[NEC] 2.9: Fame vs Fortune: Micropayments and Free Content

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NEC @ Shirky.com, a mailing list about Networks, Economics, and Culture 

           Published periodically / # 2.9 / September 5, 2003 
               Subscribe at http://shirky.com/nec.html
			       Archived at http://shirky.com
          Social Software weblog at http://corante.com/many/

In this issue:

 - Introduction
 - Essay: Fame vs. Fortune: Micropayments and Free Content
     (Also at http://www.shirky.com/writings/fame_vs_fortune.html)
 - Notes:
	 historyflow: Software from IBM
     Danah Boyd on Friendster
     Club Nexus
     ETech CFP
     T-Mobile and Starbucks Don't Get Wifi

* Introduction =======================================================

This essay, Fame vs. Fortune, is an attempt to fuse two earlier
themes: the uselessness of micropayments, and the difficulty of
charging users directly.

-clay

* Essay ==============================================================

Fame vs Fortune: Micropayments and Free Content
  http://www.shirky.com/writings/fame_vs_fortune.html

Micropayments, small digital payments of between a quarter and a
fraction of a penny, made (yet another) appearance this summer with
Scott McCloud's online comic, The Right Number,
[http://www.scottmccloud.com/comics/trn/intro.html] 
accompanied by predictions of a rosy future for micropayments.
[http://www.google.com/search?q=mccloud+bitpass]. 

To read The Right Number, you have to sign up for the BitPass
micropayment system [http://www.bitpass.com/learn/]; once you have an
account, the comic itself costs 25 cents.

BitPass will fail, as FirstVirtual, Cybercoin, Millicent, Digicash,
Internet Dollar, Pay2See, and many others have in the decade since
Digital Silk Road, [http://www.agorics.com/Library/dsr.html] the paper
that helped launch interest in micropayments. These systems didn't
fail because of poor implementation; they failed because the trend
towards freely offered content is an epochal change, to which
micropayments are a pointless response.

The failure of BitPass is not terribly interesting in itself. What is
interesting is the way the failure of micropayments, both past and
future, illustrates the depth and importance of putting publishing
tools in the hands of individuals. In the face of a force this large,
user-pays schemes can't simply be restored through minor tinkering
with payment systems, because they don't address the cause of that
change -- a huge increase the power and reach of the individual
creator.

- Why Micropayment Systems Don't Work

The people pushing micropayments believe that the dollar cost of goods
is the thing most responsible for deflecting readers from buying
content, and that a reduction in price to micropayment levels will
allow creators to begin charging for their work without deflecting
readers.

This strategy doesn't work, because the act of buying anything, even
if the price is very small, creates what Nick Szabo calls mental
transaction costs, the energy required to decide whether something is
worth buying or not, regardless of price.
[http://szabo.best.vwh.net/micropayments.html] The only business model
that delivers money from sender to receiver with no mental transaction
costs is theft, and in many ways, theft is the unspoken inspiration
for micropayment systems.

Like the "salami slicing" exploit in computer crime,
[http://www.yourwindow.to/information-security/gl_salamislicing.htm]
micropayment believers imagine that such tiny amounts of money can be
extracted from the user that they will not notice, while the overall
volume will cause these payments to add up to something significant
for the recipient. But of course the users do notice, because they are
being asked to buy something. Mental transaction costs create a
minimum level of inconvenience that cannot be removed simply by
lowering the dollar cost of goods.

Worse, beneath a certain threshold, mental transaction costs actually
rise, a phenomenon is especially significant for information
goods. It's easy to think a newspaper is worth a dollar, but is each
article worth half a penny? Is each word worth a thousandth of a
penny? A newspaper, exposed to the logic of micropayments, becomes
impossible to value.

If you want to feel mental transaction costs in action, sign up for
the $3 version of BitPass, then survey the content on offer.
[http://www.bitpass.com/share/sites/] Would you pay 25 cents to view a
VR panorama of the Matterhorn? Are Powerpoint slides on "Ten reasons
why now is a great time to start a company?" worth a dime?  (and if
so, would each individual reason be worth a penny?)

Mental transaction costs help explain the general failure of
micropayment systems. (See Odlyzko
[http://www.dtc.umn.edu/~odlyzko/doc/case.against.micropayments.pdf],
Shirky
[http://oreillynet.com/pub/a/p2p/2000/12/19/micropayments.html],
and Szabo 
[http://szabo.best.vwh.net/micropayments.html] 
for a fuller accounting of the weaknesses of micropayments.) The
failure of micropayments in turn helps explain the ubiquity of free
content on the Web.

