Paul Graham: Content Really Was Just A Way To Mark Up Paper

from the welcome-to-the-future dept

YCombinator creator Paul Graham is the latest "deep thinker" to grasp the deeper economic meaning of infinite goods: they can't be sold. In fact, Graham recognizes that there's never been a real content business. It's always been about selling the scarcity:
Almost every form of publishing has been organized as if the medium was what they were selling, and the content was irrelevant. Book publishers, for example, set prices based on the cost of producing and distributing books. They treat the words printed in the book the same way a textile manufacturer treats the patterns printed on its fabrics.

Economically, the print media are in the business of marking up paper. We can all imagine an old-style editor getting a scoop and saying "this will sell a lot of papers!" Cross out that final S and you're describing their business model. The reason they make less money now is that people don't need as much paper.
He goes on to explore how this applies to music, movies, books, newspapers and software. From there, he comes to the same conclusion many of us have been discussing for years:
What happens to publishing if you can't sell content? You have two choices: give it away and make money from it indirectly, or find ways to embody it in things people will pay for.

The first is probably the future of most current media. Give music away and make money from concerts and t-shirts. Publish articles for free and make money from one of a dozen permutations of advertising. Both publishers and investors are down on advertising at the moment, but it has more potential than they realize.

I'm not claiming that potential will be realized by the existing players. The optimal ways to make money from the written word probably require different words written by different people.
Good stuff and worth reading the whole thing, though I think he misses one key important ingredient. If you take a step back and look at the overall economics of such markets, you quickly realize how much bigger they get when you free the content from the constraints and scarcity of physical media. This is the hardest part for some people to see, at times, but the key to recognizing it is realizing that the content itself is a resource, rather than a final product, and you've just increased the availability and massively decreased the cost of that resource -- and you can then use it (for free!) to make many other things more valuable. That, in a nutshell, is the most exciting part about freeing up digital content.


Reader Comments (rss)

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  1.  
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    Anonymous Coward, Sep 18th, 2009 @ 7:37pm

    So it seems you're all for devaluation of paper. Granted, today, many things of value are allocated on paper, but are you considering the idea of devaluation of paper inclusive of paper assets in favor for virtual (non tangible) assets?

    Back in the day, a monetary unit such as a dollar, was a reciept. A reciept equal to a certain monetary unit which could be exchanged for Gold.

    I have a lot of problems with this idea. However at the same time, I see where you can go with it.

    Consider an economy based on carbon. Well, if your reciept (dollar bill) was worth a certain amount of, quite frankly, an endless carbon-source (instead of gold) it really changes things.

     

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  2.  
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    Doctor Strange, Sep 18th, 2009 @ 7:53pm

    Both publishers and investors are down on advertising at the moment, but it has more potential than they realize.

    An easy claim to make when you don't have to identify the missing potential in any concrete way.

    Here is an alternative unsubstantiated hypothesis: the forces that changed content delivery are going to screw with advertising too, and maybe the two problems are related.

    The same technological advancements and impotent legal system that are taking away people's ability to control where their content goes and how it's used are also taking away advertisers' ability to control where their advertising goes and how effective it can be. Blocking ads used to be difficult, now it's trivial. Populating a (paper) page with 20% content and 80% ads used to be viable, populating a (web) page with the same will now get you shunned right off the Internet.

    It's now very easy to switch from one content source to another if the advertising gets at all onerous. Now that everyone's a content producer, the number of places you can buy advertising has increased exponentially. Now that your formerly-concentrated audience is peanut-buttered over millions of content streams, the ad revenue for each individual stream must necessarily go way down assuming similar advertising budgets.

    "But," you cry, "aggregate output has increased!" Fine. Instead of five players making $175,000 each, you've got a million players making a dollar each. Congratulations. You've replaced eight ounces of Creme Brulee with a pound of shit. Eat up.

     

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  3.  
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    Anonymous Coward, Sep 18th, 2009 @ 8:40pm

    I loved the second footnote -

    [2] Some types of publishers would be at a disadvantage trying to enter the software business. Record labels, for example, would probably find it more natural to expand into casinos than software, because the kind of people who run them would be more at home at the mafia end of the business spectrum than the don't-be-evil end.

     

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  4.  
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    senshikaze (profile), Sep 18th, 2009 @ 9:33pm

    Soo...

