Felix Stalder on Tue, 4 Aug 1998 14:12:56 +0200 (MET DST) |
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<nettime> Rishab Ayer Ghosh: Cooking pot markets 1/2 |
[This is one of the best articles on the Internet gift economy and how it relates to the money economy I've read in a long time. A bit long but a very well written. The basic idea is the separation between what he calls "idea" (the informational good or service, e.g. your post on nettime) and what he calls "reputation" (the increased rank in the attention economy). And since the attention economy is not only a force on-line, this is what connects the gift and monetary economy. Simple but precise. It originally appeared on First Monday [http://www.firstmonday.dk]. Pit, tireless hunter and gatherer, fund it. Felix] http://www.beje.decon.ufpe.br [published with permission] Recife, July 29th, 1998 Cooking pot markets: an economic model for the trade in free goods and services on the Internet Copyright (C)1998 Rishab Aiyer Ghosh, all rights reserved. Abstract: It has long been assumed that there is something beyond economics involved in the proliferation of free goods and services on the Internet. Although Netscape's recent move to give away the source code for its browser shows that the corporate world now believes that it is possible to make money with free software - previously eyed with cautious pessimism - money is not the prime motivator of most producers of the Internet's free goods, and neither is altruism. Efforts and rewards may be valued in intangibles, but, as this paper argues, there is a very tangible market dynamics to the free economy of the Internet, and rational economic decisions are at work. This is the "cooking-pot" market: an implicit barter economy with asymmetric transactions. Contents What is value, or: Is the Internet really an economy? The Economics of Gossip Something for Nothing? Two Sides to a Trade Can You Eat Goodwill? Is reputation a Convertible Currency? Cooking-Pot Markets A Calculus of Reputation Conclusion What is value, or: Is the Internet really an economy? This is perhaps the wrong question - akin to asking whether direct-sales, or academic research is an economy. There is much of value to be found on the Internet, much production and consumption of goods and services. This is hardly surprising, given that the Net has attracted 60 million people and is growing in population at more than 100% annually. Many of the things found on the Net, though, can be found off it - free software such as Linux [1a] is distributed on CD-ROMs (for which you pay), not just on Internet FTP sites. The Net is not another planet, the people populating it are part of some "real world" society too, trading, producing and consuming things off-line. Although the word "virtual", like "cyber", has come to be associated with everything on-line, the act of creating products - such as home pages and notes published in discussion groups - is as real on the Net as it is in a factory or newspaper office. The "virtual" trade in knowledge products on-line, their "virtual" consumption and production by millions of people, are very real indeed, and affect the world outside the Net if only because its own population forms an increasing (if still small) part of that world's. This makes it all the more important to take note of differences between the part of the world's economy that is on the Net, and the rest. Millions of people have been interacting and participating in what they clearly value, using an economic logic different from what they might normally use in off- line lives. So there must be a definite possibility of the on-line economic logic spreading beyond the confines of the Net - it's the same people in both worlds, after all. There is no question that there are differences between the economic logic - the application of basic economic principles - on and off the Net. To begin with, much of the economic activity on the Net involves value but no money. Until a few years ago, there was almost no commercial activity on the Internet. As commerce discovered the Net it was natural for the Net to become commercial - which makes the incredibly vast amount of resources still available free remarkable. The free resources of the Net greatly outweigh all commercial resources, especially if one counts only purely on-line transactions (e.g. a bookseller like Amazon [1] makes money selling books, which requires the physical transportation of goods). It is quite hard to put a price on the value of the Internet's free resources, at least in part because they exist because they don't have prices attached. They exist in a market of implicit transactions. [2] The economics of gossip I prefer arguing with extreme cases, so I won't start with the obvious worth of free operating systems (Linux [3]) or Web server software (Apache [4]). Newsgroup discussions are a less obvious case, so I'll begin there. If you are a heavy user of the Net, you might wonder how all your little posts to discussion groups - say, rec.pets.cats - could possibly be called economic transactions. But they are. The Internet has, of course, changed enormously in the past couple of years, indeed it changes all the time as its population keeps doubling [5]. Many early users of the Net complain about recent users - pejoratively calling them "newbies" - and the "junk" they post. Although posts were more relevant and better written, on average, before