- Fame vs Fortune and Free Content

Analog publishing generates per-unit costs -- each book or magazine
requires a certain amount of paper and ink, and creates storage and
transportation costs. Digital publishing doesn't. Once you have a
computer and internet access, you can post one weblog entry or one
hundred, for ten readers or ten thousand, without paying anything per
post or per reader. In fact, dividing up front costs by the number of
readers means that content gets _cheaper_ as it gets more popular, the
opposite of analog regimes.

The fact that digital content can be distributed for no additional
cost does not explain the huge number of creative people who make
their work available for free. After all, they are still investing
their time without being paid back. Why?

The answer is simple: creators are not publishers, and putting the
power to publish directly into their hands does not make them
publishers. It makes them artists with printing presses. This matters
because creative people crave attention in a way publishers do
not. Prior to the internet, this didn't make much difference. The
expense of publishing and distributing printed material is too great
for it to be given away freely and in unlimited quantities -- even
vanity press books come with a price tag. Now, however, a single
individual can serve an audience in the hundreds of thousands, as a
hobby, with nary a publisher in sight.

This disrupts the old equation of "fame and fortune." For an author to
be famous, many people had to have read, and therefore paid for, his
or her books. Fortune was a side-effect of attaining fame. Now, with
the power to publish directly in their hands, many creative people
face a dilemma they've never had before: fame vs fortune.

- Substitutability and the Deflection of Use

The fame vs fortune choice matters because of substitutability, the
willingness to accept one thing as a substitute for
another. Substitutability is neutralized in perfect markets. For
example, if someone has even a slight preference for Pepsi over Coke,
and if both are always equally available in all situations, that
person will never drink a Coke, despite being only mildly biased.

The soft-drink market is not perfect, but the Web comes awfully close:
If InstaPundit [http://www.instapundit.com/] and Samizdata
[http://www.samizdata.net/blog/] are both equally easy to get to, the
relative traffic to the sites will always match audience
preference. But were InstaPundit to become less easy to get to,
Samizdata would become a more palatable substitute. Any barrier erodes
the user's preferences, and raises their willingness to substitute one
thing for another.

This is made worse by the asymmetry between the author's motivation
and the reader's. While the author has one particular thing they want
to write, the reader is usually willing to read anything interesting
or relevant to their interests. Though each piece of written material
is unique, the universe of possible choices for any given reader is so
vast that uniqueness is not a rare quality. Thus any barrier to a
particular piece of content (even, as the usability people will tell
you, making it one click further away) will deflect at least some
potential readers.

Charging, of course, creates just such a barrier. The fame vs fortune
problem exists because the web makes it possible to become famous
without needing a publisher, and because any attempt to derive fortune
directly from your potential audience lowers the size of that audience
dramatically, as the added cost encourages them to substitute other,
free sources of content.

- Free is a Stable Strategy

For a creator more interested in attention than income, free makes
sense. In a regime where most of the participants are charging,
freeing your content gives you a competitive advantage. And, as the
drunks say, you can't fall off the floor.  Anyone offering content
free gains an advantage that can't be beaten, only matched, because
the competitive answer to free -- "I'll pay you to read my weblog!" --
is unsupportable over the long haul.

Free content is thus what biologists call an evolutionarily stable
strategy. It is a strategy that works well when no one else is using
it -- it's good to be the only person offering free content. It's also
a strategy that continues to work if everyone is using it, because in
such an environment, anyone who begins charging for their work will be
at a disadvantage. In a world of free content, even the moderate
hassle of micropayments greatly damages user preference, and increases
their willingness to accept free material as a substitute.

Furthermore, the competitive edge of free content is increasing. In
the 90s, as the threat the Web posed to traditional publishers became
obvious, it was widely believed that people would still pay for
filtering. As the sheer volume of free content increased, the thinking
went, finding the good stuff, even if it was free, would be worth
paying for because it would be so hard to find.

In fact, the good stuff is becoming _easier_ to find as the size of
the system grows, not harder, because collaborative filters like
Google and Technorati rely on rich link structure to sort through
links. So offering free content is not just an evolutionary stable
strategy, it is a strategy that improves with time, because the more
free content there is the greater the advantage it has over for-fee
content.

