-----BEGIN PGP SIGNED MESSAGE----- At 4:01 PM -0500 on 12/21/98, Somebody wrote:

...

If it's on my hard drive, it ain't yours anymore, in other words.

What are the assumptions? Assuming that you were given what is on your hard

drive, or can you have procured it by any means, like piracy, theft, etc.

:-). I'm going to do a real rant on this, someday Real Soon Now, and you can see the germ of the idea in Freidman's talk, and in my old Shipwright rants <http://www.shipwright.com/>, and also, I think, on the Philodox site <http://www.philodox.com/>. More to the point, we all, as far as I can tell, stole it from Eric Hughes, who even went so far as to present a paper on the subject, long ago at a DEFCON far away. Who knows where *he* got it from, but that's enough geneology for the time being... The point I'm making above comes from Ronald Coase, the father of modern microeconomics, winner of Nobel for same, circa 1992?. The most important thing that Coase said, the thing which got him the Nobel, was that firm size was directly related to transaction cost. In an information economy, especially in a world of Moore's law (yielding increasingly geodesic networks, and the markets overlaid on them) and strong cryptography (digital bearer transactions, perfect pseudonymity, etc.), tranaction costs get *very* small indeed, and in a considerable hurry. To some, I believe clueless :-), people, the above means that we still get economies of scale, because the first copy of a given modern bloatware application, like Word for Windows, is enormously expensive compared to its replication cost, which is functionally free by comparison, even if you put a box around it, much less if you just put it up for download from the web. However, *I* say that if you can do profitable transactions in, say, the micropenny range, you get a world where the bloated, industrially-delivered code-in-boxes that we've all come to know and love starts to surfact, under its own weight, into smaller and smaller functional bits, each maintained by different, and much smaller, firms. I use open source software as my case in point. Notice that, since the cost of code itself is free, there is a huge, and expanding, diversity of very specialized code out there now. The writers of that code don't make any money on that code except by proxy, through enhanced reputation, and so forth. However, if you could drive the cost of *transactions* down, people *would* write code just for the money, and simply auction it off their websites to the highest bidder, and could do so, profitably, for rediculously cheap prices. More about that in a minute. Sure, Red Hat grosses $20 million, but that's more a function of the cost-domination of sneaker-netted CDROM over the still-scrawny lower capillaries of the internet. More to the point, I claim, it's the result of the cost of *credit-cards*, even *checks*, as a way to pay for code. Book-entry settlement, in other words, which is done "out of band", over private, hierarchical, and proprietary financial transaction networks. If it were possible to pay to download code, as you needed it, for instantaneously net-settled *cash*, and for sufficiently small enough bits of money, then the need, the price-economy, if you will, for large glops of code would go away. And, Coase's theorem says (I think) so too would the large firms required to generate those large glops of code. So, what we're left with is a world where the legalities of intellectual property are physically impossible to enforce, thus words like "privacy" cease to have any real meaning. If you can't enforce such an intellectual "property" law, it's kind of hard to call it a law, as most law professors and philosophers of law will tell you. Ironically, I claim, that's a very strong form of a *second* observation that Ronald Coase made, that you can't have markets without private property. Sounds like a motherhood, now, but he was the first person to articulate that clearly, back in the early part of this century, and it's one of the reasons he got the Nobel, of course. *My* variant on Coase says that you don't need *laws* to ensure private property in digital form. Cryptography will do just fine. Like I said, if it's encrypted, and it's on my hard drive, it's now *mine* no matter where I got it, laws or not. I mean, who's to know I have it to begin with, and, more to the point, who's going to take it away without my permission, especially in a world of encrypted offsite net.backups, m-of-n archival reconstruction, etc. Write software, not laws, to quote the my old cypherpunk chestnut. Yet, I claim, to finally answer your point :-), people who *make* new code in such abrave new world, *still* make the most money. No, not "publish", or even distribute