Photoshop, Starcraft and Harry Potter are all digital goods with high fixed costs. I do not think they are different in kind. Sure, you're right--each has a free software equivalent. For Photoshop or Illustrator, there is the GIMP or Inkscape (I've been designing websites since 2000 and have made a choice based on basic usability to stick with Adobe). Free to play games in 2012, like Path of Exile, ape games made by commercial studios with a large budget in the 1990s. Lots of Harry Potter fanfic and fan-made Fallout movies are out there for those that want it. Perhaps there is something here about innovation (corporate structure needed?) versus polish or idea extension.

Do you draw any lines between using a pirated version of Photoshop vs. using the free software equivalent which copies the interface and functionality (Photoshop first launched in 1990, the Gimp first launched in 1996). If not, then why develop free software alternatives at all? Is there a difference between MegaVideo? and user generated video? The idea that anarchist networks can better generate software doesn't, for me, explain why content not generated by anarchist networks is also free (aside from redistribution motives that are provided as tautology). I have definitely benefited from the economy of sharing of commercial content (from Napster to Kazaa to BitTorrent? ), but I don't know how the Gimp provides any ethical justifications for sharing content made otherwise. Thus my interest in an alternative that makes sense for my set of values.

My cost of living is the cost of living in New York city, and I don't have a choice of whether the money I use is expensive or not (aside from moving out of here, which I am not inclined to do, given that I moved here in the first place!). If we want to consume expensive things, like Harry Potter, and not the much less expensive but next best thing, then they remains expensive. Cost is only irrelevant if you don't consume it. Which brings me back to--if the extremely cheap or free version is totally out there, then why are we so compelled to BitTorrent? the expensive one? What does that preference signal? That we prefer "actors"? That we like celebrities? That seems to make them pretty relevant (and explains their compensation).

This was imprecise. There is nothing ethically difficult for me about Free Software, Creative Commons, Wikipedia, Kickstarter, Anonymous, etc. They are all awesome. I have no reason whatsoever to invent business models for things that are free by design. What I feel squishy about is the idea of sharing media and software that are designed as "expensive" without paying for them. I, for one, think there is value in the higher price of good design (I know you disagree, but let's call it aesthetics). Yes, it's all bits and the square of 767354 looks like copyrighted MSFT code. But, just because a chair is made of molecules and I'm made of molecules doesn't mean that we are the same. So I do think that there is a distinction between things made in the free economy and things not made in the free economy. And I think taking not-free to free requires some justification other than "we could do it just as well" and "people really like free things." Is there a solution where both sides are happy?

I agree on Wikipedia, and other examples of culture that come from the coil-internet as you spin the planet. I have no idea whether most of our production will be as such. I'd love it if Free was the dominant economy. My language referred to file sharing, not goods produced in the way you describe. As for your rhetorical question of when has profit become an end to itself--I would say that question defines how a market economy works (a descriptive statement, I hope). Good or bad, that seems to me to be beyond the scope of what you taught in class.

If Flickr and Dropbox are so useless and terrible, then why are they happily used by millions of people? Dropbox is extremely convenient, and it is free up to 2GB of data. The limitation that turns that service into a pay service (more space) is identical to my limit on email from Columbia (more space). Does Columbia University distort the technology because they don't want to host my attachments over 1GB? And I already pay them! Dropbox doesn't owe me anything--how is their service restriction an affront? As for free alternatives, I am all ears to suggestions that don't require me to run a server or my friends to FTP into it.

As an aside, a "suggestions" page would be a welcome addition to this Twiki--a table with alternatives for stupidity-reinforced privacy-destroying websites that all of us duped Millennials have come to love. Something like this but for apps rather than desktop programs.

