This Week's Clue: Inside Gnutella
SSP (Shameless Self Promotion)
Prophet Ain't Profit
Had Enough Bad Law
In the world of e-commerce abuse of the language is standard procedure. For instance, we talk about "viral marketing" instead of "word of mouse."
We find something cool, we turn friends on to it, they turn their friends on to it, and the whole thing grows. That's "word of mouse." Google is a good example of this.
A real virus is more sinister. It infects the host without human intervention, tearing down systems and creating chaos.
With that as prologue, I tried Gnutella last weekend. Programmers with AOL's Nullsoft unit created the original version of this program and were stopped in their tracks just hours after posting their beta. The program is a utility that can run simultaneously as a client and server. When it's on a system connected to the network your MP3s become available to anyone else with the program, and their MP3s become available to you. (Yes, it's really just a way to create ad-hoc anonymous FTP networks.)
Despite AOL's best efforts (far swifter and surer than, say, Mattel's (and a fat lot of good it did them ) programmers were able to reverse engineer, re-compile and re-post versions of Gnutella faster than Fox could cancel "Who Wants to Marry a Multi-Millionaire." Firing up my trusty DSL connection I grabbed Version .56 and, without training or documentation was able to download a dozen or so copyrighted songs over a few hours in one weekend.
The experience gave me a different relationship with music. I would think in terms of singles, not albums. And it suddenly dawned on me that the key to enjoying music isn't in possession but access. Does it matter whether an MP3 file is on my client or a server in Norway? No, not if I can reach that Norwegian server from whatever my client is. When you're thinking like that a version of Gnutella on a wireless broadband network tied to a device like the Rio begins to sound very interesting.
But the choice of what to listen to now becomes unmanageable. It's the same feeling I get in a mall food court. I just have one stomach. In the case of music, I just have one mind and two ears. So I have to go back to the basics. How do I want to feel? Yes, that changes. Albums and musical formats are methods for placing these choices into context. A D.J. working a wedding reception learns how to manage and work off these changing moods. Who's my D.J.?
The creation of an intelligent agent that can work with you, choosing appropriate music and helping you mold your own tastes would be the real "killer app" of this market. Rather than buying such an agent, the network would let you subscribe to it. The subscription revenue, in turn, could easily pay the licensing fees copyright owners deserve - the publishers already have models in place to capture this revenue stream. The back-end accounting for all this isn't as difficult as the record companies make it sound.
All this tells musicians that they must retain or recapture their copyrights. It's not the process of stamping music onto round discs and getting those discs into stores that matters, but the process of finding listeners for it. Record companies will build agents, but the battle for the record companies will be with ASCAP and BMI, not with the technology. The technology is a given - unlimited choice is coming.
Ian Hall-Beyer, 27, who put together the Gnutella server from which I got my copy of the program, put it this way. "Artists don't *need* the record companies to get their music out to the public. I think the record companies are worried about MP3 drying up their revenue stream not from piracy, but from the heaps of money they make in the distribution process, where their cut is vastly larger than what the artist ever sees."
The opportunities for replacing the record companies as gatekeepers for 21st Century music are vast. Just remember where the bottleneck is. It's in helping people make choices and mold their own tastes.
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Takes on the News
Prophet Ain't Profit
I should really go with my gut. My shock at CDNow's overtaking Amazon in shopping revenues for January disguised the fact they never figured out how to turn a profit on sales. Now the piper must be paid .
It's time some analysts learned to read a balance sheet. Losses are OK if they can be quickly adjusted. The key is the gross margin - the difference between your cost to deliver a product and the money you get for it. It's easy to buy market share by shaving that figure to the point of hairlessness but eventually reality catches up with every story.
Amazon has gross margins - its losses stem from capital investment. (The size of these gross margins is open to question - sticking fulfillment costs into the marketing budget is a scandal that will hurt the stock.) The question is when will fashions change, forcing Amazon to deliver earnings. Will that be before or after its real value exceeds what you can get for the company's shares now? I don't know, but they're not sleepwalking in Seattle. There's a real there There.
An over-reliance on traffic and advertising is just as bad as ignoring gross margins. That's what happened at DrKoop . (The good doctor filed to sell his stake weeks before the bad news came.) This means nothing concerning the sector - no one in health care has figured out the business model. Koop will probably go for a song to CVS or Walgreen's - a song is about what it's worth.
Had Enough Bad Law
It would be wrong to over-state the importance of Demon Internet's decision to cave in to a bad legal decision and pay Laurence Godfrey for a news group "libel" it had no power to control. Godfrey is a worthless piece of pond scum, in my opinion, and that opinion remains protected under American law.
Far more worrisome is the crowing over Interworld's release of a DVD driver for Linux . The Interworld driver violates the premise of the "open source" movement, since it's based on a license for worthless code. If it's not free it's not open source.
Sometimes, of course, even courts can get it right . But why crow over "East Coast code" conforming to "West Coast code?" The problem isn't what the law does, but the continued resort to it , which acts as a tax on the system. The danger is that a market advantage may eventually be given to companies or nations that don't pay this tax, at which point America's high-tech advantage blows away.
The key Clue here is that the market is ignoring the law when the law's decisions are either irrelevant or egregious, just as no one travels just 55 on any U.S. freeway. The law's anger over this will grow and real people will get hurt (like Demon Internet's shareholders). The popular anger will grow and the law will increasingly be flouted (DeCSS will clobber Interworld's driver in the market).
The solution to this dilemma will lie in politics, but only after the issues are clear. And the issues aren't at all clear. Questions of national security can't be confused with questions of economic advantage - if they are then any enforcement effort designed to "protect" the Internet becomes just another form of tyranny. The bad news is that the imposition of this tyranny is a necessary pre-condition to the political activism leading to a true solution.
A lot of bad ideas come across my desk every week. For instance, the idea of other people claiming bounties from merchants for identifying my needs - that's a real bad idea.
But there are also some good ideas out there. Here are a few.
Clued-in is Intel's release of a DSL modem with a built-in firewall. This is the upgrade everyone with experience in this area needs.
Clueless is Robert Reno's diatribe on behalf of Internet sales tax which refuses to answer the key question - where's the store? Until you answer that question you can't proceed to create a taxing regime. Boilerplate rhetoric is for politicians, not for columnists. We have a responsibility to at least try and answer the questions we pose, and be honest when we have no answers.
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