    What were we/are we paying for when we buy software? I mean a binary is, for all intents and purposes, an infinite good. It can be copied a billion^billion times and never decay. And if you get all software through downloads, then you are, in essence, paying the company almost nothing but profit. It costs nearly nothing to send a file out over the internet. I like what somebody said, it costs billions of dollars to make that first pill and only 2 cents to make each one after. Basically it is consensual highway robbery.
    It just doesn't make much sense to someone like me who doesn't pay for software (FLOSS, not piracy)

     

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  5.  
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    PrometheeFeu (profile), Sep 18th, 2009 @ 10:20pm

    "He goes on to explore how this applies to music, movies, books, newspapers and software."
    Actually Mike, he does not. Not for software that is:
    "Is software a counterexample? People pay a lot for desktop software, and that's just information. True, but I don't think publishers can learn much from software. Software companies can charge a lot because (a) many of the customers are businesses, who get in trouble if they use pirated versions, and (b) though in form merely information, software is treated by both maker and purchaser as a different type of thing from a song or an article. A Photoshop user needs Photoshop in a way that no one needs a particular song or article."

    Furthermore, software is one of those areas where I think the model you propose has issues. When it comes to entertainment-type content, you can connect with your fans and make money off of that. Nobody but the artist can connect with the artist's fans. At least, there are some specific things that only the artist can do such as give a live concert or sign a CD. With patents, different thing, but it still works. You have an expertise, and it's going to take a while before somebody can take over and produce the same drug/car engine etc even if they have all the specs... During that time, you have a monopoly and you can hopefully stay ahead of the curve with more research. Now, with software you have a problem. Sure, there might be some scarcities (build the hardware and throw in the software as a bonus, sell tech support, etc...) but they require companies to venture pretty far from their core competence of making software. Furthermore, if you want to keep on making more money off software, you are kept in kind of a bind. You can choose the approach which is to make high value software where you keep things similar so users don't have to constantly relearn to use the latest version and then you get users, or you can make software that is built to require your services (only works on your hardware, or new versions require new training) then you get your money. But it seems like you can't do both. I know you have faith in there always being scarcities, but this is an issue where I for one would really like to see examples of working non-entertainment mass market software development business models that are not based on copyright. (Or just scaring your consumer into believing that copies may have viruses or who knows what) And please nobody toss free open-source as an answer. As much as I love the open-source community and enjoy participating in it, I don't think we can depend on people being nice enough to work for free.

     

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    ferridder (profile), Sep 19th, 2009 @ 12:07am

    I don't quite succeed to "take a step back and look at the overall economics of such markets, [and] quickly realize how much bigger they get when you free the content from the constraints and scarcity of physical media."

    Why should the size of the (music) market increase when distribution costs decrease?

    Unless you mean in units consumed, rather than dollars paid; the latter is what the RIAA and friends are worried about.

     

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  7.  
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    Anonymous Coward, Sep 19th, 2009 @ 12:47am

    Amazingly (or pherhaps not), I just had a similar thought yesterday: I wasn't 100% sure, but pretty much all books have the same price, so if their "content" is actually worth something, then why is different content not priced differently? Common sense dictates the equilibrium price should not be the same for each book. The main method to sell books at a higher price seems to be giving readers a reason to buy: hardcovers, limited editions, etc.

     

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  8.  
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    Wise one, Sep 19th, 2009 @ 9:04am

    Computer user thinking!

    "YCombinator creator Paul Graham is the latest 'deep thinker...'" Mike, have you gone mad?

    Computer users don't know how to think. They expect their machines to do all that for 'em. Computer-user thinking? That'll be the day! Computer users don't know basic arithmatic, can't spell, don't know the meaning of "grammer". Would I hire someone like that to work for me? In any industry, in any capacity? Who wants more equal opportunity employees?

    And American students? They graduate dumber and dumber every year. High school grads who can't [even] read; university grads who can't [even] think. (I've was a defendant not too many years ago because the plaintiff, and his attorney thought 1+6=6! Fortunately for me, our judge didn't think much of this interesting new math either and dismissed the case.) How can anyone expect anything other than the worst to happen to everyone in everything -- real estate meltdown, financial crisis, bailouts, clunker programs, et cetera. These are just tips of an iceberg.