I am not sure where to go with this based on your feedback. To me there are two parts of your course: the descriptive and the normative. As a technophile, I find the descriptive stuff fascinating. The normative stuff--that which you justify with "from each according to ability, to each according to her needs," and proclaim what is the Greater Good of the Many is harder to swallow. That's not a technological argument, but a philosophical one. I don't even disagree--I certainly want knowledge to be infinitely available. I like Free Software solutions, how they expand the pie for humanity, and am humbled by the movement's accomplishments. But when your argument comes into contact with non-anarchist production, I would like a stronger philosophical footing. My attempts to find one based on personal alignment got shot down. So I tried in this draft to take out any strong normative statements, and be descriptive of what I've seen in the for-profit startup ecosystem.

As a for-profit startup founder, I am more interested in building an innovative company than in participating in emergent culture generation. From my perspective: I can work 70 hours a week at a job and contribute to projects I love on my time off, or I can work 70 hours a week on something I care about. It's not a hypothetical. And I have to work because money is expensive. So it is not particularly practical to me that today "profit economics" is on the outs and I should instead be giving away my product for free.

If there's a useful direction I could take this, glad to hear it.

One of these is not like the others. As you were just pointing out, we can make free software without those inputs. Your category of "professional software" includes an image processing program, but not operating systems, databases, and office suites? Even about Photoshop you are talking through your hat. Evidently you have never encountered the GIMP.

This also includes the cost of financing which is a function of the risk of the venture. Higher-risk ventures require a higher rate of return as part of the fixed cost—start-ups and movies are expensive to finance.

That depends. All this really turns out to mean is that expensive things are expensive, and that money is sometimes expensive too. But, for example, extraordinary films are made all the time on budgets that are infinitesimal by Hollywood (or even Bollywood) standards. Expensive celebrity "actors," expensive promotion and expensive distribution (financed of course by purchases of expensive money multiplied by risk premium) are irrelevant to the production of compelling, informative, elegant and intelligent culture. So all this supposed economic sophistication is, to put it mildly, actually beside the point, as it is when the pharmaceutical industry talks about the cost of drugs.

A Survey of Business Models

Sharing. The free economy shifts the balance of power to consumers, providing on demand access to any digital good. For some, however, sharing raises ethical questions about misappropriation from other consumers. A classic free riding problem can occur, such that one group of people benefit from the contribution of another group of people (producers, sellers, or the buyers which pay and subsidize fixed costs) without their consent.

No. You're not describing the sharing economy, you're repeating bilge washed into your brain by the "content" oligopoly. In the sharing economy, producers and distributors have consented to the terms of sharing. They make production and distribution possible that otherwise would not occur, they give everyone value, and everyone has agreed to share. All the supposed problems, including the "ethical" problem you arrogantly claim we have, are therefore non-existent. I explained all this more than a decade ago in Anarchism Triumphant. Creative Commons, Free Software, the Wikipedia, and many other pillars of the sharing economy have arisen since, as I said they would. You're welcome to disagree about how all this plays out, but you're not welcome to distort the argument by assuming falsehoods.

For institutions structured to produce costly digital goods, this interferes with generating market compensation and leads to antagonism with a powerful and otherwise beneficial distribution channel. More people see the content but less profit is made.

Not necessarily. And at any rate that tradeoff is radically reductive. Is your view of the overall significance of the total replacement of the world's proprietary encyclopedias by Wikipedia, for example, captured in the proposition that "more people see the content but less profit is made"? Should we include in the cost-benefit analysis that we all have instantaneous access everywhere to information in a fashion that has changed everyone's life for the better? That we have democratized the production of knowledge in ways that will continue to transform the nature of human thought? That we have provided an experience of intense beneficial collaboration to hundreds of thousands of people around the world? Less profit? Even if that is true, who gives a shit? Economic rent is tolerable because necessary. Since when has it become an end in itself?