the Net became headline news, few were likely to be accepted for publication in the average newspaper, leave alone an academic journal. But I, like most people, found many of these the implicit tag of "intra-office industry gossip distributor" or "junior colleague advisor". But on the Net these implicit transactions stand out in stark relief, suggesting even more strongly that in a knowledge economy, every exchange of knowledge in any form is an act of trade [6]. Every snippet posted to a discussion group, every little Web page, every skim through a FAQ list and every snoop into an on-line chat session is an act of production or consumption, often both. There is no specific economic inherent value in a product. Value lies in the willingness of people to consume a good, and this potentially exists in anything that people can produce and pass on. Having settled that bad writing and even junk mail is a part, however reprehensible, of the Internet's economy, let us proceed to Linux. After all software, in particular large operating-system software occupying up to six CD-ROMs when distributed off-line, is undeniably an economic good [7]. And Linux with its loosely organised community of developer-users, and its no-charge policy, undeniably has an economic logic that seems, at first, new. Something for nothing? Linus Torvalds did not release Linux source code free of charge to the world as a lark, or because he was naive, but because it was a "natural decision within the community that [he] felt [he] wanted to be a part of" [8] Any economic logic of this community - the Internet - has to be found somewhere in that "natural decision". It is found in whatever it was that motivated Torvalds, like so many others on the Net, to act as he did and produce without direct monetary payment. Of course, it is the motivation behind people's patterns of consumption and, what is more relevant in the case of Linux, production that forms the marrow of economics. Such motivation is usually expressed in terms of curves of supply and demand, measured by costs and prices in dollars and cents. Figuring out what motivates, leave alone measuring it, is much tougher when price tags don't exist. It is simpler to just assume that motivations only exist when prices are attached, and not attempt to find economic reason in actions motivated by things other than money; simpler, therefore, just to assume as we often do that the Internet has no economic logic at all. This is wrong. The best portions of our lives usually do come without price tags on them; that they're the best parts imply that they have value to us, even if they don't cost money. The pricelessness here doesn't matter much, not unless you're trying to build an economic model for love, friendship and fresh air. But you don't need to be an economist to know that all of these things do involve motives, and perhaps also the matching of (ordinal) demand and supply, even if demand curves are not easily measured without price tags. Economics may not often need to be used in an environment where valuables are free, but that doesn't necessarily mean it can't be so used. And any economic logic of the Internet has to have come to terms with the difficulty of measuring such value. Being on the Internet is not quite like being in love (though some would argue about that) - but it brings with it the same sheen of pricelessness. On the Internet, through much of its past, the bulk of its present and the best of its foreseeable future, prices often don't matter at all. People don't seem to want to pay - or charge - for the most popular goods and services that breed on the Internet. Not only is information usually free on the Net, it even wants to be free, so they say [9]. But "free" is the wrong word: like love, information, however free in terms of hard cash, is extremely valuable. So it makes sense to assume that the 3 million people on the Internet who publish matters of their interest on their home pages on the Web, and the several million who contribute to communities in the form of newsgroups and mailing-lists, and of course anyone who every writes free software, believe they're getting something out of it for themselves. They are clearly not getting cash; their "payment" might be the contributions from others that balance their own work, or something as intangible as the satisfaction of having their words read by millions around the world. While writing my weekly newspaper column on the information society [10], I was distributing an e-mail version free of charge on the Internet. A subscription to the e-mail column was available to anyone who asked, and a number of rather well known people began to receive the column each week. My readers often responded with useful comments; I often wondered whether people would pay for a readership like this. Many readers add to your reputation, they make good contacts, helping you out in various ways. Simply by reading what you write, they add value to it - an endorsement, of sorts. So who should pay whom - the reader for the work written, or the writer for the work read? [11] The notion that attention has value is not new – and has been formally analysed in the advertising industry for decades. In the context of information and the Internet, the "attention economy" has been described in recent papers [11a]. It would be facile to suggest that attention necessarily has innate value of its own. In some situations, being read by certain people may well have value in itself – assuming the attention of such people is a rare commodity with respect to what you write. But more often than not – especially when it is the attention of a large distributed audience in question – attention is a proxy for further value. This may appear in the form of useful comments (or bug reports from Linux users), assistance and contacts – or simply an enhanced reputation that translates into better access to things of value at a later point [see section "Is reputation a Convertible Currency?"]