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Public Goods

By Adrian Lane

Chris Pepper tweeted a very cool post on Why Content is a Public Good. The author, Milena Popova, provides an economist’s perspective on market forces and digital goods. Her premise is that in economic terms, many types of electronic content are “public goods” – that being a technical term for objects with infinite supply and no good way to control consumption. She makes the economic concepts of ‘rival’ and ‘excludable’ very easy to understand, and by breaking it down into rudimentary components, makes a compelling argument that content is a public good:

It means that old business models based on content being a club good simply don’t work. It means we have to rethink our relationship with content – as creators, as distributors and as consumers. It means that there are a lot of giants in the content distribution industry whose livelihoods (profit margins) are being pulled out from under them faster than they can say “illegal downloads”, and they are fighting it. Of course they’re fighting it. They’ve had an incredibly profitable business model for about a century and suddenly they don’t. Let’s face it, human beings don’t like change at the best of times, and we sure as hell don’t like it when it means less cash in our pockets.

I have written many posts on how economics affect DRM, RIAA, and ‘piracy’; and on the difference between actual security and security marketing, so I won’t rehash those subjects here; but note the common theme is that a busted business model is the root of the problem. Right now I want to stay away from some of the negativity of those posts, and instead focus on the economic drivers. Ms. Popova does a much better job than I of isolating the underlying forces, and discusses the factors in a way that helps us begin to visualize possible solutions.

A lot of people have a hard time with the concept of free and how you can actually make money in a world with so much free stuff. In a capitalist society we all have trouble with this. I talk to people in IT who still don’t think Linux and Java are viable technologies, and no one could make money with those products. But the availability of free stuff requires you to think a little differently about value – fewer people will pay money for the everyday and ordinary stuff because they don’t have to, but they will pay for things they perceive as special. In fact, I don’t think I fully grasped the concept and implications until I started working at Securosis. We are a research company that gives away most of our products for free, but charges for services and engagements.

One area I where was at odds with Popova was on the concept of “price discrimination”. From my perspective this looks more like the market being able to set the price, but do so far more efficiently: person to person, item by item, and adjusted over time. This is a very cool concept if you think about something like television: If you pay channel by channel, how many channels would you pay for? You have 400 or so, but I bet when it came to spending money, very few would get your hard-earned dollars. The NFL knows this, as football not only drives huge ad revenue, but single-handedly the bulk of hi-def television sales and additional add-on packages. If it was not for bundling into programming packages, many (most?) other channels would not be able to survive.

All in all, one of the better posts I have seen on the problems of dealing with consumer media.

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