    And the morons in charge are just throwing money at the symptoms 'cause they can't cure the underlying infectious disease.

    VRP

     

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  9.  
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    Ah - Yeah, Sep 19th, 2009 @ 10:34am

    Re:

    You are not really a doctor, are you?

     

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  10.  
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    ..., Sep 19th, 2009 @ 1:32pm

    Re: Computer user thinking!

    You're a real optimist aren't you?
    A glass is half full kind of guy!

    Why do you bitch about American students? Seems you must be one yourself.

    fwiw, the correct spelling is arithmetic (not arithmatic) as seen in your rant about how computer users dont know how to spell and stuff.

     

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  11.  
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    Cixelsid (profile), Sep 19th, 2009 @ 4:36pm

    Re:

    i before e except after c.

     

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  12.  
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    Cixelsid (profile), Sep 19th, 2009 @ 5:12pm

    Re: Computer user thinking!

    Dear Mr. Wise One and/or VRP, you must be correct because even I, able computer user and member of the information generation, do not know basic "arithmatic" nor the meaning of "grammer". Mainly because dictionary.reference.com does not know the meaning either, nor does www.urbandictionary.com! I would definitely not hire someone like me! Someone who has no concept of "grammer" or the subtle art of "arithmatics".

    I must say I was very disturbed to read of you "have was" a defendant not too many years ago in a court case where you had to prove 6 incremented was not 6! I thumped my desk angrily while I mentally ruminated on that outrage. But I was much gladdened to read that the judge in said court case was not interested in new mathematics and that your "arithmatical" endeavours were subsequently vindicated. I shudder to imagine the much different outcome had said judge been a Computer User - he might have been interested in mathematics where 1+6=6!

    Indeed, Mr. Wise one and/or VRP, we cannot expect anything other than the worst to happen to everyone in everything, because quite plainly it is us; the Computer Users who are the underlying infectious disease in society. And the only way to cure said disease is to cease all usings of the Computer!

    In fact I shall start righ

     

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  13.  
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    zenasprime, Sep 19th, 2009 @ 5:27pm

    Re: Re: Computer user thinking!

    Oh my! The gloves are off! :o

    ;)

     

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  14.  
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    General Motor, Sep 19th, 2009 @ 5:28pm

    So what is wrong in Detroit? All these years they thought they was in the car business and it turns out they were in the steel business.

     

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  15.  
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    PrometheeFeu (profile), Sep 19th, 2009 @ 5:28pm

    Re: Computer user thinking!

    Please explain what kind of court case is based on the concept that 1+6=6.
    Everyone knows that 1+6 = 6+1 = successor(6) = {6} = 7. But perhaps we should stick to a simpler form of mathematics for your sake.
    Now, reading your comment, I have developed a few theories:
    1) Since you can obviously read, you are either not an American or have not graduated from High School. Given your gross oversimplification of a variety of issues, it appears that you are American and have graduated from college. (I'm just using the axioms you gave me)
    2) Given that law school requires you to go to college and that becoming a judge requires you to go to law school, it is obvious that the judge who dismissed the case you mentioned went to college. Therefore, by your logic, he cannot think. Which leads me to an important question: Why do you appear so triumphant to have someone unable to think agree with you?

     

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  16.  
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    ChrisB (profile), Sep 19th, 2009 @ 10:53pm

    Re:

    New car sales are a loss leader for parts, service, loans, extended warranties, aftermarket upgrades, and used car sales.

     

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  17.  
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    Anonymous Coward, Sep 20th, 2009 @ 1:03am

    Re:

    It can and it is being used a lot.

    http://en.wikipedia.org/wiki/Commercial_open_source_applications

    Some commercial enterprises started as opensource projects, some good programmers are working after proving themselves as competent programmers in open source, a long list of software is being used as a platform for many companies that pay for the development of the software because they need it and so they pay the developers to develop and hire more people to do it and it is fueling the development of that opensource platform and there is the ones that use free open software to make a service business around(Red Hat, MySQL, Apache, openDental and others) it does work and the best thing is people all around the world work together to make it better without worring about having their jobs shiped to other countries because the work done on the software will be used in local markets and all of that without strong copyright or the need to lock anything.

