Techdirt. Stories filed under "disruption"

Wal-Mart Wants Store Customers To Deliver Packages To Online Shoppers

Mike Masnick — Fri, 29 Mar 2013 09:55:24 PDT

Having just seen cases where legacy players have felt threatened by more innovative startups that take advantage of more distributed "peer-production" rather than top-down centralized systems of old, it's interesting to see a counter example. Apparently, Wal-Mart is considering a plan in which it tries to get in-store shoppers to help deliver packages to online buyers.

"I see a path to where this is crowd-sourced," Joel Anderson, chief executive of Walmart.com in the United States, said in a recent interview with Reuters.

Wal-Mart has millions of customers visiting its stores each week. Some of these shoppers could tell the retailer where they live and sign up to drop off packages for online customers who live on their route back home, Anderson explained.

Wal-Mart would offer a discount on the customers' shopping bill, effectively covering the cost of their gas in return for the delivery of packages, he added.

The company admits that it's just brainstorming the idea at this point, but it's always interesting to see big established companies recognizing that others have been disrupting parts of their core business, and rather than freak out about it, try to take the disruption even further. Of course, this might serve to disrupt other legacy providers, such as UPS and FedEx. Hopefully they won't freak out about it, but who wouldn't be surprised to start seeing stories raising moral panics about how "dangerous" this new plan will be since the drivers won't be wearing uniforms any more?

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CBS Bans Commercial That Disparages Coke & Pepsi, But Lets Them Disparage Each Other

Daniel O'Connor — Fri, 1 Feb 2013 13:46:13 PST

Oh, the benefits of incumbency.

Sodastream is a cool new company that allows consumers to make their own carbonated beverages at home. Given its popularity, largely due to its ease of use, SodaStream’s stock has been on a run the last few months. It also possesses the potential to disrupt to established beverage companies like Pepsi and Coke.

Not surprisingly, SodaStream would like to advertise this fact. In fact, it is so keen on advertising the relative benefits of its product over the more traditional route of buying pre-made soda from the store that the company ponied up for a Super Bowl commercial. Unfortunately for SodaStream, the ad was rejected by CBS, not because it was too risque, but because it “disparages” other major advertisers (which is apparently more objectionable than borderline softcore porn a la GoDaddy and Mercedes). As Ad Age reported:

The content of its planned commercial seemed to have concerned CBS because it was a direct hit at two other Super Bowl sponsors and heavy network TV advertisers: Coke and Pepsi.

We’ve discussed elsewhere CBS’s newfound affinity for the ban hammer, but this isn’t even the first time this has happened to SodaStream. British regulatory authorities yanked Sodastream’s first major advertising campaign for “being too disparaging towards soda manufacturers like Coke and Pepsi.”

How disparaging was SodaStream that its ads were pulled from television? Well, it simply pointed out that SodaStream was more environmentally friendly than drinking off-the-shelf sodas because, with SodaStream, “you could save more than 2,000 bottles a year.” Wow, that is incendiary. Not safe for public consumption!

It gets better. Clearcast, the NGO — funded by the British broadcasters — that pre-approves most advertisements for British television, reportedly offered this rationale for pulling the ad:

The majority decided that the ad could be seen to tell people not to go to supermarkets and buy soft drinks, [and] instead help to save the environment by buying a SodaStream. [SodaStream] was also told that it constituted denigration of the bottled-drinks market.

Hypocritically, U.S. broadcasters have allowed Pepsi to air Super Bowl ads that bashed Coke directly, as Ad Age also pointed out:

Interestingly enough, Pepsi has scored big points with viewers over the years by showing Super Bowl ads with Coke deliverymen abandoning their employer wholesale for a sip of a Pepsi drink.

Moral of this story: Pepsi and Coke can attack each other over trivial differences in their products, but don’t attack the business model of big incumbent advertisers.

Fortunately, there is an upside for SodaStream. All the controversy that these ads have stirred has generated a buzz around them. The SodaStream “banned Super Bowl ad” has already generated more than two million hits on YouTube in two days and generated a media buzz around the company itself. And that’s without having to splash $3.8 million worth of cash for a Super Bowl commercial. Another example of the Streisand Effect in action.

[SodaStream is running a commercial during the Super Bowl, but it was forced to replace Coke and Pepsi with fictional soda companies. However, that ad only has a little more than 17,000 YouTube views in the last two days.]

Cross posted from Project-Disco.

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Robots Or Robber Barons? What If The Answer Is Both And Neither?

Mike Masnick — Fri, 14 Dec 2012 12:04:00 PST

For reasons that I do not fully understand, Paul Krugman is a name that gets people really worked up for often irrational reasons -- mostly having to do with red team / blue team political arguments that have little bearing on actual economics. My personal preference is to ignore the whole somewhat meaningless "left/right" dichotomy (no matter where a particular economist is normally associated) and focus on the actual economics being discussed. And, recently, Krugman has been doing some deep thinking on what he's referred to as the question of robots or robber barons. The issue may be a little deep in the weeds for folks who aren't econgeeks, but it is both really interesting and really important to think through.

The short version -- hopefully translated sufficiently via my "econgeek to normal people" translator -- is that there are economic metrics out there suggesting that things should be much better than they are: in particular, companies are making massive profits. But, at the same time, wages are not showing any sort of increase. Krugman uses this graph to demonstrate the point: As the graphic shows, as a percentage, wages ("labor") have been dropping. If the output is not going to wages, where is it going? Krugman uses the term "capital," which, basically (in this case), just means return on investment for assets: that is, if you own stuff, you're getting a return on it, which is going into your pockets rather than to people doing work. Of course, when you look just at percentages of a single factor, things can quickly get misleading -- and at least some have suggested that looking at just the percentage going to labor may be exaggerated by a hidden third factor, such as land. While using terms like "labor" and "capital" are standard in economics, I find that they actually can distort the conversation (and even Krugman notes that some of the discussion veers into what sounds like "Marxist" discussions on "capital" and "labor").

A simpler and perhaps more useful way of looking at things is: Where is the money going and how is it spent? And, as it stands now, over the past ten years, the amount of money going to wages, as a percentage of money being made, has been going down. So what's it all mean? Krugman has two theories -- both of which may actually be true to varying degrees.

Robots: The idea here is that automation has meant fewer jobs, and thus has held down wages and kept the supply of workers high. This is an old argument, of course, but perhaps one worth thinking about. We'll discuss it more below.
Robber barons: That is, monopolists. The argument here is that when you see an aggregation of wealth to "capital," it suggests that the free market is somehow "stuck," and one possible reason is that the "owners of capital" have effectively created monopolies, allowing them to retain more than a free market might allow, via monopoly rents.

If you think both of those suggestions sound somewhat anachronistic, you're not wrong. Both of those possible arguments sound quite similar to the complaints people made a century or so ago. And, as with that situation, I'd argue that the two explanations that Krugman puts forth may both have some element of truth, but also may not tell the whole story by a long shot.

Let's start with the robots. For years, many have suggested that greater productivity from automation leads to lower demand for human employees, thus creating less demand for workers -- leading to lower salaries, high unemployment and all that jazz. Many people (myself included) have often used the term "luddites" for this, after the original followers of Ned Ludd, who believed that the industrial revolution was destroying jobs, leading to the "Luddites" smashing machines. The term is used pejoratively, because the original Luddites, for the most part, weren't just wrong but were ridiculously wrong. Far from destroying jobs, automation eventually created many new jobs.

And, instinctively, I have the same reaction to the argument when put forth here. We've heard this claim for so long, that greater productivity leads to fewer jobs -- but in practice it has never come true. It has, certainly, meant that there has been job displacement, and potentially a shift in job skills requirements -- which can be very difficult for those whose skills are no longer relevant. But, in the longer term, such automation has always created more jobs.

Does that necessarily mean that this shall always be the case? Not necessarily, but I'd argue that the long history of it being true suggests that you would need very, very strong evidence to back up the claim this time around -- and I'm not convinced we've seen that. Of course, playing devil's advocate to myself, I can see one plausible argument that someone could make (even if I don't think it's true): automation in physical work increased demands for jobs in other sectors -- such as services and information processing (desk jobs). But the information age revolution has now started to automate many of those jobs as well, and it's not clear where we move along the spectrum from there. That is, as the argument goes, that new jobs have always been created further along the spectrum from manual labor to services to information processing, but we've more or less hit the end of the line.

I find this difficult to believe for a few reasons. First, the same argument was made in the past every time some new fears about automation came along. And every time it turned out that there were new job opportunities. I can't see that changing now. At all. If it becomes true that labor is really increasingly available or cheap, that will create all sorts of new opportunities to make use of it. The news that Apple is going to start making some computers in the US is just a small indication of that possibility coming true. And, yes, even if they're using a robot-centric process, they're still creating domestic jobs. But, further on that, there's tremendous opportunity coming out of disruptive innovation to create new jobs where none really existed previously. The number of people making a living by selling goods on things like eBay, Etsy or Amazon is astounding. Even newer tools like Kickstarter and Indiegogo are creating additional possibilities, and we write about all sorts of interesting business models all the time -- creating new opportunities. Similarly, we've seen things like distributed call center services, such that people can work from home and be productive. In fact, this could help explain some aspects of wage decline, as some people, who might have formerly not been in the workforce at all, can now work part time from home.

But, of course, job displacement is messy, and figuring out where the new job opportunities are, and how they apply on a wider scale, is not a smooth process at all. It takes time to work out the kinks -- and that could explain the lag in wages. It could simply be the dip in efficiency as we enter that chaotic period of experimentation and attempts at new things before it becomes more clear where the new job opportunities will be.

