Umair Haque / Bubblegeneration
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Design principles for 21st century companies, markets, and economies. Foreword by Gary Hamel. Coming January 4th. Pre-order at Amazon.

Wednesday, March 30, 2005

Replication Wars - The Evolution of Sharing

I'm not talking much about the Grokster case for two reasons. First, I think it's pretty unlikely that Grokster loses. Second, more important, I believe that the Net lets consumers arbitrage costly property rights away via gray markets, so the case is kind of irrelevant.

Here's an example that fascinates me, because it's so far removed from tech and malleable digital goods.

I wanted to get something nice for my GF because she's been putting up with a lot lately. So I went online to see what news I could dig up about my favorite perfumers. I ended up at Basenotes.

Basenotes is a community of fragrance junkies. Fragrance junkies who are hacking perfume. The Net is letting these guys do two things that we normally associate with standardized digital media, like MP3.

First, they're remixing perfume. They're mixing, matching, and layering the stuff, and sharing notes about what works, and what doesn't. For example, they're trading a list of how to layer perfumes that a boutique perfumerie in NYC produced (and charged a hell of a lot for)...and they're tweaking it and then sharing what smells good, and what smells bad.

Second, they're arbitraging costly property rights away in an internal gray market. Here's how it works. Perfumes are, to an extent, an experience good. They smell different on your skin - and if you don't test heavily, you could end up with something that doesn't smell the way you thought it would. Testers don't give you enough to really test this, and bottles give you much more than you need to test this. Put another way, buying perfume is relatively risky because of the property rights the industry bundles with it's goods - small testers and big bottles.

So, of course, the natural solution is to arbitrage the property right of big bottles away: to create insurance against big bottles by swapping perfume. The community at Basenotes posts lists of perfumes they wanna swap for - when they find matches, they decant, send the agreed-on quantity in the mail, and so spread the risk of buying perfume among the larger community, lowering the expected cost of buying perfume for everyone in the community.

Sound familiar?! It should - this is file-sharing 2.0 - moving from digital to analog. The economics behind it are almost exactly the same as I outline in the New Economics of Music. It's the first example I've seen of almost the entire model being replicated for real-world goods. I think it's beyond cool.

It begs the question - how long will it be before Basenotes begins peer production of perfumes? If I think about it, all over the 3rd world perfumes are unbundled - retailers get the essences from the factories. The essences can then be rebundled any way you like - you can get a 'replica' of most mass-market perfumes incredibly cheaply this way - because property rights have been completely unbundled from inputs.

This is not the same as 'copycat' perfumes in the 1st world - which are reverse engineered. This is the real thing - the essences come from the same factories that make mass-market synthetic perfumes - just with the property right arbitraged away. How long will it be before communities of fragrance junkies realize they can leverage unbundling to begin to disintegrate the mass-market perfume value chain by rebundling, ranking, and pricing their own creations?

That's why I'm not worried about Grokster. If anything, I see sharing and peer-production growing exponentially in economic significance despite efforts to squelch them. The point is that Basenotes proves that the gains to sharing are so great that communities are willing to pay real-world transaction costs - packing and posting perfumes - to realize them. That's a very big deal, because it tells us sharing is not about technology (Grokster) - it's about economics. And markets usually find ways to give people what they want - even if (especially when) it's prohibited.

-- umair // 5:22 PM // 2 comments


A few words about Basenotes...Firstly, this friendly sight is dedicated to sharing information (status of availability, user reviews, notes used in scents, new releases, etc) about fragrance as its primary task.

We do have a community forum in addition to other features (such as shopping guides, interviews with perfumers, etc). Our forum is first and foremost a place to talk about fragrances, grooming products and related products and we do offer a marketplace where members can swap or sell their products. Some members opt to sell decants, or small portions of their fragrances as Umair has reported. But this is done so entirely at the members' discretion and is not endorsed, encouraged nor guaranteed by Basenotes itself. However, as Umair has suggested, it is a much more economical way to "test" new scents or fragrances that we may never have the ability to try due to high price point or lack of availability where one lives. It is my belief that this process actually helps the retailer/manufacturer because it provides two important things - publicity and the ability to actually test a product and it is this writer's belief that such testing can lead to a purchase.

We always welcome new members and membership is free - absolutely no catch. Again, as our primary purpose is to share our love of fragrance with other "addicts", the site itself is not a retail service nor an endorsement of any particular product.

We are constantly striving to improve our site and it is currently undergoing a few repairs but should be back online soon.

Thx to Umair for sharing his enthusiasm for Basenotes!

Basenotes Community Moderator
// Blogger marlen // 6:16 AM

It seems to me, that Grokster has nothing to do with filesharing. Actually it's about big media loosing its control on the means of distribution and more importantly, the means of creation.

It's very strange but all this advanced Internet technology is allowing human beings to reclaim our ancient values and community processes.

We are digital hunters & gatherers. We are creating all that we need within our own self-defined villages.We are trading again, sharing again, creating our own amusement again.

"Your old road is Rapidly agin'.
Please get out of the new one
If you can't lend your hand
For the times they are a-changin"
// Anonymous Anonymous // 5:44 PM

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