     

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  18.  
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    Haywood, Sep 20th, 2009 @ 8:18am

    Re:

    Don't forget glass, rubber, plastic & aluminum. That is exactly the business they were / are in. They take raw materials and added value by making it into cars and trucks.

     

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  19.  
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    crb3 (profile), Sep 20th, 2009 @ 8:35am

    Re: that alternative hypothesis

    Here is an alternative unsubstantiated hypothesis: the forces that changed content delivery are going to screw with advertising too, and maybe the two problems are related.

    Already demonstrated, methinks, by the Sears-Roebuck catalog, which was a scarce and valued resource in its first century; and Computer Shopper Magazine, which was once about an inch, filled with almost nothing but advertisements, and we valued it for that and read it avidly and respected it as a reference. Now the Sears book isn't exactly the only thing to read by the firelight, and Computer Shopper has faded away almost entirely. For that matter, there used to be a local want-ad rag in each major city (The Recycler, for example, in LA), and now, where they survive, they're struggling.

    IMO Advertising is partially subsidized content, differing only in kind, not in class, from created-for-hire and found-as-free content.

     

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  20.  
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    Hua Fang (profile), Sep 20th, 2009 @ 9:12am

    be a codonologist

    contents >> concepts >> codons >> Codonology ... ...

    Sounds familiar? Refreshen your memory, and understand more deeply what human knowledge and reasoning really are.

     

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  21.  
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    Anonymous Coward, Sep 20th, 2009 @ 11:29am

    Re: Soo...

    this is not necessarily true.. the cost of producing the software or music, is huge burden on someone. On top of marketing, and other related costs. They will get to a point where the recover the costs to create the content. There is nothing wrong with people making a profit, and you're justification is not solid enough.

     

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  22.  
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    Griff (profile), Sep 20th, 2009 @ 2:15pm

    New car sales are a loss leader ?

    I was under the impression that new car sales were supposed to make profit to pay back all the development costs of creating a car that is better than last years car.
    Quite like software.

    As the quantity sold goes up, the cost per car of the development goes down. So if an infinite amount of cars of one model were built, cost would fall to JUST what it costs to actually build the car. Just like the cost of shrinkwrapped software would cost just the price of the disk, box and printed manual, if an infinite number could be sold.

    In the UK there was a company calle Daewoo who basically made old GM designs of car with slightly different body shells. Without the development (just some royalties) to pay, they were able to sell cars cheaper (like generic drugs). And a 3 year old design is actually good enough these days.

    If course, cost and price are two different things. Price is what the market will stand. Hence drugs are more expensive in USA than in poor parts of the world (as are CD's, DVD's etc). This can be done with physical goods to some extent but in a global market, you need things like DVD zoning (or "Windows activation") to stop people bypassing it. With the global market in digital content, it's hard to see that ever working.


    Hence the great attraction of cloud based software (for the makers). Noone can copy google apps and sell the CD at a market stall, after all.

    The equivalent for music is only ever offering streaming content that somehow cannot be recorded. But as you want a piece of music to sound the same each time you listen, it basically CAN be recorded.

     

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  23.  
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    Anonymous Coward, Sep 20th, 2009 @ 2:31pm

    Re: Soo...

    Well, software can be made at low cost and be good enough.

    Apache is free and opensource still there is a lot of people making money from the development and servicing.

    MySQL is free and opensource still there is a lot of people making money from it.

    Red Hat offers is main product for free and even have exact copy without the trademarks in it called CentOS and they too make a lot of money.

    And there is a list as long as my arm of successful open source software that is free and have commercial success and they don't block anything and compete with each other. It is not an intellectual exercise in competing with free goods it is a reality, you can extract money from free and you don't need absurd IP laws to do it either.

    Blender is a free open source project that made 3 short movies paid for the community and sponsors, and created a market for services around a free software where people do need training, buy books, t-shirts (yes they sell t-shirts), mugs, render farms times. They created the blender foundation that have a physical headquarters now and all came from the free software development. Blender is used even for films and TV commercials.

    For music you have software(open source) that can do everything like LMMS - Linux MultiMedia Studio, traverso, hydrogen-music, Rosegarden and then you have the new models of discovery and production like "slicethepie" and "sellaband" that use the community to pay for the discovery and production of albums and they are operating for years now.