No, the difficulty is that the need to cripple the technology in order to support the service-restriction model distorts the technology. Flickr is not better than federated photo sharing through this thing we invented about 7,000 days ago called the World Wide Web. Dropbox is a ridiculous form of stupidity-reinforced privacy-destroying cloud storage than which all Columbia students already have better alternatives available for free that no one tells them about. There's no ethical attraction in making technology deliberately worse so that you can also sell people something they don't need at prices they shouldn't have to pay. Your analysis is only attractive if you're prepared to ignore everything that someone who disagrees with you might say about it.

This conclusion doesn't mean anything.

We're a little better off than we were in the last draft, but some significant problems remain. Your supposed ethical objections to sharing depend on outrageous factual falsehoods uncritically repeated. Your analysis of the "profit economics" of culture contains both some factual inaccuracies and some serious theoretical blind spots. The theme of the essay now sometimes seems to be that the future should be postponed if possible, for reasons that aren't very clear except that profit in the hands of a few is inherently good and the betterment of humanity is not enough of a reason to reduce it. The primary argument on the other side—that knowledge has always been strictly rationed in human society, unjustly, but necessarily, for reasons we can now avoid, thus allowing billions of existing human beings to escape ignorance—is not even acknowledged, let alone answered.

Transitional Stages Matter

Economic Axioms for Digital Goods

A Survey of Business Models

How Do We Decide

Making Money When Its All Free

I think the exploration of transitional stages is very important. Sure, pointing to 50 years out is a useful exercise for framing the journey. But, people need immediate, real actionable ideas that are viable, at least to some extent, within existing paradigms. We are creatures of habit and inertia. We are not yet in an economy where sharing enables a large portion of the productive population to make a living--I don't know whether you claim this--and so thinking about steps towards our goal is useful. I grew up partially in the Soviet Union. That socialist experiment was stuck in a transition stage for 70 years.

Yes, the digital economy is a fact, as are sharing and MC=0. However, I think, it is more powerful to challenge the misuse of monopoly power on its own terms. When merely providing powerful actors a descriptive view of the world, they will attempt to change it or control it. Business men create barriers to generate excess return that flows to shareholders--this is the creed taught in this university, and every business school out there. I agree with you that this may not be a result we want in relation to cultural goods. Then why not ground the desired end-result in a driving principle. I recognize my indoctrination and to get to an alternate position need an approach that makes sense bottoms-up. Not merely as a conclusion.

Sure, public corruption. Alternately, distribution of utility, income, cultural goods, whatever. The questions boils down to who gets what. I agree with your conclusions on the distributional result. But I feel squishy about the dismissal of a desire to have a reason for the logic for distribution. This country decides to set taxes at X and achieves a gini coefficient. It is a philosophical argument that gets us to flatter income equality, not a guide on how to maximize deductions.

I will try to address, but I am not sure I understand the gist of the criticism. What I don't like is the idea of subsidizing production of digital goods. Kant's proposition of not using people as a means to an end seemed like a reasonable place to park that emotion. Using one set of people, without involving them or any sense of choice on their part, to benefit some group with which they are not in social contract (I don't believe that we are in requisite social contract with citizens of other nations) seems like using them as a means to an end.

Point well taken. I think it's a fuzzy distinction that goes to life of the author and fixed costs, and is probably out of scope.

I will try to look for examples of "cultural activity that a sufficient collection of people would voluntarily each pay a sufficient share of the costs". I think that's key to what I am trying to explore.

This is the crux of the matter. It is the normative philosophical principle according to which your distributive argument is being made. This is also why I tried to start with some reflection of my personal moral compass--perhaps not all of us agree with the distributive principle quoted above, or its superior justice.

Fair. I will focus on expanding this descriptive section to include sharing in a useful way, as well as provide other examples. I will try to learn more about this. No list of innovations is exclusive.

I need more help to understand the "economy" of sharing, and will steer the essay in that direction. I don't understand the other comment. Sharing is driven by its own ethical considerations (like the distributive princple you quote, and certainly others). There are essays out there arguing why those principles are appropriate (e.g, any of these links perhaps).