The "robber baron" argument makes a lot more sense to me -- and it even appears that Krugman may be leaning bit more that way, after hearing from some other economists:

Barry Lynn and Philip Longman have argued that we're seeing a rapid rise in market concentration and market power. The thing about market power is that it could simultaneously raise the average rents to capital and reduce the return on investment as perceived by corporations, which would now take into account the negative effects of capacity growth on their markups. So a rising-monopoly-power story would be one way to resolve the seeming paradox of rapidly rising profits and low real interest rates.

Of course, I think that the use of the term "robber barons" is potentially misleading as well. This isn't necessarily a case of the Andrew Carnegies, JD Rockefellers, JP Morgans and Cornelius Vanderbilts of old. Instead, it often seems that what we're dealing with are less super greedy "robber barons" (and yes, I know some people will point to examples that suggest otherwise -- especially on Wall Street) and more of a fight against innovation. This goes back to my recent discussion on corruption laundering, in which companies are able to secure favorable regulations that actually help them against disruptive upstarts by arguing that allowing the upstarts will harm "jobs" or will upset the economic apple cart.

In the end, that leads me to wonder if what we're really seeing is a third thing, which can account for both the "robots" and "robber barons" story lines and tie back to that corruption laundering situation: the rise of what Andy Kessler has referred to as political entrepreneurs vs. market entrepreneurs. In that scenario, you have companies who aren't quite robber barons, but are adept at using the political system to engage in a form of "corruption laundering" to put in place regulations that limit true competition and the kind of innovation that helps to speed up the creation of new jobs.

In some sense, we've discussed this before, in noting that politicians often fear disruptive innovation because it "destroys jobs" even as it's creating new ones. So they pass regulations that hinder disruptive innovation, in an attempt to "protect jobs." But the end result is that the few larger players in the industry tend to suck up control of that industry and, as such, limit job growth (and begin to profit by being able to capture the monopoly rents). They can employ greater automation to suck more profits out of their own business, but also can hold back the disruptive innovation that creates new jobs.

So, in that scenario, you get higher profits and fewer jobs -- with increasing automation. But you're missing out on the important disruptive innovations that help create the new jobs. Part of the problem with the "robots" storyline from Krugman is that it assumes all technological advancement is equal: that big companies automating is the same thing as disruptive innovation that enables new jobs. I don't think that's true. Either way, these are certainly big and important questions worth thinking about and exploring.

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Disruptive Innovation: Bad For Some Old Businesses, Good For Everyone Else

Mike Masnick — Wed, 12 Dec 2012 12:05:00 PST

I recently joked that it felt like the main purpose of Kickstarter seemed to be to convince the world they wanted simplified wallets and fancy ink pens. If you don't spend much time on Kickstarter, you may have missed that those two categories seem to account for a somewhat-larger-than-expected percentage of projects that people find interesting. The wallets, in particular, fascinate me, because there are an absolutely insane number of new wallet projects, with nearly every single one claiming to have reinvented wallets. I had no idea that the wallet market was open to such disruption.

Of course, it may be open to an entirely different form of disruption. As Nick Bilton at the NYTimes recently pointed out, as his smartphone has been able to do more and more, he's beginning to think that wallets may be becoming entirely obsolete. There's almost nothing he still needs to carry on his person since nearly everything that used to be in his wallet can now be taken care of via his smartphone:

Printed photos, which once came in “wallet size,” have been replaced by an endless roll of snapshots on my phone. Business cards, one of the more archaic forms of communication from the last few decades, now exist as digital rap sheets that can be shared with a click or a bump.

As for cash, I rarely touch the stuff anymore. Most of the time I pay for things — lunch, gas, clothes — with a single debit card. Increasingly, there are also opportunities to skip plastic cards. At Starbucks, I often pay with my smartphone using the official Starbucks app. Other cafes and small restaurants allow people to pay with Square. You simply say your name at a register and voilá, transaction complete.

But wait, what did I do with all of the other cardlike things, like my gym membership I.D., discount cards, insurance cards and coupons? I simply took digital pictures of them, which I keep in a photos folder on my smartphone that is easily accessible. Many stores have apps for their customer cards, and insurance companies have apps that substitute for paper identification.

It's not entirely obsolete, but Nick makes a compelling case that it's heading in that direction. To be fair, many of the new wallets seen on Kickstarter are, in effect, responses to this trend. The most popular styles appear to be "simplified" or "minimal" wallets that shrink down what you have to carry, so that you can just take the few essential cards with you. But, it's possible that many people will be able to get by entirely without a wallet in the not-too-distant future.

This, in turn, reminded me of something else: about how disruption may destroy industries while making our own lives better in the process -- but that simple economics tends to do a bad job recognizing that. I've talked about how traditional economic measures might measure the wrong thing. So, if we're looking at wallets, for example, those in the wallet-making business might claim that this move towards the digitization/smartphonification of everything is "bad" for the "wallet industry." That's obviously silly, and most people aren't too concerned about the wallet industry. But that ignores just how many industries are being totally upended by the smartphone. Think of all the things you don't need any more due to the smartphone. A few months back, the Cato Institute put together a fun chart on "dematerialization" due to the smart phone, trying to make the argument that advances in technology, such as the smartphone, might also be good for the environment, since they lead to people needing a lot fewer physical devices, since they're all packaged into that tiny device in your pocket: Of course, what this also points out is the nature of disruption and innovation. Disruptive innovation, by its nature, destroys entire industries or segments of industries by making them obsolete. If you simply measure the economic impact on the fact that those industries are no longer present, or that those products are no longer being sold for hundreds of dollars, you could argue that there's a negative impact on the economy. But, if you flip it around and look at (a) how much better our lives are, in that we have access to all that at the touch of our finger tips in a single smartphone, and (b) that as compared to buying all those other devices, individuals actually get to keep more money to themselves (though, not necessarily in their now obsolete wallets) to be spent in more productive ways, it seems like it's actually a really good thing.

But this is something that we often struggle with from a policy standpoint. While no one claims to be missing "the fax" industry, lots of industries at risk of disruption will do all sorts of things to angle policy makers into blocking that disruption, by arguing about the economic impact of their own industries, and falsely implying that, if they're disrupted away, all of that money somehow "disappears" from the economy. But the nature of innovation is that we make things obsolete by making other things better and more powerful and changing the way we do things. The end result is, generally speaking (and, yes, there are exceptions), better for everyone, enabling them to do more with less and do so more productively. Whether it's a "wallet" or the entire list of things in the graphic above, progress has an amazing way of destroying old ways of doing business, and we shouldn't fear or worry about that, we should celebrate it.

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Can't Win 'Em All: Uber Gives Up Attempt To Do UberTaxi In NYC (For Now...)

Mike Masnick — Wed, 17 Oct 2012 03:32:17 PDT

We've talked about how innovative ride hailing company, Uber, was pushing regulatory boundaries across the country, often showing how restrictive local regulators could be towards innovation. In many cases, Uber has been able to generate enough public support that local taxi and limo regulators ended up backing down. But you can't win 'em all. Uber has admitted that it's pulled the plug on UberTaxi in New York City.

While Uber is most well known for its "black car" service, it's also been moving aggressively into the taxi world (which is why it's getting sued in Chicago). NYC's Taxi and Limo Commission (TLC) has fought against this move, since the law technically requires cabs to be hailed directly from the street -- and the TLC claimed that hailing from a phone violated that. Uber, however, claims that the TLC has admitted privately that the service is legal. Either way, the TLC threatened cabbies who used Uber, and that limited the number willing to take part, which probably made the service a lot less interesting for users. And, for now, the service has shut down.

The TLC, for its part, seems to suggest that this is only temporary, and it would like to bring such services back -- but it needs to conclude existing contracts:

"In recent months, as e-hail apps have emerged, TLC has undertaken serious diligence and is moving toward rule changes that will open the market to app developers and other innovators. Those changes cannot legally take place until our existing exclusive contracts expire in February. We are committed to making it as easy as possible to get a safe, legal ride in a New York City taxi, and are excited to see how emerging technology can improve that process. Our taxis have always been on the cutting edge of technological innovation, from GPS systems to credit card readers."

Hopefully that's true, but the devil is in the details... we'll see what happens early next year.

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Auto Dealers Complain That Tesla Stores Are Illegal... Despite Not Actually Selling Anything

Mike Masnick — Wed, 10 Oct 2012 11:06:05 PDT

Another day, another story of stupid protectionist regulations getting in the way of anyone trying to be innovative. This time, it's about Tesla, the well known electric car company based out here in California. Apparently, various states have set up ridiculous protectionist laws that say it's illegal for automakers to sell cars directly to consumers in retail settings. The various car dealer lobbyists who pushed to get those laws passed are now complaining that Tesla and its high end "stores" violate that law -- despite the fact that you can't actually buy a Tesla car in a Tesla store. In order to stay on the correct side of these idiotic laws, you can go into the stores and learn all about the Tesla... but if you want to buy, you have to go online and put money down via Tesla's website. The dealers are arguing that "anything that gets you to the executed contract is part of the sale," but that's ridiculous. A magazine ad. A TV commercial. Plenty of other things can "get you to the executed contract" and are perfectly reasonable.

What's really going on here is that states have passed these protectionist laws to help out independent dealerships who worried that car companies might decide to cut out one of the more annoying middlemen in the world and go direct to consumers. So they passed these laws which serve no purpose, whatsoever, other than to encourage greater annoyance and overhead for car buyers. Just the fact that you can't actually buy a Tesla at a store should highlight how silly this -- but the fact that these dealers are still complaining and arguing that the company violates the law shows just how petty they can be.

