The scrap between Taylor Swift and Apple Music (Variety) is an important reminder that computer scientists are often dead wrong about how technology will be used by business. People who had ARPAnet connectivity to their desktops in the 1970s and early 1980s envisioned a fully distributed business environment to go with the fully distributed network. You’d be able to buy any book, newspaper, or movie but you’d get it from the publisher’s server or perhaps the author’s. You’d be able to buy products direct from manufacturers, with retailers disintermediated. Certainly nobody predicted that a company such as Apple would be able to take 30 percent of the recording industry’s revenue because the record companies were incapable of setting up their own servers. Taylor Swift should not have been able to get into a dispute with Apple because consumers would be getting their music direct from Taylor Swift’s server, perhaps paying a Visa card-style transaction fee to a payment processor.
Technology by itself suggests Econ 101-style efficient markets with more vendors and fewer middlemen/middlewomen (is there a gender-neutral term for a rent-collecting middleman? would we want one?). And the way that Internet was rolled out to consumers has happened almost exactly as the 1970s users predicted (except that the winning protocols and standards, HTTP and HTML, turned out to be far simpler than predicted!). The real-world use of technology, however, has to a significant extent resulted in business structures that are opposite to what was predicted.
I think that one thing they hadn’t accounted for was the scarcity of reliable information. There are plenty of places other than iTunes where one can get music, but without google, how would one find them. Even if you were right in line with the 1970 thinking about computer networks and were a farmer trying to buy a ton of fertilizer, how would you decide which seller to buy it from? You could go to some kind of commodity exchange and solicit bids, but which one? Local, national, global? What starts out like a commercial for early CompuServe (look, I’m ordering fertilizer from a computer!) ends up looking a lot more like ebay in practice. This model seems to have worked out (temporarily) for the silk road folks, the rest of us are stuck with middlemen galore.
I suspect that our predecessors also had no idea of the scale of malicious activity and the scale of the safeguards that would need to exist against it.
middleperson? intermediary?
Federated distributed systems such as a micropayment system that would allow users to get music form each musician’s site without setting up separate billing agreements with each, or the Diaspora project that aims to replace Facebook with a web of interconnected servers that you maintain control over, or open standards like SMTP email, XMPP chat and RSS syndication, are intrinsically harder, and less profitable than just setting up a centralized system and using it as a middleman to extract rents.
Until people learn to value privacy, freedom or fairness over convenience, they will struggle in the marketplace. I’m not holding my breath.
Great piece Philip.
And another question, how come journalists haven’t written this story?
Might hit too close to home. They are running their own servers, of course, but the servers don’t do what Facebook does.
Why haven’t journalists written this story? I think it is “dog bites man” for the average consumer. Unless you’re a computer nerd passionate about distributed systems it may seem normal that a few big companies control most of a market.
In the real world, especially in the West in the last 200 years, consumers rarely dealt with producers directly – there were always (sometimes several layers) of middlemen in between. The role of middlemen is often misunderstood as parasitic. The consumer pays $3.00 for a loaf of bread but the farmer receives only 10 cents out of that. But this is not some accident or conspiracy. All the players in between the producer and consumer add value somehow or they wouldn’t exist (unless they are car dealers who exist because they have bought their state legislatures).
Nothing is preventing the farmer in Kansas from mailing you a lb. of wheat but it doesn’t make any sense, either for the farmer or for the consumer, to engage in this transaction and in fact it makes MORE sense for the consumer to pay $3.00 for a loaf of bread (or else the consumer wouldn’t do it).
The fact that the farmer can now set up a website to take orders for wheat (and, if his name is Hilary Clinton, even run it on his own web server) only makes doing this slightly more viable than before. You would still have to find Farmer Joe’s website among all the other farmers’ websites and vet Farmer Joe to figure out whether the quality of his wheat was good or even whether he would send you the lb. of wheat or just steal your credit card #, etc. In the old days you could have just mailed Farmer Joe an order slip with a check enclosed and it wasn’t that different. Even the vaunted Amazon is really just an updated version of the Sears Catalog. If there are a hundred different reasons why it’s not a viable concept for you to buy wheat directly from a farmer when you want to make a sandwich, then the Internet solves maybe 10 of them but the other 90 reasons are still there. Because a digital download of a book or song is closer to the finished product and can be sent directly by wire, maybe there are only 20 reasons why you and the producer don’t want to deal directly with each other but still the Internet only solves 10 of them. If the computer scientists didn’t see this it’s because they had tunnel vision and didn’t see the big picture.
The reason Taylor Swift is willing to pay Apple’s fee is that she’ll end making far more money via that channel, than she would setting up her own server. I’m not sure that early internet prophets were really predicting the end of aggregation and curation.
You could well be right, but a good portion of Apple’s success as a music vendor was timing. One of Steve Job’s biggest accomplishments was convincing the music industry to sell music by individual song at the time time that the iPod/iTunes ecosystem was hitting it’s stride.
The RIAA and their ilk maybe could have been successful if they hadn’t spent all their time playing defense and suing teenagers over Napster.
If you think that the computer scientist’s crystal ball was lousy, that of Hollywood and the recording industry was even worse. They have opposed every single technological innovation since the player piano and each new development that they fought tooth and nail has turned out to be a tremendous money maker for them (and would have been an even bigger money maker if they had spent their energy on advancing new developments instead of going up blind alleys to pick fights that they were going to lose anyway).
People like buying in bulk. People like convenience.
“The people pushing micropayments believe that the dollar cost of goods is the thing most responsible for deflecting readers from buying content, and that a reduction in price to micropayment levels will allow creators to begin charging for their work without deflecting readers.
This strategy doesn’t work, because the act of buying anything, even if the price is very small, creates what Nick Szabo calls mental transaction costs, the energy required to decide whether something is worth buying or not, regardless of price. ”
http://www.shirky.com/writings/fame_vs_fortune.html
Maybe the big 5 record labels could have made a shop like iTunes, Maybe the big 5 publishers could have made a shop like The Kindle Store. But they were probably to busy fighting each other and their customers.