. Even those who have never studied economics have an idea of its basic principles: that prices rise with scarcity and fall in a glut, that they are settled when what consumers will pay matches what producers can charge. These principles obviously work, as can be seen in day-to-day life. But that's the "real world" of things you can drop on your toe. Will they work in a knowledge economy? After all, this is where you frequently don't really know what the "thing" is that you're buying or selling, or clearly when it is that you're doing it, or, as in the case of my column, even whether you're buying - or selling. Contrary to what many doomsayers and hype-mongers suggest, it always seemed to me that the basic principles of economics would work in an economy of knowledge, information and expertise. They are, after all, not only logical on the surface but also practically proven over centuries - a powerful combination. Even if the Internet appeared to behave strangely in how it handled value, there was no reason to believe that, if it had an economic model of its own, this would contradict the economic principles that have generally worked. However, if Paul Samuelson's textbook definition of economics as the "study of how societies use scarce resources to produce valuable commodities and distribute them among different people" [12] remains as valid now as ever, almost all the terms in there need re-examination. This is because of the same peculiar economic behaviour of the Net that suggests it has developed its own model, the economic model of the information age. The Internet looks like an infant microcosm of the wider tions, some 3 million copies every day across India. The whole operation, particularly the co-ordination of advertising and editorial, depends on RespNet. This internal network won the Times a listing in ComputerWorld magazine's selection of the world's best corporate users of information technology. RespNet runs on Linux, and other similar free software got off the Net. Raj Mathur, who set up Linux on RespNet, agrees with Torvalds when the latter says, "people who are entirely willing to pay for the product and support find that the Linux way of doing things is often superior to 'real' commercial support." This is thanks to the large community of other developers and users who share problems and solutions, and provide constant, sometimes daily improvements to the system. The developer-users (the Linux incarnation of Toffler's producer-consumers, or prosumers) naturally include operators of networks similar to RespNet. So many of them can provide separately assistance that might not be available if they were all working together in a software company - as Linux Inc - where they would be produces of the software but not consumers. This shifting base of tens of thousands of developers-users worldwide working on Linux means that the Times of India would have a tough time figuring out whom to pay, if it wanted to, so it's just as well that the support from these developers is free. The fact that on the Internet people go looking for other people, and Linux developers look for others like them, is just one instance of the immediacy of much of the trade that takes place on the Net. When you post your message to rec.pets.cats, or create a home page - whether personal or full of your hobbies and work - you are continuously involved in trade. Other cat-lovers trade your message with theirs, visitors to your home-page trade your content with their responses, or perhaps the satisfaction of knowing that you're popular enough to get a few thousand people discovering you each week. Even when you don't charge for what you create, you're selling it, because you're using your work to buy the work of others - in a discussion group - or to buy the satisfaction of popularity - through your Web site. What is most important about this immediacy of the implicit trades that go on all the time on the Net is its impact on notions of value. Unlike the "real world", where things tend to have a value, as expressed in a price-tag, that is sluggish in response to change and relatively static across its individual consumers, on the Net everything is under constant revaluation. Without the intermediary of money, there are always two sides to every transaction, every transaction is potentially unique, rather than being based on a value derived through numerous similar trades between others - i.e. the price-tag. Continuing to alternate between examples from the worlds of free software and USENET - to reiterate their equivalence in economic terms - we can see the two-sided nature of trade in this hypothetical example about cats. You may value the participants in rec.pets.cats enough to post a long note on the nomadic habits of your tom. In a different context - when the same participants are quarrelling over the relative