Umair Haque / Bubblegeneration
umair haque  


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

Friday, May 20, 2005

The Problems with Free Culture (2): How Free Culture is Subsidizing Google

Google offers weak personalization, web hysteria results. I think this is mildly interesting, but misses the forest for the trees. So here's my take on the big picture (unedited...sorry, no time).

Now, before I begin, let me say that I'm a big fan of Free Culture. I'm one of a handful of people thinking seriously about the economics of peer production, for example. So this piece is not an attack - it's meant to point what I think is a potentially fatal flaw in the Free Culturites' thinking.

OK. Forget Google and personalization - it's kind of irrelevant. The really interesting dynamic, to me, is that the Free Culture movement is effectively digging it's own grave. Because they're only making half the value chain for culture free, they're effectively subsidizing publishers and marketers - the textbook example is evil record labels; the very guys that then go on to stifle investment in creativity and innovation.

I'll use Google as an example, because of the current hysteria and fandom that surrounds it's every move, and because Google isn't an evil record label (yet), so I can illustrate exactly how these dynamics generally evolve.

Now, if you think about it, on the www, The Free Culturites are effectively subsidizing Google - handing Google money - and they don't seem to have really considered what the consequences will be. But taken to it's logical conclusion, this dynamic means Google becomes the RIAA 2.0 - a monopolist exerting huge market power over a moribund industry of homogeneous producers - and the Free Culturites are the guys that made it possible.

How? It's pretty simple: Google is essentially a free rider on huge amounts of the content that it spiders and indexes. That's because, until now, property rights on the Net have been undefined. But now that huge amounts of capital are flowing into the www market (viz, ad spending), a minor property rights revolution is happening. The AP is starting to charge for syndication, the NYT is going to build (even stronger) barriers to access. Now, some of these decisions may be questionable (like the NYT's) - that's not the point. The point is that Google has, for a very long time, been a free rider.

OK. That's the context of my argument. Now let's think about what the Free Culturites are doing. They're making tools to decrease the costs of creativity - their hope is that a Creative Commons (etc) will result. Some of these tools are proprety rights (viz, commons licenses). Some of these tools are technological (CC Mixter, BlogTorrent, etc).

But all of them have the same economic effect: the unintended consequence is that a Creative Commons means fatter margins for Google. That's because it explodes both the quality and quantity of content that Google can free ride on. Google becomes an even more efficient free rider. And because search is a network market, it's a winner-take-all market - one monopolist wins, and appropriates huge amounts of value by exerting market power over the entire value chain. In this case, we're already seeing AdSense revenue shares to content producers fall precipitously.

Think about it this way: the free-culture guys' commons tools are a nice subsidy to publishers, and marketers (who enjoy monopolies in most media market anyways). This is because they make it cheaper and easier to create content - whose gains are then, of course, mostly appropriated by the publisher/marketer, because he can exert greater market power over more fragmented producers.

Put more simply, economically, 'free' culture is about much more than just free ideas - it's also about being able to easily find those ideas, and, in an ideal world, cheaply do stuff with them as well.

This is like the textbook example of how cool ideas can have perverse and unintended consequences. In a nutshell, instead of making the redistribution of value more equitable and raising investment in creativity, what the Free Culture guys are doing distorts it in favor of big business - not creative content.

I think that if Cory and Larry really want to make culture free, they have to help free the rest of the value chain as well - currently search is egregiously not free. Content is trapped without search - without it, players further down the value chain, like Google and the RIAA, will always appropriate the lion's share of it's value, starving investment in creativity and innovation. This is the lesson history teaches us - it's the reason why artists have starved.

So why give the monopolist even more of a free lunch? You'll have to ask Cory or Larry about that. What I can tell you is that things will get interesting fast when either the Free Culturites wake up and realize that they're effectively handing Google money, and decide to build an open-source/open-access/open-standard search mechanism, or when a clever kid with too much spare time decides to try the same thing.

Yeah, yeah, server farms aka scale economies and all that other Google magic notwithstanding. Let's discount the cost of technology, which jumps discontinuously when people have good ideas.

Ultimately, three forces - cheap/open access, cheap/open standards, cheap/open modularization - will deconstruct all media markets, because their economics are hugely advantageous (to those of mass media/Media 1.0 or even Google style Media 1.5).

For example, the circulation of the LA Times and Chicago Tribune just fell off a cliff. Why? It's easy to say technology - a better answer, I think, is pointing to the three forces above.

I read the paper a lot less, and blogs a lot more, because strong network FX in blogs offer me more value: I can jump from interesting conversation to interesting conversation. But these network FX only happen because of the above forces: blogs rely on cheap access, cheap standards, and cheap modularization.

One could leverage the same dynamics for search - tags are a nice start. I'm sure people much smarter than me will come up with much more elegant solutions. The point I wanna make is this: by only making one segment of the value chain 'free', the natural result is that other segments benefit, monopoly dynamics are worsened, and investment in creativity/quality/all the nice stuff we want to see suffers, because the monopolist pockets all the value.

But by making the entire value chain free - in this case, by deconstructing/disintermediating search engines, their fat margins get handed back to consumers and producers alike, unleashing huge amounts of investment in new creativity - isn't that the point of Free Culture?

-- umair // 8:55 AM // 1 comments


link to Larry [Lessig] is wrong above. It should be:
// Anonymous Anonymous // 4:33 PM

Recent Tweets


    uhaque (dot) mba2003 (at) london (dot) edu


    atom feed

    technorati profile

    blog archives