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Chicago Taxi Companies And Riders Sue Uber For Targeting Cool Passengers

Mike Masnick — Fri, 5 Oct 2012 18:36:59 PDT

We've written about innovative car service company Uber a few times before, though mostly for its bizarre run-ins with local regulators, who often seem to think their job is to protect local taxi companies from innovative competition. Uber, for what it's worth, has used many of these attacks as marketing vehicles to get more attention to their service, and the local regulatory agencies almost always seem to back down. Of course, most people recognize that these agencies are often just doing the bidding of local cab companies. In Chicago, it appears that the cab companies have taken matters into their own hands and have sued Uber directly.

You really have to read the full complaint below, as it is a classic case of an industry being disrupted and lashing out at the disruptive player, repeatedly screaming "but you can't do that!" out of sheer jealousy and spite. It really is just a litany of claims about why they just don't like Uber. First, they whine that Uber "misleads" customers by comparing itself to taxi and livery services, even though it's somewhat innovative system is to actually empower independent drivers. But that's not actually hidden. And, um, I'm not sure why the taxi companies have any standing to complain about that.

Next, it argues that Uber charges too much, and adds a 20% gratuity. Again, all of this is clearly laid out to users of Uber's service. If they're willing to pay what Uber's rates are, then what's the problem? And again, if anyone has standing on that, it would be the users, not the cab companies -- and we'll discuss the fact that some users are suing too in a moment. There are a number of other complaints will all just seem like sour grapes.

My favorite part, though, is the claim that Uber "illegally discriminates against people without credit cards and smartphones." Did you know there was such a thing?

While Uber advertises itself as “Everyone’s Private Driver”—that is in fact a gross mischaracterization as Uber only chooses to cater to what it perceives as the technologically elite and well-off individuals. It is obvious that through Uber’s marketing it caters to young, hip, urban professionals, which is perfectly reasonable on the livery side. But using the publicly regulated (and limited number) taxis in order to create a two tier system— “high quality taxis” for the “haves” and the remainder for the “have nots”—runs contrary to the many ordinances enacted in Chicago to ensure non-discriminatory service for everyone in Chicago, not just those “cool” enough to use Uber.

The one area that does seem a little iffy on Uber's part is that it signs up cab drivers who work for some of these companies that are suing -- and Uber's website (in at least one place) seems to imply that it has "partnered" with different cab companies, when the reality is that it lets the drivers sign up themselves. I could see where the cab companies may have a legitimate beef if their brands are falsely implied to be associated with Uber's.

That said, all of this just really seems like jealous taxi companies. Uber offers a useful service for those who want it. It's actually somewhat expensive -- and that's why plenty of people I know don't use it. But if you're willing to pay for the convenience, many, many customers seem to like it. It really is quite convenient. Either way, most of these complaints seem like the ones that either consumers should be making... or that local regulators should be making. I don't see how the taxi companies have any standing on most of the issues -- with the one about the implied "partnerships" being a possible exception.

Of course, on that point about users having standing... in an amazing coincidence... some Uber users have also picked the same week to file a class action lawsuit against Uber in Chicago, claiming that its charges are "deceptive." Of course, the actual fees are not, in fact, deceptive. They're very clearly laid out on Uber's site. So, instead, the lawsuit claims that the deceptive bit is that they add a 20% gratuity (again, clearly disclosed on the site) but that the driver only gets half of that gratuity.

They're arguing that this is really charging higher metered rates. But given that what the user pays is all completely disclosed, I'm still at a loss as to what the problem is. The user isn't deceived about the rates they pay. They're quite clear. Given the timing of the two lawsuits, it certainly feels like the cab companies may have helped "set up" users to complain.

In the end, the whole thing is unfortunate, and yet another sign of legacy industries unwilling to compete in the market. Uber offers a decent product. The price is high, and some people are willing to pay that price. If cab companies competed effectively (and they already have the price advantage), then there wouldn't be a problem. But, Uber's discovered that people like to pay for convenience and these cab companies apparently aren't well set up to deal with that. Rather than adapt, they're suing.

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Disruption Starts With A Foot In The Door: Amazon's New Data Plan Is Limited But Potentially Revolutionary

Mike Masnick — Thu, 6 Sep 2012 13:13:00 PDT

Amazon announced a ton of new ereader/tablet devices this morning, which is being covered to death on the various gadget blogs out there. While some of the devices look interesting (and could put some pricing pressure on other tablets), what caught my eye was the addition of a 4G LTE mobile data plan on the Kindle Fire HD. It's $49.99 for the year, though it's limited to just 250MB per month -- which is tiny. Amazon has included mobile data before in its Kindles, but those were strictly for books (which don't take up that much data). As they go further into the fully functional tablet world, this starts to become more interesting. That's because mobile data continues to be something of a racket, with just a few national providers: Verizon, AT&T, T-Mobile and Sprint (and there are limitations there). The pricing offered by those guys always seems to border on collusion (amazing how closely they track each other's pricing changes) and is always focused on keeping the prices very high.

Amazon's offer here is a way to tiptoe into that pool with something of an alternative. Yes, they're just piggybacking on someone else's network via some sort of MVNO (mobile virtual network operator) agreement, so you're still really using one of the national carriers' networks. But from a consumer standpoint, it is offering something of an alternative for mobile data, at much more reasonable prices (though, obviously, the super low caps match that super low pricing). That, alone, doesn't revolutionize mobile data pricing, but it does seem like a way for Amazon to get its foot in the door and expand over time. Amazon has a long history of figuring out ways to do things in a consumer-friendly manner, even if it means undercutting others to do so (which has made it a few enemies). In the presentation itself, Jeff Bezos noted that they're focused on making money elsewhere -- basically as people buy things via the device -- and thus the company has tremendous incentive to keep the prices of the devices and the service quite low. And that has the potential to be quite disruptive.

In some ways, I look at it as similar (in a very different context) to Google's fiber effort in Kansas City. In both cases, you have companies sort of dipping their toes in the water of ancillary markets that make their primary markets more valuable. They're very limited at this time, and many people may brush them off as being useless. But that's what always happens with The Innovator's Dilemma. Offer something simple and small, and the legacy players brush it off as too small or too limited to matter. But keep improving on that, and you undercut legacy providers without them fully realizing what's happening -- often because you're using your tiny and "weak" efforts there to actually enhance your primary market, where the traditional players have no presence.

Lots of people are reasonably mocking the 250MB limit. It is kinda useless. But, look at it as a wedge, and the beginning of the climb up the innovation slope, making Amazon's core business more valuable... and things could actually get quite interesting.

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Google Fiber Is Official; Free Broadband Up To 5 Mbps, Or Pay For Symmetrical 1 Gbps

Mike Masnick — Thu, 26 Jul 2012 15:27:57 PDT

Google officially announced the details of its fiber service in Kansas City today. If you don't remember, after doing a nationwide search, Google chose Kansas City (both the Kansas and the Missouri ones) as a sort of testbed. For years, we've pointed out that the real problem in broadband is the lack of competition. It's that lack of competition that leads companies like Verizon to stop investing in fiber networks, and companies like Comcast to only offer serious broadband where its competing with fiber. Competition is the key, and sadly, it's lacking in most places.

The Google setup was intriguing in that it was a true new entrant in the market, and one that seemed to acknowledge that what was most important wasn't appeasing the short term thinking on Wall Street that pushes against faster speeds and more innovation (too expensive!). Instead, it was going to see what it could do to increase speeds and decrease limits -- and now we've seen a glimpse of what that looks like with the official details -- many of which probably have the traditional broadband players quite annoyed.

First up, there's an oddity: to actually do the last bits of the buildout, Google is asking residents to sign up, and the neighborhoods with the greatest interest will get the finished buildout first (which makes sense). Then there are two bits that are somewhat disruptive: first, you can get broadband for free, if you take the package that gives you speeds up to 5 Mbps. That may not seem that high, but as Google points out, that's about the average speed out there (and, frankly, it's more than twice the speed of the broadband I get at my house, smack dab in the middle of Silicon Valley). You do have to pay for the installation, which is $300 (either upfront or in twelve monthly installments at $25). Then it's free service for at least the next seven years.

The second disruptive bit is that the full 1 Gbps offering only costs $70 per month (or $120 per month if you include TV) -- way lower than most competing offerings -- and the 1 Gbps is symmetrical meaning upstream and downstream. Broadband providers have long assumed that people are content consumers more than they are content creators, and thus they stressed the downstream bandwidth, while limiting upstream. Google seems to be making the bet that people can make use of that bandwidth in the other direction as well, and that should be quite interesting to see.

In some ways, this reminds me (a bit) of when Google launched Gmail and offered everyone 1 gig of storage. At the time, most competing services were in the range of 10 megs of storage before you had to pay. Google basically changed that market overnight -- so much so that many people thought it was an April Fools joke (it was launched on April 1). That won't happen here, obviously, because the service is just limited to Kansas City, but it still is setting the bar for what's possible.

There is one serious disappointment here, however. When Google announced this project, it had promised that it would allow competing services on its network. As we wrote about at the time, a Google VP said:

"We (sic) definitely inviting the Comcasts, the AT&T service providers to work with us on our network, and to provide their service offering on top of our pipe -- we're definitely planning on doing that. Our general attitude has been that there's plenty of room for innovation right now in the broadband space, and it's great what the cable companies are doing, upgrading to DOCSIS 3.0, but no one company has a monopoly on innovation. We're looking for other service providers to be able to come in and offer their service on top of our network so that residents have a choice when they open up their accounts. They get the connection from us, and then they have a choice as to who they subscribe to."