    So making a profit it is not the real problem the problem is how people are trying to make a profit at one side you have those who believe they can't compete with free and have to put walls around their business to keep others from making money and on the other side you have those who don't care about who is making money from their work and are competing in the market with others and are doing just fine.

     

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  24.  
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    Ken, Sep 20th, 2009 @ 3:37pm

    Software is selling PC's

    Seems to me that a translation can easily be made from Paper to PC. The content being the software which is words in a different form. Microsoft licenses their software to PC manufacturers who pass on the cost, but it’s the pushing of the PC that’s the key rather than the software. Certainly more profit in building a better PC to market – because you can see the PC and not the softer in the shop window. Apple too sells PC’s not software.

     

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  25.  
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    Richard (profile), Sep 21st, 2009 @ 2:15am

    Re:

    the ad revenue for each individual stream must necessarily go way down assuming similar advertising budgets.

    But that is not a valid assumption. Since advertising has now become cheaper more businesses will be able to afford it and so the budgets go up.

    In any case the figures probably aren't as extreme as you suggest. It's more a case of thousands of people making a living instead of a small number making a fortune.

    If you want to make a fortune you have to come up with something genuinely new. Once things become commoditised the luxury business models have to die.

     

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  26.  
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    herodotus (profile), Sep 21st, 2009 @ 4:45am

    "But," you cry, "aggregate output has increased!" Fine. Instead of five players making $175,000 each, you've got a million players making a dollar each. Congratulations. You've replaced eight ounces of Creme Brulee with a pound of shit. Eat up.

    No, reality has replaced eight ounces of Creme Brulee with a pound of shit. It does this every day. It's called digestion. It's not pretty, but it's an inescapable part of the human condition.

    I wonder how many people who go on about this kind of stuff realize that every last complaint one can make against the democratizing forces of the internet could have been made with equal force (and equal impotence) against the printing press. After all, the printing press did decrease the quality of books while increasing their quantity, and the vast majority of what was printed was forgettable trash compared to the contents of a great monastic library.

     

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  27.  
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    NZN, Sep 21st, 2009 @ 6:02am

    I am the scarcity ye seek

    I am a commodity of one. It does not get more scarce. Content within me, from me, to me, about me all has value. But if you want to monetize the web, you must begin with the infinite me. I + I = We networked. 1+1=3 is the formula.

    You must universally distribute ownership of the fundamental infrastructure of the social network... ie the entity ID... and then redefine the process of socio-economic participation based on the new paradigm of universal ownership distribution.

    Employees are a constraint of the old model of socio-economic structure where there are owners and non-owners. W2's pervert government by removing accountability from the financing of operations.

    The new model does not respect employment as the be-all-end-all of socio-economic purpose. Universal employment is not the goal, regardless of what our current SBA believes. We do not train entrepreneurs to exist so that they may create jobs, we help them discover how to create value.

    Our human civilization is defining its individual entities incorrectly. Until you own your life, the exchange will always be weighted in the direction of the entity that can. Corporations own government because people do not. Simple as that.

     

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  28.  
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    Hephaestus (profile), Sep 21st, 2009 @ 9:54am

    I like the last paragraph ...

    "I can offer a recipe for recognizing them. When you see something that's taking advantage of new technology to give people something they want that they couldn't have before, you're probably looking at a winner. And when you see something that's merely reacting to new technology in an attempt to preserve some existing source of revenue, you're probably looking at a loser."

    That says it all ....

     

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  29.  
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    Anonymous Coward, Sep 21st, 2009 @ 12:09pm

    Re:

    many things of value are allocated on paper

    And without that allocation, the paper would not be valued the same. This is what Mike's saying. But he's taking it the next step and saying the people don't want the paper, they want the content that marks the paper. And since they can now get that without buying the paper, paper-based industries are dying.

     

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  30.  
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    Jason, Sep 22nd, 2009 @ 8:28am

    Mafia?

    Some types of publishers would be at a disadvantage trying to enter the software business. Record labels, for example, would probably find it more natural to expand into casinos than software, because the kind of people who run them would be more at home at the mafia end of the business spectrum than the don't-be-evil end.

    You must mean major record labels, right? Don't forget about the many indie labels who would rather die than compromise their ethical standards.

     

    reply to this | link to this | view in thread ]


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