- The Simple Economics of Content

People want to believe in things like micropayments because without a
magic bullet to believe in, they would be left with the uncomfortable
conclusion that what seems to be happening -- free content is growing
in both amount and quality -- is what's actually happening.

The economics of content creation are in fact fairly simple. The two
critical questions are "Does the support come from the reader, or from
an advertiser, patron, or the creator?" and "Is the support mandatory
or voluntary?"

The internet adds no new possibilities. Instead, it simply shifts both
answers strongly to the right. It makes all user-supported schemes
harder, and all subsidized schemes easier. It likewise makes
collecting fees harder, and soliciting donations easier. And these
effects are multiplicative. The internet makes collecting mandatory
user fees much harder, and makes voluntarily subsidy much easier.

Weblogs, in particular, represent a huge victory for voluntarily
subsidized content. The weblog world is driven by a million creative
people, driven to get the word out, willing to donate their work, and
unhampered by the costs of xeroxing, ink, or postage. Given the choice
of fame vs fortune, many people will prefer a large audience and no
user fees to a small audience and tiny user fees. This is not to say
that creators cannot be paid for their work, merely that mandatory
user fees are far less effective than voluntary donations,
sponsorship, or advertising.

Because information is hard to value in advance, for-fee content will
almost invariably be sold on a subscription basis, rather than per
piece, to smooth out the variability in value. Individual bits of
content that are even moderately close in quality to what is available
free, but wrapped in the mental transaction costs of micropayments,
are doomed to be both obscure and unprofitable.

- What's Next?

This change in the direction of free content is strongest for the work
of individual creators, because an individual can produce material on
any schedule they like. It is also strongest for publication of words
and images, because these are the techniques most easily mastered by
individuals. As creative work in groups creates a good deal of
organizational hassle and often requires a particular mix of
talents, it remains to be seen how strongly the movement towards free
content will be for endeavors like music or film.

However, the trends are towards easier collaboration, and still more
power to the individual. The open source movement has demonstrated
that even phenomenally complex systems like Linux can be developed
through distributed volunteer labor, and software like Apple's iMovie
allows individuals to do work that once required a team. So while we
don't know what ultimate effect the economics of free content will be
on group work, we do know that the barriers to such free content are
coming down, as they did with print and images when the Web launched.

The interesting questions regarding free content, in other words, have
nothing to do with bland "End of Free" predictions, or unimaginative
attempts at restoring user-pays regimes. The interesting questions are
how far the power of the creator to publish their own work is going to
go, how much those changes will be mirrored in group work, and how
much better collaborative filters will become in locating freely
offered material. While we don't know what the end state of these
changes will be, we do know that the shift in publishing power is
epochal and accelerating.


-=-

* Notes ==============================================================

 - historyflow: Software from IBM

  Martin Wattenberg and Fernanda Viegas, in IBM's Collaborative User
  Experience lab have created a tool called historyflow that lets you
  see the history of a wiki page. They turned the tool loose on the
  wikipedia.org, the collaborative encyclopedia project, and the
  history flow site has many of their observations on observed
  patterns for the formation of encyclopedia entries on contentious
  subjects like Abortionh or Islam. 

  Its an astonishing X-ray of long-term social patterns in action, and
  because its so visual, it is hard to describe in an acsii-only
  format, so I'll point you to the site, and to my longer (and
  picture-strewn) observations elsewhere.

  historyflow: http://www.research.ibm.com/history/
  My more detailed observations about historyflow:
    http://www.corante.com/many/20030801.shtml#49472

 - Danah Boyd on Friendster

  Friendster, the social networking service, has been causing a lot of
  stir recently with its new "no fakes" policy. The site, a kind of
  "sixdegrees with dating" affair that has grown like wildfire among
  the under-30 set, had been home to a number of amusing but fictional
  users, including Jesus, the City of San Francisco, Pure Evil, and a
  Giant Squid.

  These fakesters were both amusing and effective -- two people who
  listed the City of San Francisco as a friend would then be connected
  through this shared affinity.

  However, Jon Abrams, the Friendster CEO, disliked the Fakesters, as
  he felt they trivialized the site, and began to weed out the fake
  profiles, creating an immediate and public backlash.

  The fight between users who used the site to create something
  valuable to them and the community owner who wanted a more placid
  group of users is an old old story, but like many old stories, its
  still interesting to see how it plays out. The backlash is going on
  as I write, and no one is doing a beter job of covering it from
  various angles than Danah Boyd, who has runs a weblog called
  connected selves, on social networking services:
  http://www.zephoria.org/snt/

  - Club Nexus

  HP researchers Lada A. Adamic, Orkut Buyukkokten, and Eytan Adar
  wrote a paper about social clustering in Club Nexus, a service for
  Stanford University's online population.