A few months ago there were some rumors making the rounds that Google had moved away from this plan -- and there was no mention of it in today's announcement at all. That doesn't mean Google won't eventually go there -- and it's possible that no other service provider wanted to "legitimize" Google's service this way, but it definitely would be nicer if Google also used this testbed to prove that there's value in competition at the service level, rather than just at the infrastructure level.

Either way, people living in Kansas City should be pretty damn happy right now...

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Pirate Party ALMOST Ejected From Festival For Giving Out Free Waffles After Vendors Selling Waffles Complained (Updated)

Mike Masnick — Tue, 24 Jul 2012 05:02:10 PDT

Update: Correcting this post as I misread how the situation ended, in which they were allowed to stay after they were almost ejected. I apologize for that wholeheartedly. The "tweets" in the middle were a little confusing and I read them to mean that they had been removed, but as many people in the comments pointed out that was incorrect. I'm sorry for the error, and, as always, strive to fix any such mistakes as quickly as possible.

One of the key things that we find in story after story around here is that those who have a particular business model seem to think that any disruption of that business model must be illegal (or, worse, immoral). Sometimes instances of this come from strange places. For example, the Swedish Young Pirates officially set up shop at a local municipal festival, where they had permission to make food and give it to attendees. They started making waffles and giving them away for free. What they didn't realize was that others at the festival were trying to sell waffles, and they complained. The end result? Almost bye bye, young pirates (see update above). Yes, they ~~got~~ were almost evicted from the festival not for breaking any rules -- but for annoying the existing waffle-sellers by disrupting their business models. Thankfully, they called the police, and were allowed to stay after first having to stop making waffles while everything was sorted out. It is, in many ways, the same story we write about all the time, just in a different context. Disrupting someone else's business model is not a crime -- and often (as in this case) makes things better for consumers. It's just too bad so many "officials" kowtow to the legacy players and seek to shut down any and all innovation... though, sometimes, in the end, they come through and fix things.

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DC Seeks To 'Legalize' Uber... By Forcing It To Be Way More Expensive Than Cabs

Mike Masnick — Tue, 10 Jul 2012 03:03:00 PDT

If you want to understand local corruption at a really, really deep level, do something simple: fly into a new city, hop into a cab at the airport and ask them about taxi licensing. I've done this a few times, and you'd be amazed at what a ridiculous situation this is. For reasons that still do not make any sense, most cities have very strict regulations on cabs -- which they always position as being for the protection of customers, but in reality are always about limiting the market and keeping competition out. Planet Money's discussion of NYC cab medallions last year highlighted just what a ridiculous system this is. It's almost impossible to find an economist who thinks this setup is good for the public. And yet it's quite common.

Over the last few years, a few startups have tried to disrupt this market -- and they always get attacked for it, either by local cab/limo services or the local officials in charge of regulating the market. The most well known of these companies is Uber, who is looking to really disrupt the market with a service that they admit is more expensive, but which provides really amazing convenience and service in exchange. Users of Uber love the service, in my experience. A couple weeks ago, I was in Chicago to speak at a conference, and Uber's CEO, Travis Kalanick, spoke at the same event, with a really entertaining talk -- much of it about how every time he tries to disrupt a market, legacy players get really, really pissed off at him.

As part of that talk, he discussed the situation in Washington DC, where the local Taxicab Commission Chairman, Ron Linton, ran a "sting" to claim that Uber was violating DC laws. Since then there's been a lot of back and forth in the fight in DC, leading to a new set of regulations that are being introduced. Of course, as is typical of taxi/limo regulations, they often say one thing but mean the exact opposite. In this case, the Taxicab Commission appears to be positioning the new regulations as being designed to make Uber "legal,", but, as Uber's Kalanick notes in a blog post, it includes some really poisonous provisions that require Uber to charge at least 5 times what a taxi charges. They're not even subtle about this. As the text of the bill reads:

(c) (1) The minimum fare for sedan-class vehicles shall be five times the drop rate for taxicabs, as established by 31 DCMR § 801.3 (a).

(2) The time and distance rates for sedan-class vehicles shall be greater than the time and distance rates for taxicabs, as established by as established by 31 DCMR § 801.3 (b) and (c).

The DC Taxicab Commission claims this is to "ensure that sedan service is a premium class of service with a substantially higher cost that does not directly compete with or undercut taxicab service." But why? We don't do this in any other market. We don't tell nice restaurants that they must charge more than fast food restaurants, so as not to compete. We don't tell Apple that it must charge more for computers so that they're seen as "premium" devices. We let the market work things out. That's what enables disruptive innovation and competition to take place.

What's amazing here (and, to a lesser extent, in nearly every major city in the US) is how they effectively admit that they don't want competition, they don't want innovation. They want a protected market that is artificially inflated. Why would the people of DC accept this kind of thing?

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Every Successful New Technology Has Created Panic From Those It Disrupts

Mike Masnick — Fri, 22 Jun 2012 17:35:00 PDT

Jeffrey Tucker has an all around fantastic essay on capitalists who fear change -- discussing how companies and industries in an otherwise capitalist/free market society freak out when they face competition from disruptive innovation. They go to amazing lengths to claim that it's not real competition or innovation they face, but something that must be illegal, immoral, unethical or the death of all things good and holy. The technopanics set in with alarming frequency, and in the end, they are always wrong. The end result ends up being bigger and better than ever before, even if some of those legacy players don't make it through. Tucker tells the story wonderfully:

Through our long history of improvement, every upgrade and every shift from old to new inspired panic. The biggest panic typically comes from the producers themselves who resent the way the market process destabilizes their business model.

It was said that the radio would end live performance. No one would learn music anymore. Everything would be performed one time, and recorded for all time, and that would be the end.

Of course that didn’t happen. Then there was another panic when records came out, on the belief that this would destroy radio. Then tapes were next and everyone predicted doom for recorded music since music could be so easily duplicated (“Home Taping is Killing Music”). It was the same with digital music: surely this would be the death of all music!

And think back to the mass ownership of books in the 19th century. Many people predicted that these would destroy new authors because people would just buy books by old authors that were cheap and affordable. New authors would starve and no one would write anymore.

There is a pattern here. Every new technology that becomes profitable causes people to scream about the plight of existing producers. Then it turns out over time that the sector itself thrives as never before but in ways that no one really expected.

Tucker includes other examples, but then explains the reality of innovation and profits. Profits are a temporary thing: because copycats do come along. But that's a good thing, because it forces greater innovation, as others seek to collect profits. You profit by being unique and different, and you encourage that to continue by letting others copy. That leads to more incentives to keep innovating and keeping make the world a better place. But, of course, that's hard, and companies want to keep their profits. So they move away from free market capitalism, towards crony capitalism:

This is why business is always running to government for protection. Kill this crazy new technology! Stop these imports! Raise the costs on the competition! Give us a patent so that we can clobber the other guys! Impose antitrust law! Protect me with a copyright! Regulate the newcomers out of existence! Give us a bailout!

And, of course, the public often accepts the moral panic story. Hell, I'd bet that even the companies making those claims -- completely out of self-interest -- believe the horrible things they're predicting from these new technologies. Jack Valenti was being sincere when he thought the VCR would destroy Hollywood. He was wrong. They're always wrong.

Here is a striking fact about the human mind: we have great difficulty imagining solutions that have yet to present themselves. It doesn’t matter how often the market resolves seemingly intractable problems, we still can’t become accustomed to this reality. Our minds think in terms of existing conditions, and then we predict all kinds of doom. We too often fail to consistently expect the unexpected.

This poses a serious problem for the market economy, which is all about the ability of the system to inspire discovery of new ideas and new solutions to prevailing the problems. The problems posed by change are obvious enough; but the solutions are “crowd sourced” and emerge from places, people, and institutions that cannot be seen in advance.

Capitalism is not for wimps who don’t want to improve. If you want guaranteed profits for the few rather than prosperity and abundance for the many, socialism and fascism really are better systems.

The full piece is absolutely worth reading.

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Disruptive Innovation Is Not An Orderly Process

Mike Masnick — Mon, 18 Jun 2012 15:02:00 PDT

Brian Kahin, over at Project DisCo has a good post that goes over the basics of disruptive innovation, covering the innovator's dilemma -- and why it's rarely big companies who are able to truly innovate. But the bigger issue is how much people judge innovation by the incremental look at how things have been done before, not how the new thing totally shakes up and disrupts the market.

Disruption makes big demands now – in terms of learning and immediate costs – while offering only speculative benefits in the long term. Large companies with successful business models and dominant positions are especially wary of cannibalizing existing revenue streams – the cash cows that insulate them from the extremes of market competition. At a behavioral level, this inertia is compounded by the “endowment effect,” the demonstrated human tendency to overvalue what you already own.

All too often we hear companies, industry reps or politicians insist that it's crazy to think that Legacy Industry X must change and adapt to new market conditions until someone shows them how to make as much money as they were making in the past. There's just one problem: if you wait until that answer is clear, you're too late. The disruption has already won. Disruptive innovation is disruptive because it takes the legacy industries by surprise. It's disruptive because it happens in a way where the path isn't clear to the legacy players.

And it happens both more slowly and more quickly than most observers acknowledge.

It happens "more slowly," because there are always ways to paint that initial innovation as being "worse" than what exists today, and thus something not worth paying attention to. This is a key point in Clayton Christensen's Innovator's Dilemma. The disruptive innovation is dismissed because based on the old objective measures, it almost always appears demonstrably "worse" than existing offerings. And it does take some time to "catch up." So when these things first appear, they're dismissed as being too little/slow/ineffective/etc. for the market at hand.

But what people miss is how the rate of change happens much more quickly -- and the advancement comes at a surprising pace and/or in surprising ways. Usually the rate of advance is on metrics that the legacy industry never thought were that important, and thus they totally miss it when customers start shifting in droves, because it just doesn't make sense.

