of the Atmosphere issue). While this is a vast oversimplification--of course--he's right: new age hacker-type economic models need to consider "industries" like materials engineering and food production more than they currently do.

We have a lot of thinking to do.

Sorry for the puny title. I was thinking about the value of writing, and of "literature," in our world. Lets call it another post in my sporadic ongoing series of amateur theoretical economics posts. Or something.

The overriding theme of this series has centered on thinking about ways to build business models in a way that represents an authentic (and sustainable) concept of the generation of wealth. Basically, to recognize that wealth is created through the exchange of goods and services which themselves have physical costs, rather than through the exchange of money. Business models which are primarily profitable because they're designed to cause money to pass through someones hands (who can charge interest on it,) seem flawed from beginning to end. Business models that seem to increase wealth without creating something or doing something in the world, seem fraught with problems.

So then, writing.

Writing is, I thing (inspite/because of my obvious bias) something valuable, and something that has worth, but I don't think the source of its worth is particularly clear. A lot of literary types are convinced of writing's power to effect change in the world. Aside from rhetoric (essays, etc.), fiction is a powerful vehicle for cultural critique, and for stimulating thought and wonder in any of a number of areas. Writing provides groups of people with shared experience ("Did you read that book? What did you think?") and which is certainly socially productive.

But that's not business, or at least that doesn't suggest some sort of sustainable business model. Long term social value doesn't translate into a publishing industry that can sustainably fund the efforts/lives of writers. In a larger frame of reference, we should be able to fund and support the lives and efforts of artists without much trouble. In a sustainable way.

I've been thinking about trying to tie some sort of notion of sustainability into this evolving economic theory. In one respect economies which value worth, are necessarily sustainable. On the other hand, I totally recognize the logical inconsistencies with saying "art has abstract worth, so we should value it; investment banking has abstract worth, so we should abandon it."

Also in this nexus of ideas, I've been playing with another concept (in a story, of course) regarding how much (and what kind) of work is required to keep a society fed/clothed/healthy decreases with regards to effort and time. Technology is a powerful thing, and it means, fewer people have to farm (per acre) to grow enough food to feed everyone, better/more efficient refrigeration means less food gets wasted. Better shipping technology means we can centralize tasks. All this filters into "less energy spent on survival" and thus more energy spent on more... abstract... endeavors. Supporting writers, hell supporting everyone, is an increasingly logistical problem.

I'm not sure that this translates, very well, into some understanding of busiess models for folks who do work in more "abstract" markets. I do know, (and have talked at some length here) several things about the business model for writers today: It turns out that bloggers are most successful (it seems) when their "blog" functions as advertising for "actual" work in some other arenas. That's not a bad thing, and really I think "real writers" have a similar gig. From everything I can gather, "Authors" make money from speaking engagements, book signings, academic contracts, and the like. Just as a blog serves to create a market; a book contract serves to create authority. The business model works for a certain class of writing people, but I don't know how generalizable or future looking this might be.

And maybe that's part of the worth of fiction, of writing in general, and of my work in general: if we have any chance to explore these sorts of ideas, theories, and potentials, it's going to be with the help of researchers who write about their findings, essayists who synthesize information in novel ways, and the fiction/literary writers who explore the implications and possibilities.

Onward and Upward!

Before I started to write this article I heard two pieces of news. First, that the economy of Latvia had failed as part of the ongoing depression. Second, that the American Government was going to provide subsidies to hedge funds (!) to promote a revival of the financial services industry. The mind boggles, to very different degrees at both of these stories. Like this whole depression, it seems clear that the core issue is that economies based on inauthentic exchange of value are prone to failure: the act of moving money from hither to thither doesn't create value, even though paper values rise. That's a bubble.

There are a lot of these, of course, the bubble under my lens today is the advertising bubble.

It seems to me that advertising, is really minimally effective, or accidentally effective at any rate. Our world is submerged in advertising, and yet we spend a great deal of time ignoring it: we use DVRs to skip commercials, we install ad-blocking plug-ins on our web-browsers, we instinctively tune out advertisements and have grown so acclimated to the presence of advertising that we ignore ads. If advertising is effective it is only effective incidentally.

And yet, we've built (albeit faltering) economies around advertising. The first dot-com burst was due largely to the fact that advertising revenue couldn't support dot-com business model. The Web-2.0 bubble hasn't been entirely advertising driven, but that's a huge part of the equation (eg. google), and particularly for content (rather than service) driven websites.

The thing is that advertising seems like a great way to support the content industry (such as it is): we have practices to separate it from editorial content, it provides a revenue stream, it's easily integrated into our designs, we know how to buy and sell it. But because it doesn't really work (at anything beyond generally raising the profile of a logo, possibly), and advertising money dries up when the economy dries up: so it's not exactly a robust business model.

The problem, is that there's not a lot of good models for content-based services to operate under. Subscriptions don't often work because the threshold to commitment is high, and unless you already have an audience, it's hard to convince people to pay subscription fees. Micropayments, and tip jars where you expect a lot of people to give a very little in support of your site, often suffer from the same problems as subscription models in practice.

The solution?

Well there isn't one, exactly, so I'm really excited to see what happens in the next couple of years. My gut instinct is that the following two factors are important:

1. Content on the Internet should be a hook into some other revenue generating scheme. Consult, coach, be an academic, publish books, sell relevant stuff, and so forth. This works, it can certainly be overdone, or done poorly, but blogging is a great way to prove to the world (and yourself) that you know what you're talking about, and that you're an interesting, creative, and committed thinker and worker, worthy of their investment in other contexts.

2. There should be less content on the Internet. Part of the problem is that since everyone can have their own website, in most cases everyone does, and while this is great for the democracy of the web, it means that there's way more competition (for eyeballs, for advertising money) than there needs to be. The end result is that audience is way too divided. The solution: group blogs and more curated content. It's still possible for people to present individual streams of content, and use personal sites for profiles, but in the age of the niche and the post-advertising age, working in groups is the way. I'm convinced.

More thoughts on this, particularly the second point to follow, of course.

Onward and Outward!