This pop-Rawlsian stuff isn't really necessary, is it? Why do we have to find some normative justification for a descriptive theory strongly confirmed by empirical evidence? That P=MC in free competitive market at equilibrium doesn't require moral justification any more than the Pythagorean Theorem does. It's a category error at the outset, isn't it?

We want access to music and the internet if born in New York or India. Less clear is how much access we want—perhaps there is a line to be drawn between necessary cultural goods (learning the classics) and luxury cultural goods (StarCraft? ). One empowers, lifts people from their station into the flow of human progress; the other entertains and distracts. The two are not synonymous in function and moral weight. The problem encountered in this distinction is who decides, and how.

Only once basic economic principles have been discarded in favor of some new theory of the moral economy. The question is whether to have a free market or to engage in creating monopolies for private benefit using public coercive power. The ethics of that decision may be discussed, I suppose, if they don't seem evident without substantial "re-theorizing." But those aren't the ethics of business models. Those are the ethics of public corruption.

What? I will admit that in general I am somewhat sympathetic to the position once expressed by a distinguished professorial colleague of mine in this law school: "Never lend money to a Kantian." But putting aside the teaching of half a century toddling around universities with respect to the heightened rate of immorality prevailing among moral philosophers, I have no idea how you have reached the conclusion that Kantians can't hold clearance sales. If this is a proposition you really want to defend, I think you need to spell it out more fully, with no steps missing, and be prepared to meet a good deal of vigorous skepticism,

Really? Textbooks may well embody knowledge it costs millions of dollars to produce and acquire: ask what it has cost us to learn what is presented in any text on planetary astronomy, for example. You're going to need an additional element or two to make out the particular line of distinction you are trying to set up here.

But, we cannot coerce businesses to generate cultural goods without covering fixed costs and financing costs.

Nor do we have to subsidize with private ownership privileges forms of cultural activity that a sufficient collection of people wouldn't voluntary each pay a sufficient share of the costs of having made. The use of state power to create monopoly only results in the coercion of those who are made to pay for cultural production which, once existent, they have as much right to share in as any other human being who happens to have a larger disponible income.

Arbitrarily charging those first in line and distributing for free to the rest of the world is unethical.

Unestablished. See above.

If advertising and data-mining are unethical as well, we must fund the product by user contributions and bifurcate paying users from non-paying users.

Not unless you can establish the very unlikely premise you are reusing above. Otherwise all we need to do is to adopt the principle of "from each according to his ability or her voluntary willingness to pay, to each according to his need or willingness to accept," and allow production and consumption of culture to reach the new, more just and not less satisfactory, equilibrium.

There must be enough paying users to get the product to the point where MC=0. Two ethical models have emerged: (1) auction, and (2) freemium.

No, if that's supposed to be an exclusive list. Pure sharing has also done fairly well, as has direct social subsidy to potential creators, for example.

At no point is it made clear why we need to foresee the large number of contexts in which people may choose to participate in the economy of sharing. We don't feel it's necessary, on the other side, to write essays explaining the two ethical business models for owning. We take for granted that the ecology of material society is complex: that there are many roles for participants in the market, and that the set is not closed, with clever people constantly inventing new ways of making a living. The same is true in the sharing economy, and this crabbed and static approach to analysis needs to be opened up more than a little if it is to avoid a framing error that we would never make on the other, more familiar side of the 21st century economy.

Ethically Appropriate Business Models

Introduction

Economic Axioms

Ethical Axioms

Onto Business

But, we cannot coerce businesses to generate cultural goods and then distribute them for free without covering fixed costs and financing costs. Arbitrarily charging those first in line and distributing for free to the rest of the world is unethical. If advertising and data-mining are unethical as well, we must fund the product by user contributions and bifurcate paying users from non-paying users. There must be enough paying users to get the product to the point where MC=0. Two acceptable models have emerged: (1) auction, and (2) freemium (up-sell, cross-sell or marketing).