Unfortunately, however, one of the true killers of disruptive innovation is the political process. If it were just true that legacy companies totally missed the boat and disruptive innovators did their disruption and killed off those dinosaurs, that would be one thing. But that ignores the political process:

Large companies have the resources and accumulated expertise to influence policymakers and regulators against disruption of their business models. They have many arguments in their arsenal: preserving jobs, justifying past investments, incentivizing investments that they might make in the future, subsidies to politically important constituencies, supply chains dependent on the status quo, etc. By contrast, disruptive innovation doesn’t have much of a presence in Washington. Existing innovators are too busy. Future innovators don’t exist yet.

Yet even if policymakers are sensitized to the fact that disruptive innovation has few friends and many opponents, that information is difficult to operationalize. Future innovation is hard to predict, and advocates within government probably won’t be around long enough to take credit for it. Instead, innovation policy is framed in terms of past success. Thus, a linear or “pipeline” model of innovation in particular still dominates despite much criticism, academic and otherwise. The linear model explains innovation in an intuitively simple way and serves well-established interests along the way. Research goes in the front end, investments in commercialization are secured by patent, and new products emerge from the pipe. It suggests a simple policy agenda: ”More of the same.”

But that's not the way disruption actually works. Nor has it ever worked that way. But nearly all of the policy that comes out of the government acts as if this is the case.

Disruptive innovation is not an orderly process. It sneaks up on companies, and if they wait too long, it will bite them. But, at the same time, bad policies can lead to massive unintended consequences that don't necessarily stop the innovation from happening, but pervert it so that it is less useful or efficient or (most likely) that it simply happens somewhere else, leaving our own economy behind.

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Does 'The Future' Need Lobbyists Too?

Mike Masnick — Fri, 8 Jun 2012 17:31:00 PDT

Back in April, I wrote about the Hack Society meeting at Union Square Ventures, where Rep. Jim Cooper provided a great quote:

"The past, in general, is over-represented in Washington. The future has no lobbyists."

That is, indeed, a problem to some extent. Of course, that then leads to a debate about what to do about that if you believe in the importance of disruptive innovation, and fear incumbents holding it back. The answer is not necessarily to "hire lobbyists" and play the same game -- because that's simply not a winnable war. The real answer is change the way things are done. There are a growing number of groups trying to do that, and while some may accuse them of just being "more lobbyists" at first, that severely underestimates what they're actually setting out to accomplish. GigaOm has a nice summary piece on a few of the groups who are seeking to have "the future" better represented in policy discussions.

It kicks off with a brand new think tank, put together by CCIA, called the Disruptive Competition Project -- or Project DisCo for short. Its focus is to highlight the importance of disruptive competition. This is a big deal, since legacy players almost always seek to position disruptive competition as doing something "illegal," when the truth is merely that they're disrupting the business models of those legacy players. This is a brand new effort, but with some great minds involved, so I'm excited to see where it goes.

Then they discuss Engine, a group that (full disclosure) I helped put together initially, and remain on their steering committee/advisory board. Engine is really about a two way conduit for education and information exchange between policy makers and the startup ecosystem. Too often we've heard that entrepreneurs just ignore policy makers (and equally from policy makers that they never hear from startups). This is often because the entrepreneurs are so focused on getting stuff done and just want government to get out of the way. But ignoring the government is no answer -- it's how we get bad policies that favor incumbent players and stifle innovation. Engine is seeking to change that not by lobbying in the traditional sense, but by opening up channels of communication, and presenting a real data-driven approach to things. Oh, and if you're a startup entrepreneur, you should become a member -- it's free and it'll help make sure your voice is heard in policy debates.

Next up, we've got the Internet Defense League, in which (again, full disclosure) Techdirt is a member. This was put together by the folks at Fight For the Future -- who were instrumental in the anti-SOPA/PIPA fight, recognizing that it would be good to have a bunch of websites ready to respond to existential threats against the internet. With SOPA/PIPA the threat was so large and so clear that they were able to get a bunch of websites to sign on for things like the "Call Congress" day in November and the big anti-SOPA blackout in January. The goal of the IDL is to leverage that effort into having sites prepared to respond when other big threats come along, rather than having to cobble together a new coalition of sites every time.

The final piece listed is TestPAC, Please Ignore, the PAC that was built out of the Reddit community, though isn't associated with Reddit the company. While this is an interesting attempt to play the "traditional" game with an internet twist, I'm not convinced that playing the game this way is ultimately going to succeed. In the end, we know that the incumbents are almost always going to play the PAC game better than the upstarts. I'm glad that these guys are trying, but I'm much more interested in the efforts that are seeking to really change the game, not just be a new player in the old game.

Either way, it's good to see that more people are thinking about this, and it's not over yet. I'm aware of at least three other efforts to really try to change the game in politics and policy to make sure that "the future is represented." Any one -- or even all -- of these may fail completely. But I'm encouraged to see multiple groups trying to get involved, and recognizing that ignoring policy is no longer an option.

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Duh: The TV Business Is On The Verge Of Collapse

Mike Masnick — Tue, 5 Jun 2012 07:02:00 PDT

We've been noting for quite some time that the old TV economic model is unsustainable -- and pretty much the only argument we've seen in favor of TV as it works today is that for now it still makes a ton of money. But that's a reason why the TV guys like it -- not a reason for the public to continue to embrace it. In fact, with cable/satellite TV costing so much these days just to feed those economics, more and more people are seeking alternatives. The Hollywood guys remain in complete denial about this, insisting that when people "grow up" they suddenly decide to pay tons of money for TV.

But that's increasingly not the case, and it's not difficult at all to predict that TV is facing a pretty big crisis, which could lead to a pretty rapid decimation of the business. At that link, Henry Blodget makes the right comparison: to the newspapers. They denied there was any real problem with their business for ages -- and were shocked at how quickly the market changed.

This is a point that we've raised for over a decade concerning businesses going through disruption. The standard refrain when the disruption comes along is to insist that it's no threat at all. After all, it's "crappy" compared to the established player. But then things get better, and it starts eating into market share -- and we're told that it's just a temporary thing, or a "cyclical" market. At some point, the blame game starts ramping up -- and we're told that "piracy" or stupid execs giving things away for free are to blame. And then there's my favorite: execs in the legacy industry demanding that they can't change until someone tells them how to make the same amount of money and spend the same amount of money as before. But that's not how disruption works. While it almost always creates larger markets, it does so by changing the game and having that money pop up somewhere else -- somewhere that's difficult for the legacy players to capture without being true visionaries (which they almost never are). And that change happens really, really fast. So when you see legacy execs demanding to know how they can make what they used to make -- as Ari Emanuel recently did concerning television -- it's a key sign that the legacy business is about to collapse, and its main players have no idea.

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Hollywood Super Agent Ari Emanuel Mystified That Google Doesn't Just Invent A Magic Stop Piracy Button

Mike Masnick — Thu, 31 May 2012 08:18:00 PDT

Famed Hollywood super agent Ari Emanuel (the model for Jeremy Piven's character in Entourage, and the brother of Chicago mayor/former Obama chief of staff Rahm Emanuel) doesn't have a particularly good history when it comes to his understanding of how technology and policy will develop. Two years ago, he insisted that he was talking to President Obama about getting a three strikes law in place in the US. Last year, of course, he was excited about new laws like SOPA/PIPA. That was at the AllThingsD conference, in which he chided a reporter at one point by saying that the reporter needs a history lesson and "the business of the movie business is DVDs."

This year, at the very same conference, he's changed his tune, but not his attitude or ignorance of technology. This year, he told the crowd that "the DVD business is gone" and everything was about TV, TV, TV. Except, once again, he appears to be ignorant or (more likely) in complete denial:

Emanuel: Cord-cutting's not happening.

Walt: But cord-never is happening.

Emanuel: I don’t think so. I think when people get to a certain age, they pay. Somebody’s got to pay for this, or you’re not going to get premium content, and I think that’s more valuable than "two dogs doing whatever they’re doing on a couch."

Some of this appears to be just plain old wishful thinking and some of it is ignorance. The actual numbers show that cord cutting is very, very real. Also, I'm getting pretty sick of the condescending ridiculousness where people insist that either we stick with the old model or all we have left are amateur animal videos (usually cat videos, but Ari went to the dogs). That's not just elitist. It's wrong. There's plenty of quality content that get produced outside of the traditional model, and the amount is growing. And, of course, the "somebody's got to pay for this" argument is a complete tangent. First of all, no, no one has to pay for anything, but more importantly, there are all sorts of interesting business models developing that don't require people paying for a jacked up cable subscription. Second, just because you want someone "to pay" for the content which pays your hefty salary, that has absolutely nothing to do with the reality of cord cutting. It's like the CEO of a horse buggy manufacturer insisting that no one's buying automobiles because "someone's got to pay" for all those horse buggies.

A little tidbit from history: it was the guy who left the horse & buggy business and went on to found both GM and Chevrolet (despite being fearful of those "dangerous" machines) who ended up being successful. Not the guys who clung to selling horse and buggies.

Emanuel pays some lip service to technology innovation (he even seems to like the idea of crowdfunding), and talks about how involved he is in digital projects. But he still comes at it from the perspective of "how can these new technologies protect my old way of doing business?" And there, apparently, every problem is Google's fault, because they haven't created the magic "stop piracy" button. He repeatedly mentioned Google, and how they had to "stop helping people steal my clients' content." When asked how, he admitted he has no idea. When asked if he wants them to censor search results, he responded:

I don’t want them to censor results, but they have a bunch of smart guys there that can figure this stuff out.

You see? Magic "stop piracy" button.

