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<nettime> Rishab Ayer Ghosh: Cooking pot markets 1/2
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,    s  - m   d  {AT}  





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