  Because Club Nexus users left such a rich metadata trail, they were
  able to test a number of assertions about social congres that had
  previously been made only as generalities. In addition to uncovering
  the expected gross patterns (power laws, clustering, small worlds
  networks, low hop-counts between people, etc), they were able to
  make refined observations about what sorts of affinities correlate
  with high clustering (the higher the listed ratio is above 1, the
  stronger the correlation with social clustering):

    We found further that, in general, activities or interests that
    are shared by a smaller subset of people showed stronger
    association ratios than very generic activities or interests that
    could be enjoyed by many. For example, raving (1.64), ballroom
    dancing (1.61), and Latin dancing (1.49) showed stronger
    association in the social activity category than barbecuing
    (1.20), partying (1.18), or camping (1.11) [...]

    In sports in particular, multi-player team or niche sports were
    better predictors of social contacts than sports that could be
    pursued individually or casually. Among water sports, synchronized
    swimming, diving, crew, and wake boarding were better predictors
    than boating, fishing, swimming or windsurfing. In the land sports
    category, team sports, in particular women's team sports such as
    lacrosse and field hockey were better predictors than soccer
    (often played casually as opposed to in a competitive college
    team), tennis, or racquetball. [...]

    We observed that niche book, movie, and music genres were more
    predictive of friendship than generic ones. Gay and lesbian books,
    read by 63 users, had a ratio of 4.37, followed by professional
    and technical, teen, and computer books. In contrast, the general
    category of 'fiction & literature' had a ratio of 1.09.

  Well worth a read: 
    http://www.firstmonday.dk/issues/issue8_6/adamic/index.html

 - ETech CFP

  O'Reilly's Emerging Technology Conference is happening in February,
  and the Call for Papers is up now. The topics are:

    Interfaces and Services - Sherlock, Watson, and Dashboard;
    micro-content viewers and RSS; laptop, palmtop, hiptop, and
    cellphone interfaces; web services.

    Social Software - Software for describing and exploring social
    connections, FOAF (friend-of-a-friend networks), Flash Mobs,
    MeetUp, and related applications.

    Untethered - WiFi, Bluetooth, and cellular networks; Rendezvous,
    SMS, and ad hoc networking; Symbian and J2ME mobile development
    environments.

    Location - GPS/GIS technologies and devices, location based
    services, navigational devices, geospacial annotation tools, and
    visualization software.

    Hardware - Hardware hacks and mobile devices, sensor arrays, RFID
    tags, TinyOS, and sub-micro computing.

    Business Models - Who is putting a stake in the ground and
    attempting to build the new applications, network, and online
    culture -- and how are they doing it?

  You can submit a conference or tutorial proposal here:
    http://conferences.oreillynet.com/cs/et2004/create/e_sess

 - T-Mobile and Starbucks Don't Get Wifi

  More proof, as if any were needed, that the economics of Wifi are
  interfering with plans to offer metered commercial access. I have a
  T-Mobile Wifi account, 300 mins for $50, so that when I'm away from
  free APs, I can at least drop into a Starbucks, order up a doppio,
  and check my mail.

  Today, T-Mobile informed me when I logged in that that deal was
  over, dead, forget it, they're sorry they ever mentioned it.
  Instead, they were offering me a "convenient" Day-Pass, for the low,
  low rate of $10/24 hour period. Meaning, of course, that if you
  spend even as much as an hour logged in at a Starbucks, the cost per
  minute has almost tripled, to 16 cents a minute from 6. Worse, if
  you just want to go in, grab a cup of coffee and check your mail
  under the old "10 minute minimum" regime, that will now cost a
  dollar a minute. I could have elective surgery for a dollar a
  minute.

  This is Iridium or those back-of-the-seat airphones all over
  again. Any pricing plan that is even moderately convenient shows up
  on the spreadsheets at HQ as being less than a rocket ride to
  riches, so they come up with the two-fisted brainstorm of making it
  less convenient to use, then slapping a "Now with new expensiveness!"
  sticker on it. I smell a business school case study in the making --
  don't take products with vanishingly small marginal cost and make
  them too expensive for your target audience to want to use.

* End ====================================================================

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2003, Clay Shirky
_______________________________________________
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--- end forwarded text


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