Josh Topolsky, from The Verge, apparently challenged him on this point, asking: "Aren’t you saying that the road is responsible for the fact that someone drove on it before they robbed my house?" Emanuel didn't like this analogy:

That’s a stupid example. Look, Google can filter and does filter for child pornography. They do that already. So stealing is a bad thing, and child pornography is a bad thing.

Of course, this once again displays his ignorance. Child porn is easily identifiable by anyone who sees it. There is no "legal" child porn. There is no "authorized" child porn. There is no "fair use" child porn. There is no condition under which that content is legal and there are no legal questions to be answered in filtering it. Copyright is entirely different. You can't just "know" if the content is infringing. As we saw in the Viacom case, companies upload authorized stuff all the time, and it's often impossible to distinguish from unauthorized content. Separately, you can't create an algorithm that detects fair use. Or the public domain. Point being: it's not that easy and it's silly to claim otherwise.

Emanuel, like many people, also seems to have a blindness for how the situation he's in is no different than the situation others have faced. He talks about how the music industry should have embraced Napster when it came along -- but when he's asked about embracing similar platforms for TV, he immediately says that's ridiculous, because "these things cost lots of money." Again, we're in "wishful thinking" land, where because the producers of content do little to keep down costs, old and obsolete business models must stay in place, and new and innovative platforms must be censored.

The comment that really sums up his worldview is when he's asked about changing market behavior, whereby people mutlitask while watching TV. He says:

“I’m okay with a little bit of disruption, and let’s see what happens. I dunno. I’m good with it.”

This is the common viewpoint of the legacy player about to be disrupted in a big, bad way. They always insist that they're okay with disruption -- but in moderation. There are two really funny things about this quote. The first is the idea that disruption comes in bite-sized increments. That's not how it works. Disruption comes in massive waves that are unstoppable. And that leads to the second funny thing: he seems to think that his opinion on disruption and whether or not he's "good with it" matters to whether or not it will actually happen.

The disruption is already underway. And, for now, it looks like Emanuel's still hanging on to his cash-cow horse buggy business, while insisting that the road pavers really need to "do something" about those dangerous "automobile" things.

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Jimmy Wales Says Irrelevance, Not Piracy, Will Doom Hollywood

Mike Masnick — Wed, 25 Apr 2012 09:12:00 PDT

Jimmy Wales, who has become a bit of a thorn in the side of Hollywood of late, has given a speech in which he predicts that Hollywood is doomed, but not because of any threat from "piracy," but from the fact that technology and innovation means that the old infrastructure that filmmakers used to require is going away. As Ryan Singel at Wired reports, Wales' talk at the Internet Society's recent gathering let him predict that disruption was coming from the bottom up:

“Hollywood will be destroyed and no one will notice,” Wales said. But it won’t be Wikipedia (or Encarta) that kills the moviemaking industry: ”Collaborative storytelling and filmmaking will do to Hollywood what Wikipedia did to Encyclopedia Britannica,” he said.

Wales hedged by saying predictions are easy — and he’s usually wrong. But he looks at a generation of kids growing up in a world of video and mastering editing software at a young age. His own 12-year-old daughter, Wales said, is already adept at iMovie and won a local award for a short film she made.

And just as Wikipedia has show that collaboration on the web is possible (despite the messiness, flame wars and turf battles found on Wikipedia Talk pages), the new generation will find ways to collaborate online to create movies to entertain themselves and their friends.

And, Wales says, they’ll do that with impressive special effects, CGI and even remote actors.

Of course, we've been seeing this trend already growing at the lower end of the scale for a while. For example, the power that individuals have to create amazing special effects has been documented for years, and the tools are only getting better and better. Does traditional Hollywood have even better tools? Absolutely, but this is a classic innovator's dilemma situation, where the tools at the low end are getting better at a faster rate, and they're reaching the "good enough" point pretty quickly -- such that the value of spending many many millions extra on special effects doesn't provide any significant benefit.

Add to that the growth of Kickstarter as an alternative funding platform, the growth of the internet as an alternative promotion and distribution method... and at some point the benefits of going with a traditional Hollywood studio become more difficult to quantify.

Of course, this isn't something that happens overnight, by any means. And there are some in Hollywood who appear to understand this and are working to get their studios ahead of the curve, though it's unclear if they'll be able to do that successfully. Either way, the point that Wales makes is a pertinent one. Instead of worrying so much about online infringement -- the studios might want to spend a little more time figuring out how they can remain relevant.

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Hearing Aids, Monopolies, And Why The Health Industry Is Ripe For Disruption

Leigh Beadon — Mon, 16 Apr 2012 05:10:00 PDT

Recently, we saw a huge reaction to the story of how a patent lawsuit was threatening to silence a little girl by shutting down a speech-assistance iPad app that is her only means of communication. For many people, the focus of that story was the human cost of patent warfare—a valid and important topic to be sure. But the story also points to another, larger issue that is bound to get more attention in our increasingly entrepreneurial culture: the health and wellness industry is in serious need of disruptive innovation.

TechCrunch has a post looking at another area that is very similar to speech assistance devices: hearing aids. The market for these devices is old and stale, dominated by a few key players who have cushy exclusive deals with doctors that allow them to charge exorbitant prices (averaging around $3000), but a year-old startup called Embrace Hearing is beginning to shake things up by selling $300+ hearing aids directly to consumers. They discovered that 75% of Americans who qualify for hearing devices don't actually use one, and the number one cited reason is high price. But they also know that those high prices are mostly artificial:

Audiologists (health care professionals who specialize in hearing, and the loss thereof) control the majority of sales in the U.S. market. While these specialists provide essential services, they use the sale of hearing aids to their own gain, often charging markups of three to five times — because they can.

Not only that, but the clever business people they are, they bundle re-fittings and follow-up visits into the cost, generally using this as the explanation for why hearing aids cost so much. The Embrace co-founders say that the reality of the situation, however, is that only 20 percent of customers make five or more visits to audiologists in the year after being fitted for the device. For those who fall into that category, the insurance and other benefits might make sense, but for most it doesn’t.

That, my friends, is what you call a market opportunity. Interestingly, the TechCrunch post doesn't discuss patents, instead focusing on other factors that have limited the market: the aforementioned exclusive deals with doctors, the lack of entrepreneurial presence since hearing aids aren't a "sexy" product, and the fact that many people are uncomfortable bypassing a healthcare professional when purchasing something like this. Embrace Hearing is turning all these problems into opportunities: they work with a new manufacturer who has no exclusive deals, they are trying to make hearing aids sexy (social stigma is the #2 reason people who need them choose not to buy them), and they are working on an online tool for testing your hearing.

I do wonder, though, if they will face patent problems in the future. Their German manufacturer is presumably operating in good faith, but that's never stopped a good patent showdown before, since aggressive companies like to use their patent portfolios as a way to control the market and crush competitors, regardless of how valid those patents are or whether any genuine infringement is taking place. If Embrace Hearing grows and is perceived by the incumbents as a threat, it's quite likely that they or their manufacturer will face litigation. Of course, all this just tells you they are on the right track: when the kings of a particular market defend their thrones through exclusive deals, patents and other monopoly protections—rather than by actually competing—it's a surefire sign that the market is underserved. And where there's an underserved market, entrepreneurs will eventually move in to capitalize on it. When that happens, existing monopoly protections can only delay the inevitable, but they can cause very real harm by doing so—and in an industry that effects the quality of life of millions of people, the public backlash against these monopolies can be huge. Any company that operates in the health and wellness space by selling at huge markups and relying on exclusivity would be wise to start thinking about their future in the long-term: if they don't meet the demands of the market, someone else will.

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How Disruption Works: Job Loss Isn't Really Job Loss

Mike Masnick — Fri, 6 Apr 2012 07:30:00 PDT

One of the key points in understanding how disruption works is to recognize that as old industries fail, new industries grow up to take their place. For a true free market to work, failure has to be not just accepted, but embraced. Tragically, in the crony capitalist system we have today, large incumbents go running to the government as soon as they're disrupted, whining about how the disruption is not the normal workings of disruptive innovation, but rather "the end of the world" and a sign of clear evil. It's why you hear talk of "too big to fail" and all sorts of efforts to paint new innovations as illegal, rather than just disruptive competition. Yet, as we've seen over time, disruptive innovation may move jobs around and cause certain sectors to diminish, but it tends to open just as many, if not more, opportunities elsewhere over time. I don't think I've ever seen that displayed quite as clearly in graphic form as in a chart that LinkedIn recently released, looking at what parts of the industry have been growing and which parts have been shrinking over the past few years: This chart caught the attention of Paul Smalera, who specifically noted that newspapers are at the very bottom, but online publishing is right near the top on the growth side -- a near perfect showing of how jobs shift over time. He notes the classic Innovator's Dilemma issue with news companies, where they thought they were in the business of selling newspapers, and that held back their ability to innovate:

They have been trapped in a terrible mindset that they are in the business of selling newspapers. The leap from paper to digital may be vast, but to newspaper publishers, it seemed like vaulting to a different business entirely, one they were loathe to get into. No matter what kind of lip service newspapers paid to the digital transformation, the most prominent paywall model out there, that of the New York Times, still protects print subscriptions with a tiered digital pricing strategy – one so annoying that it motivated its former digital design director to complain publicly about the entire signup process.

The lesson online media companies have taken from newspapers’ slow, public death is to move beyond the idea of selling the product. Online sites are selling their audience. It’s a simple twist of the equation, but one that changes everything about how a media company is run. A CEO who has realized that her audience – her customers – is the most important thing the company has will stop at nothing to give those customers what they want. Anything to make them feel as if they’re getting value from the company. And although she’ll monetize their aggregate value with advertisers and marketers, she’ll also protect them from underhanded sales pitches or confusing pricing strategies that infuriate the web-savvy.