abilities of breeds to catch mice - you may not find it worthwhile contributing, because the topic bores you. And you may be far less generous in your contributions to rec.pets.dogs. You value the discussion on dogs, and catching mice, much less than a discussion on tomcats, so you're not willing to make a contribution. This would be "selling" your writing cheap; but when you get feedback on tomcats in exchange for your post, it's the right price. This example may seem somewhat contrived, but only because decisions on when and where to post a message or participate in on-line discussions are taken all the time, so often that they're barely noticed as actual decisions. In a knowledge economy, however, the decision to write and freely distribute your note on cats rather than dogs is no less an economic one than is the decision to order Chinese take-out instead of pizza in the "real world". Both are a question of resources allocation - your time and effort in one case, your money (which actually represents your time and effort) in another. Unlike noodles and bread, readers on Internet newsgroups don't come with price-tags pinned on, so common-place decisions involving your on-line acts of production require that you figure out the relative values of what you get and what you give, all the time. Others are figuring out the worth of your contribution all the time, too. Life on the Internet is like a perpetual auction with ideas instead of money. That note on your tomcat probably does not deserve the glorious title of idea; certainly the warm feeling that you got in exchange for posting it - when people responded positively and flocked to your homepage to see pictures of your cat - couldn't possibly be classed with "real ideas" (such as the one to black out the Web in protest against the CDA [14]). Still, for the sake of convenience the subjects of trade on the Net can be categorised as idea (goods and services) and reputation (which when enhanced causes all those warm, satisfied feelings, and more tangible benefits too). Ideas are sold for other ideas or an enhanced reputation; reputations are enhanced among buyers of ideas, and reputations are themselves bought and sold all the time for other reputations, as we shall see later. The basic difference is that reputation (or attention) is, like money, a proxy. It is not produced or consumed in itself, but is a by-product of underlying production of actual goods ("ideas" in our binary terminology). Two sides to a trade Unlike the markets of the "real world", where trade is denominated in some form of money, on the Net every trade of ideas and reputations is a direct, equal exchange, in forms derivative of barter. This means that not only are there two sides to every trade as far as the transaction of exchanging one thing for another goes - which also applies to trades involving money - there are also two points of view in any exchange, two conceptions of where the value lies. (In a monetary transaction, by definition, both parties see the value as fixed by the price.) As the poster of notes on tomcats, the value of your posting something is in throwing your note into the cooking-pot of participatory discussion that is rec.pets.cats and seeing what comes out. As the author of a page on cats, what you value in exchange for your words and photographs is the visits and comments of others. On the other hand, as a participant on rec.pets.cats I value your post for its humour and what it tells me to expect when my kitten grows up; as a visitor to your Web page I learn about cats and enjoy pretty pictures. When I buy your book about cats, it's clear that I am the consumer, you the producer. On the Net, this clear black-and-white distinction disappears; any exchange can be seen as two simultaneous transactions, with interchanging roles for producer and consumer. In one transaction, you are buying feedback to your ideas about cats; in the other, I am buying those ideas. In the "real world" this would happen in a very roundabout manner, through at least two exchanges: in one, I pay for your book in cash; in the next, you send me a cheque for my response. This does not happen very often! (The exception is in the academic world, where neither of us would get money from the Journal of Cat Studies for our contributions; instead our employers would pay us to think about cats.) As soon as you see that every message posted and every Web site visited is an act of trade - as is the reading or publishing of a paper in an academic journal - any pretence at an inherent value of economic goods through a price-tag is lost. In a barter exchange the value of nothing is absolute. Both parties to a barter have to provide something of value to the other; this something is not a universally or even widely accepted intermediary such as money. There can be no formal price-tags, as an evaluation must take place on the spot at the time of exchange. When you barter you are, in general, not likely to exchange your produce for another's in order to make a further exchange with that. Unlike the money you receive when you sell something - which you value only in its ability to be exchanged for yet another thing - in a barter transaction you normally yourself use, and obviously value, what you receive. When the contribution of each side to a barter is used directly by the other, it further blurs the distinction between buyer and seller. In the "real world" barter