new code, like Microsoft and Ingram do, but the actual guy plinking away in CodeWarrior, or whatever. The mind behind the code, the developer, let's call him, in a proper use of the now mostly corrupted word. Here's how. You write software for a living. You upgrade your existing code base, and you announce its availablity to the net. Everyone who has your code knows how good your work is, and they probably have a standing bid in to buy revs of it at some specific price, anyway. So, just like the specialist's book at the New York Stock Exchange, you, or your website's CGI, accepts those bids, highest to lowest, and, as new bids come in, you sort them into the queue of outstanding orders, by price, of course, :-), and accept them in that order. Notice something important, but obvious, here. The people who bid the highest get the first copy. We'll worry about Vickery variations on that auction some other time. Secondly, there's the fun part, the *recursive* part of "geodesic recursive" or neologically, and, this very afternoon, "georecursive", auctions. That is, if I paid a monster pile for the first copy, I must have such a profitable need for it that it's worth it to me to pay that much. Of course, one of the most profitable things I can do especially in a world where the net isn't quite geodesic enough yet, and Freidman hints at this in his Cato talk, is to *flip* that code. Frankly, this is nothing really now. It's done identically the same way that large institutions flip IP0's in the market for a hot stock, or, more properly, a recording company or software "publisher" puts "talent" under contract and remarkets their output in classical vertically-integrated, and I say, now-industrial, markets for those goods. So, back to the future, I pay through the nose to get to the first copy of your code, because I have an orderbook of my *own* to fill, and, more properly, I have sufficient bandwidth and processing power of my own to remarket it. Even more fun, someone *else* can buy from me, and resell what I sell them, *recursively*, ad infinitum, and, frankly I don't really *care* what they do with what I sold them, because I've already bought low and sold high. I claim, even with all this rampant "piracy", and, especially as the network gets more geodesic -- a process which these markets would probably *accellerate* by the way think what would happen if you could sell bandwidth this way -- the person who collects the most economic "rent" would be *you*, the originator of the new code. Just like a rock star, if the code was popular enough, but without the recording company. Well, actually, with lots of very *little* record *distributors*, all taking a haircut, and, rarely would any of them make anything near like what you made selling the first copies. I mean, new information always costs more than old information, right? And, of course, you, as a developer, will always have the *newest* information of all... Finally, it even behoves huge companies who control large blocks of intellectual property, record companies, and Microsoft, for instance, :-), to compete in this new kind of market, precisely *because* the the transaction costs are so low and the initial profit margins are correspondingly higher. It's *profitable* to play in this market, even when you're losing market share, paradoxically, to smaller players. Think of what happened to large movie studios in the 1960's and '70's, and how they were replaced, in the *production* of movies, by director-owned, mostly ad-hoc, "virtual" production companies, like Coppola's Zoetrope, or Speilburg's Amblin, or Lucasfilm/ILM. Even the new "studios", like Dreamworks/SKG are really director-run enterprizes (Spielburg and Geffen, remember?). The "directors", the "auteurs" of software, are pretty much the guys who write the code, yes? Everything else is just transaction cost. Cheers, Robert Hettinga -----BEGIN PGP SIGNATURE----- Version: PGP for Personal Privacy 5.5.5 iQEVAwUBNn7OucUCGwxmWcHhAQFidwf+MZ8SLZffWvH7g+QMY6Q2Q3P4flVkEVpr keXiF7cXXKlv/zL48wX1fjan93MMwN65b9/o7aIe1Wvq1nQfFE1AhPaShYZwciz9 NpInA2+9Mrz30cU4Nj775gXHfCaFl68tUmKd8GwUBI4rwjrHKgFy5hFSWlxNQSFF yQ8idMnmC7fSIELZJOurejYM90nA4z9QZZibekVuP+u3e6ogkclCS8m3e3QznpWY yCTYHqFFc5JHHEHc4PCOALWei74/rTRVvaziEU3QQCvytXgsZu2j0OLkpukc4zqb eJD/+Zkc3d1pfTqxaR4tLatr+QXVEuxozwz3nyoo3mzfd0LbKdBdnA== =kKXa -----END PGP SIGNATURE----- ----------------- Robert A. Hettinga <mailto: rah@philodox.com> Philodox Financial Technology Evangelism <http://www.philodox.com/> 44 Farquhar Street, Boston, MA 02131 USA "... however it may deserve respect for its usefulness and antiquity, [predicting the end of the world] has not been found agreeable to experience." -- Edward Gibbon, 'Decline and Fall of the Roman Empire'