This is a really good point on multiple levels. Beyond the innovator's dilemma (and the key point of figuring out what the real product is), Smalera is also debunking one of the popular myths of the internet era: when you're selling a user's attention, companies will naturally abuse their users. What he notes is that companies that do this don't end up lasting through the long haul, because users get annoyed and go elsewhere. Even though it's become a common pejorative statement among neo-luddites to mock the idea that the "users is the product," one thing that is true when that happens is that the companies need to treat their users right, or they have a crappy product that they can't sell.

Similarly, Mathew Ingram uses this to discuss why it's so difficult for legacy businesses to adapt, noting that it's difficult to change business models on the fly. Not only do you have to make big bets on new things, but you also have to keep the legacy business running while at the same time trying to undercut it with the new thing. It's why so many companies fail the innovator's dilemma test. Unless you have incredibly visionary leadership who can push a company through with a strong and clear vision of why the company must move in that direction, the magnetic appeal of trying to prop up increasingly obsolete businesses is just too strong.

But, the failure comes not because of some new "threat" or because of some kind of disgraceful activity (no matter how much legacy players try to describe it that way), but because corporate leadership chose to let others innovate, rather than supporting a plan of out-innovating themselves. Very, very few companies are willing to cannibalize their own business models -- but the failure to do that just means that someone else cannibalizes it for you.

And it goes way beyond news. The chart above shows some other key areas of disruption as well. That clump of retail, automotive, construction, banking, telecommunications, pharmaceuticals and real estate represents prime feeding ground for the next decade of disruption -- much of which has already started. You don't necessarily see the corresponding growth points on the opposite side of the chart, but as with newspapers and online publishing, give it a few years, and those new jobs and industries will make their way up the chart, as the legacy players continue to shrivel up (and whine all the way down).

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Polish Government Funding 'Full Set Of Educational Materials' Available Under CC-BY

Glyn Moody — Thu, 5 Apr 2012 03:31:00 PDT

One of the fields that is ripe for disruption by open digital technologies and business models based on abundance is education. That's already starting to happening with growing successes in the areas of open access and free textbooks. Now here's a major win for open educational resources in Poland (via Slashdot):

Polish Prime Minister Office yesterday accepted "Digital School program" with "Digital Textbooks" component included. With 45 million PLN (approx. 15 million USD) funding it has been the biggest governmental Open Educational Resources initiative in Poland so far. The government has decided to fund creating full set of educational materials for grades 4-6 (9-11 year olds). All those resources will be available under CC BY license, which is fully free license according to the Definition of Free Cultural Works.

It sounds like the use of that cc-by license was a close thing: This draft [of the Digital School program] was accepted by Ministry of Education, but at a later stage of preparations the free licensing requirement was left out. Both Open Education Coalition and Modern Poland Foundation took part in the public consultation process; their comments in support of free licensing were taken on board in the very last minute.
Without that free license, this would have been just another scheme to produce government-funded educational materials. But with the license, those resources can take on a life of their own through re-use, improvement and wide-ranging adaptations. And once teachers, parents and students begin to see what can be done with freely-licensed educational materials that is hard or impossible to match with traditional licensing, the demand for them is likely to grow.

This makes the last-minute acceptance by the Polish government that the materials would be released under the cc-by license, after some apparent reluctance, doubly welcome, since it may well help to trigger the production of further open educational resources both within and beyond Poland.

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Disrupting the Disruptors: Peer-to-Peer Car Sharing Service Launches Nationally

Leigh Beadon — Tue, 6 Mar 2012 20:06:25 PST

One of the points we often try to make at Techdirt is that the effects of disruptive technologies are going to be felt far beyond the entertainment and publishing industries—they are not limited to the online world. The internet creates abundance of information, but it also creates a push towards decentralization in all things, and that's one of the big ways it intersects with the physical: although you can't download a car, you can create whole new systems for buying, selling, renting, reviewing and maintaining cars, and those systems will replace established but less-efficient ones.

Nobody is immune—not even the last disruptor. Companies like Zipcar changed the game with their car-sharing services, but they are already facing new challengers. RelayRides, launching nationally this week, has a model that takes things one step further:

While those companies own fleets of cars, RelayRides is entirely peer-to-peer — if you have a car, then you can make it available for rental when you're not using it. RelayRides says the average car owner makes $250 a month from the program.

Since it takes advantage of the cars already on the road, founder and chief community officer Shelby Clark argues that peer-to-peer carsharing can have a big impact—after all, a fleet-based company couldn't simply declare one day that it's launching nationally.

That's especially true in non-urban areas. For example, Zipcar doesn't have any cars available in the Los Angeles suburb where I grew up, and it's hard to imagine that establishing a fleet there would make economic sense anytime soon.

How big and how successful this approach will become remains to be seen, but it's a creative idea that makes a clear point: disruption can happen anywhere, to anyone. As the entertainment industry continues to fight progress, experts from every side of the debate love to make profound-sounding statements about how the internet has changed our media consumption habits, but that's old news. From mobile-based taxi & limo services to the coming era of 3D printers and things like the Pirate Bay's Physibles site, digital technologies are disrupting a lot of things, not just media. Governments and industries cannot continue getting bogged down in tiresome debates about saving obsolete business models—not if they want to have any hope of embracing the opportunities, and solving the potential problems, of a fast-approaching future.

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The Pirate Bay Press Release On SOPA: We Are The New Hollywood

Glyn Moody — Mon, 23 Jan 2012 03:40:07 PST

Given its general contempt for the repeated attempts to close it down, you wouldn't expect The Pirate Bay to be particularly worried by SOPA. But in its very own press release on the subject, it goes much further: it flings the ultimate insult at Hollywood by claiming that not only are the two of them spiritual kin, but that The Pirate Bay is the New Hollywood.

Here's why The Pirate Bay thinks Hollywood is exactly like itself:

Because of Edisons patents for the motion pictures it was close to financially impossible to create motion pictures in the North american east coast. The movie studios therefor relocated to California, and founded what we today call Hollywood. The reason was mostly because there was no patent.

There was also no copyright to speak of, so the studios could copy old stories and make movies out of them – like Fantasia, one of Disneys biggest hits ever.

So, the whole basis of this industry, that today is screaming about losing control over immaterial rights, is that they circumvented immaterial rights. They copied (or put in their terminology: "stole") other peoples creative works, without paying for it.

And here's why Pirate Bay thinks it's the New Hollywood: The reason they are always complainting about "pirates" today is simple. We've done what they did. We circumvented the rules they created and created our own. We crushed their monopoly by giving people something more efficient.
At the end of its release, The Pirate Bay admits rather drolly: Some facts (years, dates) are probably wrong in this press release. The reason is that we can't access this information when Wikipedia is blacked out. Because of pressure from our failing competitors. We're sorry for that.
In fact its potted history of Hollywood is not so far off the mark. Here's a rather more rigorously-researched description of the battle between Thomas Edison, along with his Motion Picture Patents Company (MPCC) – basically a group of suppliers that tried to enforce a monopoly over cinema equipment – and Carl Laemmle's Universal Pictures that refused to knuckle under: what ultimately did the Edison monopoly in was the assumption that its legal/technological dominance over the trade, and its moral stance, would trump the public’s demand for ever more creative motion pictures. Unlike the independents, the MPCC system did not invest in its network. Consumers would simply have to watch Edison Trust fare, the monopoly’s principals figured.

They didn’t. Instead, they flocked to Laemmle and his fellow independents' "illegal" movies, which were longer and of better quality. Even the Trust's inner circle knew this. "We… pass on pictures we know will get us nothing but unfavorable comments and cancellations," one confided. "We haven’t the power to throw out the distinctly bad pictures, nor the courage, because as poor as they are, they represent a certain sum of money invested in negative production."

Edison and his cohorts never understood that they were involved "in much more than an economic battle to determine who would control the profits of the nascent film industry," Neal Gabler writes. This was a conflict between an older generation of Anglo-Saxon Protestant inventors and a new generation of immigrants.
The parallels with today's battle between the MPAA (complete with its "moral stance") and Net-based "independents" like The Pirate Bay (with its DRM-free content), are clear. Once again, this is not just about who gets the money, it's a conflict between the "older generation" of movie companies with their "legal dominance", and the "new generation" of digital immigrants like The Pirate Bay that give the public what they want.

Call it Hollywood 2: The Sequel.

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Busta Rhymes Backs Megaupload, Says Record Labels Are The Real Criminals

Mike Masnick — Fri, 20 Jan 2012 15:44:05 PST

Well, well. As we pointed out when the Megaupload shutdown happened yesterday, the company had recently named top producer (and husband to Alicia Keys) Swizz Beatz as CEO. Swizz knows tons of artists who respect him, and it seems that some of the biggest names in the business are pretty pissed off that the US government shut down Megaupload. First there's Diddy, who put out a couple tweets pledging support and telling him to never stop.

But what's a lot more interesting are the very direct statements from Busta Rhymes, who is clearly pissed off at the US government claiming that Megaupload is a criminal operation. Putting his tweets together, he states:

1st of all I am soooo proud of my brother @THEREALSWIZZZ 4 being apart of creating something (MEGAUPLOAD) that could create the most powerful way 4 artist 2 get 90% off of every dollar despite the music being downloaded 4 free...

With labels and companies doin' deals with Spotify and many other companies like it who doesn't give us shit continue 2 do what they do and blatantly show us how much they value the artist with doing deals of such disrespect and lack of value 4 our content...