did not, of course, take place between buyer and seller but between two producer-consumers in one transaction. When I trade my grain for your chicken, there's no buyer or seller, although one of us may be hungrier than or have different tastes from the other. On the Internet, say in the Linux world, where it may seem at first that there's a clear buyer (the Times of India) and an equally clear, if aggregate seller (the Linux developer community) there is, in fact, little such distinction. Just as the existence of the thousands of independent Linux developers are valuable to the newspaper because they are also users of the product - and may face similar problems - other Linux developers welcome the Times of India because how it faces its problems could help them as Linux users. As Torvalds says, " [t]here are lots of advantages in a free system, the obvious one being that it allows more developers to work on [Linux], and extend [Linux]." However, "even more important" is that making Linux free brought "in one fell swoop ... a lot of people who used it" - not just reporting problems, but playing a crucial role in the further development of the system. Torvalds notes that a single person or organisation "doesn't even think of all the uses a large user community would have for a general-purpose system" - so the large user base of Linux was "actually ... a larger bonus than the developer base." Of course Linux is far from being the only software product that blurs the producer-consumer divide. Much software - even the kind sold by companies for money - is now highly dependent on user feedback. This feedback is not just to give the producer information on market needs - which is not normally thought of as something consumers can barter with - but for testing and sometimes fixing technical problems with programs. Netscape has had a public campaign to encourage users to find bugs in their code - which were traditionally, and expectedly, scanned for and fixed within software companies. So "real world" companies also often buy from their customers even as they sell. (When it starts giving its source code away free, Netscape will encourage users to fix bugs too, and in general to become developers. It will become a company grown even closer buying from its customers than most.) Can you eat goodwill? Perhaps you will agree that when you next post a note on cats, you're not giving away something for nothing. But what you get in return is often pretty intangible stuff - satisfaction, participation in discussion and even answers to cat-related questions are all very well, and may be fair exchange for your own little notes, but don't seem substantial enough to make much of an economy. As for Linux - it's fine to talk about a large base of user-developers all helping one another, but what has all this brought Linus Torvalds? Although Linux did get vastly improved by the continuing efforts of others, none of this would have happened without Torvalds's original version, released free. Assuming that he's not interested in Linux as a hobby, he's got to make a living somehow. Doesn't he seem to have just thrown away a great product for nothing? First, let's see what intangible "payment" Linux brought. In the circles that might matter to Torvalds's career, he's a sort of god. Most of the technology of the Internet, including tools such as Linux, HTML (the language of the Web) and the Web server Apache (with 45% of the total market, enough for Bill Gates to call it Microsoft's "biggest competitor" [15]) have been developed and distributed without payment. As government and academic participation declined as a proportion of the total Internet developer community, most recent "free" technology has not been subsidised, either. The main thing people like Torvalds get in exchange for their work is an enhanced reputation. So there are, in fact, lots of Net gods. Net gods get hungry, though, and reputation doesn't buy pizzas. So what does Torvalds do? As it turns out, he was still in the University of Helsinki (in October 1996, when I first interviewed him; he's now with an American company where "it's actually in [his] contract that [to do] Linux part-time"). "Doing Linux hasn't officially been part of my job description, but that's what I've been doing," he says. His reputation helped - as Torvalds says, "in a sense I do get my pizzas paid for by Linux indirectly." Was this an academic sense, perhaps? Is Linux, then, just another of those apparently free things that has actually been paid for by an academic institution, or by a government? Not quite. Torvalds remained in the University out of choice, not necessity. Linux has paid back, because the reputation it's earned him is a convertible commodity. "Yes, you can trade in your reputation for money," says Torvalds, " [so] I don't exactly expect to go hungry if I decide to leave the University. 'Resume: Linux' looks pretty good in many places." -----end part one ------ Copyright © 1998, ƒ ¡ ® s † - m ¤ ñ d @ ¥ -----|||||---||||----|||||--------||||---- Les faits sont faits. http://www.fis.utoronto.ca/~stalder --- # distributed via nettime-l : no commercial use without permission # <nettime> is a closed moderated mailinglist for net criticism, # collaborative text filtering and cultural politics of the nets # more info: majordomo@desk.nl and "info nettime-l" in the msg body # URL: http://www.desk.nl/~nettime/ contact: nettime-owner@desk.nl