In the auction set-up, people bid up to their willingness to pay for the free good. For some this is zero, for others it is a positive value. There are no ethical problems if people self discriminate, and there is evidence that established musicians are able to net significant returns in online auctions. Examples of this are Radiohead’s “In Rainbows” (1.2 million downloads), Nine Inch Nails ($1.6 million in one week), and Kickstarter ($75 million raised). Inherent in the auction model is a utility from the cultural good so positive that people pay a creator to express gratitude. The creator should be particularly good at signaling the quality and differentiation of the good from a commodity such that price does not equal marginal cost.

The second approach builds on the idea of differentiation, marketing and tiering value. Technology commentators advocate connecting with fans and generating a reason to buy. Again, the creator must prove that their good holds value separate from that of the free digital file or service. That value is either a truly superior experience that deserves compensation by choice, or comes bundled with a physical items whose marginal cost is not equal to zero (e.g., limited edition collectible sets /prints, t-shirts or signed items). Similarly, many technology start-ups use a freemium model to charge for superior service (which often is nearly identical to the free service) and provide the core service for free, which allows users to self-discriminate. We will thus continue to see core free offerings, bundled with highly targeted value propositions to fans and power-users.

Still, these models do not guarantee that fixed and financing costs are covered, especially for capital intensive and highly experimental projects that can have extremely positive payoffs but are not easily marketable and come with significant chances of failures. In that case, we need public subsidy to offset the innovator’s temptation to convert the public good into a club good. The categorical imperative does not allow us to use movie studios as a means to enrich others. A hybrid solution could involve some indication of private interest (via Kickstarter), a significant public subsidy once a goal is reached (how many people must want an Avengers movie?), and a Creative Commons license on the final good produced.

Ethical Business Models / Or, What are the choices for business models under MC=0

• http://www.baekdal.com/insights/infinite-choices-and-a-world-abundance-vs-supply-and-demand

  Main point is that people have discretionary budget that they set. So say $10 for music per month. Then they choose to allocate that based on qualitative factors (e.g., emotional, design, marketing) rather than on the quantitative factors (how much does this cost, what did it cost to produce and how it is now priced). So someone may get $8 for a song and another $2 for another because of, what is essentially, love. Interesting idea but may be wrong in that this is a non-equilibrium position. This is for people with money to waste. Or for people who have been convinced/brainwasted/affected that they need to spend extra for something that has no cost. Echoes though the radiohead album sales.

• Radiohead's free and nonfree album http://www.time.com/time/arts/article/0,8599,1666973,00.html ; http://techland.time.com/2011/02/14/radiohead-release-new-album-online-but-not-for-free/ ; http://www.breitbart.com/article.php?id=D8SOC7200 ;

  RH released In Rainbows for free (auction style), next album was $9 in mp3 format. Band wants to make money, capitalizing on people's learned behavior of paying $1 per song on iTunes. 40% paid ($8 on average), 60% didn't.

• Nine Inch Nails version of the same: http://news.cnet.com/8301-10784_3-9936210-7.html

  Trent made good money (options: free for the first nine tracks, $5 for the whole digital album, $10-$300 for disc sets. Ghosts, according to Reznor, netted $1.6 million in just over a week.) The next one "Slip" was completely free. Also happened to be terrible [look at Metacritic data]. Also, what does it say that only successful artists make real money on this stuff? Did Bjork do it too?

• Is there anything to say old mp3.com? Did people make money on it. http://en.wikipedia.org/wiki/MP3.com TBD

  Interesting tidbit: At its peak, MP3.com delivered over 4 million MP3 formatted audio files per day to over 800,000 unique users on a customer base of 25 million registered users. This was about 4 terabytes of data delivery per month from three data centers. Engineers at MP3.com designed and built the Pressplay infrastructure, eventually purchased by Roxio and renamed Napster.