I am proud 2 stand next 2 my brother @THEREALSWIZZZ and fight the good fight...Our freedom is truly being fucked with in a very significant way and I strongly suggest 2 all artist especially the 1's Swizz repped 4 comes out & reps 4 him!!!

Fuck that I say it again...I'M PROUD OF MY BROTHER @THEREALSWIZZZ #GREATMIND!!

You can see the tweets here (full version), here (full version), here (full version) and here.

There's a key point in all of this that we missed in our earlier analysis about paid accounts at Megaupload. In the indictment, the government seems to assume that paid accounts are clearly all about illegal infringing works. But that's not always the case. In fact, plenty of big name artists -- especially in the hip hop world -- use the paid accounts to make themselves money. This is how they release tracks. You sign up for a paid account from services like Megaupload, which pay you if you get a ton of downloads. For big name artists, that's easy: of course you get a ton of downloads. So it's a great business model for artists: they get paid and their fans get music for free. Everyone wins. Oh... except for the old gatekeeper labels.

In fact, this is part of the ecosystem, especially in the hip hop world. It's why the artists also support those hip hop blogs that the RIAA insists are dens of pure thievery. The artists release their tracks to those blogs, knowing they'll get tons of downloads -- and actually get money. If they do deals with labels, they know they'll never see a dime. Putting music on Megaupload is a way to get paid. Working with a gatekeeper is not.

And yet... Megaupload is the criminal operation? Seems like the actual artists know otherwise.

What Busta is pointing out is that services like Megaupload -- while it may be run by some sketchy individuals and probably crossed the legal line in some cases -- are actually a great new business model for artists, while also being the future of distribution. It's a great way to distribute, make money, and let fans get the works for free. And that's why the major labels are so freaked out by cyberlockers. It's not because there's so much infringement on there, but because it's a system whereby artists can get paid and can better distribute their own works to fans... without signing an indentured servitude contract with a label, which never pays any royalties.

Did Megaupload break the law? Perhaps. But it seems clear that the real fear on the part of the RIAA and the major labels is not so much about that. It's the recognition that such a distribution and payment system undermines much of their reason for existing, and takes away their ability to control artists. A smart label would learn to embrace these things. But we're talking about the major labels here, and so instead, they run to the US government -- who clearly knows nothing about the way modern artists monetize and distribute music -- and lets them try to paint a picture of just how "evil" services like Megaupload are.

But the artists know better.

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The Many Killers Of The Film Industry Vol. 3: Post-Ellipsis And Beyond Television

Tim Cushing — Wed, 26 Oct 2011 14:44:27 PDT

[If you're just joining us, be sure to check out Volume 1 and Volume 2 in this series, which tells the true story of how the movie industry was killed over and over by each new advancement in eyeball-oriented entertainment. Volume 3 is the exciting followup to the breathtaking "..." that ended Volume 2. What lies beyond? Words. A lot of them.]

Post-Ellipsis
The movie industry, flush with success, strutted away from the battle that never was, having successfully fended off its new drinking buddy, television. Up to its collective ears in record-breaking movie receipts, the film industry (yet again) kicked back on its gold-plated laurels and lazily watched the money roll in.

The cinema was enjoying a new Golden Age, ushered in by the advent of the multiplex, the still-viable drive-in industry and some of the finest movie-making ever, in the form of Airport, Airport '75, Airport '77 and Airport '79: New Moon.

But as was foretold by the harrowing ellipsis at the end of the last volume, a new enemy would rise (mostly from the East). This new invention would kill the film industry harder that it had ever been killed before.

The VCR
Japanese electronics company JVC kicked Old Man Movie right in the throat with its VHS (Video Home System) player that promised a new era of TV and movie-dependent independence. Now people could watch television and movies in the comfort of their own home, on their own schedules. No more standing in line at the box office or endless waiting for their favorite programs to hit syndication. The public was now in command of its mostly pre-recorded destiny, leading to skyrocketing VCR sales and new highs in box office receipts.

Quite obviously, home taping was once again killing an industry.

An apoplectic Jack Valenti (representing the MPAA) stormed a listless Congress, demanding that they get off their overstuffed asses and do something, goddammit. During his Oscar-worthy performance, Valenti compared the theoretical damage done by home taping to a combination of the Holocaust, My Lai Massacre and that time when he got beat up in grade school.

The television industry fought back, claiming that the public had no right to watch their favorite shows and movies whenever and wherever the hell they wanted to. "What of our precious and highly annoying advertising?" it pleaded. "They'll be able to skip past it, thus rendering our efforts useless. Not to mention blockbuster lineups like ‘Must See Thursday,' which will now become ‘Can See Whenever the Hell We Want, Possibly Even Next Week.'"

The Positive Negatives of the VCR Invasion
Fortunately, the film and TV industries greatly overestimated the public's willingness and ability to program their VCRs, meaning that most viewing was still prerecorded movies or "live" TV. In fact, the general inscrutability of the VCR usually meant that it was regarded as a minor household diety whose mood swings and impenetrable manual were tolerated in exchange for nearly "on-demand" viewing.

Much like any diety, the VCR would periodically demand a sacrifice, devouring random tapes like "Child's First Birthday" (priceless) or a New Release rental from Blockbuster (considerably more expensive).

Not only that, but the VCR's entropic delivery system caused videotapes to degrade steadily in a short period of time, soon reducing the act of re-watching an "old favorite" to a tedious hour or two of dicking around with the tracking in a futile attempt to make the movie look like something other than scrambled Cinemax porn featuring dialogue recorded underwater.

"Boon:" Not Actually a Dirty Word
Not every industry felt threatened, however. The new videotape proved to be a boon to the porn industry, which was thrilled to have another delivery system. Porn theater staffers were thrilled to see their semen cleanup time drop by over 50%. Porn aficionados were thrilled to be able to "privatize" their perversions, without fear of being accosted by women's right groups, soft news journalists or the Sarasota, FL Sheriff's Department.

Unfortunately, a related industry fell victim to this new portable, rentable menace. The suddenly embattled trench coat industry fought this turn of events with "Home Masturbation is Killing the Trench Coat Industry" pickets. This movement never really took off however, mainly due to the fact that few people were willing to wear t-shirts or hoist signs with the word "masturbation" prominently featured.

As the years went on and prices dropped, the movie industry began to embrace this "threat" as a powerful ally in its constant struggle to make even more money. They were delighted to discover that the public was more than willing to purchase something they had most likely already paid to watch in a theater. They were made positively giddy with the realization that the public would buy the same movie twice, provided one version was slapped with a "Special Edition" label and contained a cursory 5-minute "Making Of" featurette cobbled together from second unit footage and "found sound" recordings.

The movie rental business was thrilled as well, what with it suddenly having a reason to exist, along with the opportunity to charge $3.99/night for "New Releases" that had been on the "Just In" wall for nearly half a decade.

Coming up next:
A veritable rogue's gallery of industry killers, each more diabolically deadly than the last.

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Getting Past Just 'Putting Radio On The Internet' - Killer Apps Come Next

Mike Masnick — Mon, 19 Sep 2011 05:20:23 PDT

Musician (Gang of Four) and marketing guru, Dave Allen, recently put up one of his insightful blog posts, questioning where the real disruption in online music is these days, and complaining that all of the services we see out there today are basically just "creating radio on the internet." And they're all almost identical.

The modern version of that is the wholesale commoditizing of music catalogs by the labels who create licensing deals with the streaming music services. Those actions in turn further homogenize the streaming music service systems as the services only have access to the same catalogs – there is no differentiation. Artists get pennies, or less than a penny, when someone streams their song, and the listener gets advertising in the stream unless they pay to escape the ads.

Music streaming on the web is not a Big Idea, it’s simply a lack of intellectual vision and thinking. Worse, it has advanced the “passive listening” experience. It’s just terrestrial radio dumped on to the web in other words – including advertising....

[....]

The bottom line is that there is no differentiation at the end of the day between Mog, Rdio, Spotify, Rhapsody, and all the others too numerous to mention, if they all have the same music catologs – widgets and tactics don’t count.

I agree that we haven't yet seen all that much that's really innovative in music, but I'm not as worried about it as Dave. As I noted about the SF MusicTech conference (where Dave moderated a panel on exactly this subject), it really felt like we'd finally gotten past the doom and gloom and started looking at the real opportunities in the music business today. I think that much of the lack of innovation is because pretty much anyone who has really tried to innovate has been shot down by lawsuits. Seriously. The second you do something marginally innovative that starts getting attention, a major label comes up with an excuse to sue, mainly to regain some amount of control. So these clone music services are, in part, a reaction to all of that. The reason they all look the same is because they now know what it takes to fall into line and not get sued.

But I don't think that's a problem for the next wave of innovation in the space. Yes, many of these services effectively replicate radio on the internet today. But when you look through history, that often is the first wave of history when dealing with new media. You take the old media and move it to the new platform. It takes a generation or two before people start to recognize that the new media has special or different characteristics that really let you do something unique and new. Then it takes a little while before people start figuring out what that is. It's why I'm excited about things like Turntable.fm. Whether or not it's really the next generation offering that becomes a success story, it is a sign that people are finally starting to branch out and try things that are unique and different and really only possible on the medium of the internet.

In fact, while I'm a fan of Spotify and Pandora, since playing with Turntable.fm, I always feel sort of disappointed that I can't merge the three. Spotify has a huge collection, and I'd love to be able to move my playlists directly into Turntable.fm, or use Pandora's matching engine to find similar songs to what I'm playing or what others are playing within Turntable.

So I think we're just entering the very beginning phase of real innovation in the music service market space. The companies here today may or may not survive. Or maybe they'll drive the changes and come up with the next great innovations themselves. But it's still early in the game.

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