• A meaningless article on branding as a way to pump up price. Hello AAPL. http://www.techdirt.com/articles/20070215/002923.shtml
• http://roepermccullough.blogspot.com/2007/12/when-marginal-cost-equals-zero.html

  If there was some way of figuring out exactly how much each person valued particular television content everyone would have access to it at a price that is worth it for them. But there isn't, so channels have to charge a uniform fee.

• Chris Anderson on Free. http://www.wired.com/epicenter/2009/06/disruptive-by-design-wired-editor-in-chief-chris-anderson-discusses-the-future-of-free/ ; better discussed here http://www.david-campbell.org/2010/05/13/thinking-freely/ and here http://www.techdirt.com/articles/20091119/1634117011.shtml which provides a summary with stats

  Takeaway is ConnectwithFans? +Reasontobuy = win. Create artificial scarcity on goods that sit on top of free. Limited sets or prints. Basically a fremium model. Think kickstarter? What's the problem -- the problem is that everyone becomes a marketing/sales person. We all have to be marketing and sales gurus with a need to be heard. It is the attention economy so the person that is loudest will get the most attention--is this an optimal outcome? Thus we see all these companies popping up about connecting with fans and marketing to fans. Are these a potential replacement to old school labels. Yes they are.

• A musician changing his mind about free and regretting it http://www.chicagoreader.com/chicago/mp3-file-sharing-music-revenue-models-tiny-mix-tapes-freeloading/Content?oid=1361486 . Ruen proposes that independent record labels borrow some tactics from companies that sell fair-trade coffee—he's betting that many file sharers have ethical qualms and can be lured away from BitTorrent? by a guarantee that their money is going to a label that does its business in a transparent, artist-friendly fashion.

  Conventional wisdom amongst my peers," Shadow writes, "has been remarkably short-sided [sic] over the last decade: 'Yeah, CD sales are down, but all the money is in licensing.' Not anymore. 'Yeah, licensing money is down, but the video game industry is killing it.' Less so these days, according to recent data. 'Well, the real money is in touring.' Really? When was the last time you saw a 'new,' post-record company artist headline a major music festival? At this rate, we'll be stuck with Coldplay for decades (no offense intended)."

• Hey there actual academic research http://www.mendeley.com/research/business-models-for-internetbased-ecommerce-an-anatomy/
• So are all digital goods then public goods? http://en.wikipedia.org/wiki/Public_good Solutions OTHER than club goods (you can't have it) include (1) serious subsidy and (2) pooling of resources by users to generate funds for the FC + some profit, (3) some fancy taxation scheme. People would pay if they are coerced or out of the goodness of their hearts. What's the % conversion on both of these (can look up charitable giving statistics).

  Yes. In economics, a public good is a good that is nonrival and non-excludable. Non-rivalry means that consumption of the good by one individual does not reduce availability of the good for consumption by others; and non-excludability means that no one can be effectively excluded from using the good.[1] In the real world, there may be no such thing as an absolutely non-rivaled and non-excludable good; but economists think that some goods approximate the concept closely enough for the analysis to be economically useful.

  These problems with the club-good mechanism arise because the underlying marginal cost of giving the good to more people is low or zero, but, because of the limits of price discrimination those who are unwilling or unable to pay a profit-maximizing price do not gain access to the good.

• good stuff a couple of pages in http://www.docstoc.com/docs/81250205/new-Internet-Business-Models

Paper Title

-- By AlexeySokolin - 17 Oct 2011

Section I

Subsection A

Subsub 1

Subsection B

Subsub 1

Subsub 2

Section II

Subsection A

Subsection B

# * Set ALLOWTOPICVIEW = TWikiAdminGroup, AlexeySokolin

-- AlexeySokolin - 14 Oct 2011

Ethical Business Models

What are the choices for business models under MC=0

What has been done: creating barriers to entry, limiting access to platforms, bidding

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