Error 402: Information Sorta Wants To Be Expensive; Information Almost Wants To Be Free

Economics

from the this-information-is-free dept

We took a few weeks off in our Error 402 series on the history of web monetization, but we’re back. If you’re just catching up, we’ve talked about the earliest monetary transactions online, the rise of e-commerce, the initial failed attempts at paywalls for content, and the rise of internet ads followed quickly by the dominance of search ads.

Basically we reached a point where users were clearly willing to pay for goods shipped to their home (e-commerce), but paying for content directly was a bigger challenge, and thus, advertising became the primary way in which content was funded.

And there are good fundamental economic reasons for this, which are worth exploring to better understand newer systems of monetization and how they can work.

Stewart Brand, the founder of the Whole Earth Catalog, is famously credited with saying “information wants to be free” at a Hackers Conference in 1984. The full discussion (actually in response to a comment from Apple co-founder Steve Wozniak, pushing for companies to let engineers take ideas the companies don’t want to develop and spin out their own companies) shows a somewhat more nuanced (and far more interesting) point that Brand is making:

“There are a couple of interesting paradoxes that we’re working here…. On the one hand… information sorta wants to be expensive, because it’s so valuable. The right information at the right place just changes your life. On the other hand, information almost wants to be free because the cost of getting it out, in many respects, is getting lower and lower all the time. So you have these two things fighting against each other.

If you listen closely, in the background someone (I think Woz) responds “information should be free, but your time should not.” And Brand replies again, noting how things can get out of balance if these don’t line up: “But then, at what point of amplification is your time being so well rewarded that it’s getting strange. Or so under-rewarded that it’s getting strange. There’s problems there with the market.”

And while this was an off-the-cuff discussion, in some ways it really represents a core part of the struggle about paying for content online. These two competing factors are very much in tension, and Woz’s point about time is important. It’s also important to realize that at the time of this formulation, the internet only barely existed and was nothing yet like our modern internet. When Brand talked about the “cost of getting [information] out,” I think even he may have underestimated how much lower it would get in just a decade.

One of way of thinking about the tension here, in more economic terms, is to think about the fight between scarcity and abundance. Basic economics 101 teaches how it’s not necessarily the cost to produce something that instructs the price, but rather the marginal cost to produce. That is, what is the cost to produce just one more of something? In some cases, that might not be all that different than the cost to produce the first one. In some cases, it may lead to things like mass production and automation, as the scale allows for the marginal cost to shrink, enabling lower prices for a bigger market.

But when it comes to information, especially in the era of the internet, you get a slightly weird scenario: one where the marginal cost to produce the original is high, but the marginal cost to produce each additional copy goes effectively to zero. This is not a wholly new challenge, and certainly predates the internet by some time. Thomas Jefferson’s famous letter to Isaac McPherson in August of 1813 lays out a similar issue, though from a different era:

if nature has made any one thing less susceptible, than all others, of exclusive property, it is the action of the thinking power called an Idea; which an individual may exclusively possess as long as he keeps it to himself; but the moment it is divulged, it forces itself into the possession of every one, and the receiver cannot dispossess himself of it. it’s peculiar character too is that no one possesses the less, because every other possesses the whole of it. he who receives an idea from me, receives instruction himself, without lessening mine; as he who lights his taper at mine, receives light without darkening me.

In short, ideas or information become abundant as soon as they leave our minds and are shared outward. And, as they are abundant, the marginal cost on sharing them tends to be low. And that only became much more true in the age of the internet, in which we took machines that were designed to copy and reproduce information, connected them all together around the globe, and let them communicate.

But, still, there are two flipsides to this. First, there is the idea that information wants to be expensive because of the value it can provide. That is, information can be valuable. But economics teaches us that price and value are not always connected. We don’t only pay for things because they’re valuable. The value part only determines whether or not the price is acceptable. But the price is determined by the intersection of supply and demand, and when the supply is abundant and the marginal cost is low, the price will face downward pressure.

At the same time, there is the second (unstated initially by Brand, but touched on by Woz’s response) point about the cost of creating that first copy. While it’s not as direct, when Woz refers to “time,” that’s more or less the point he’s making. Someone needs to pay for the “time” someone needs to create that first copy.

And, if you think about it in economic terms again, you realize that someone’s time is scarce. And before someone has created information, that information is also scarce. And thus the marginal cost before something has been produced can be seen as a scarcity that can be “expensive”, and then after it’s produced it’s free because it’s no longer scarce, but abundant.

That leads to, as Brand noted, a paradox. Historically, we’ve tried to deal with that paradox through copyright and patents. Those kinds of laws effectively try to keep that pre-creation scarcity for some (in theory) limited period of time post creation, by giving a monopoly right to the holder of the copyright or patent to restrict access. But this creates new problems, and for those who wish to access that kind of content during the artificially scarce period, it can be frustrating.

What we’ve seen over the last few decades with the internet is the ability to explore different ways of dealing with this paradox without leaning so heavily on copyright’s artificial scarcity, but on other more technological mechanisms.

Next week we’ll explore the concept of Freemium, and how it fits into this framework.

Filed Under: economics, economics of information, error 402, information, information wants to be free, marginal costs, patents, steve wozniak, stewart brand, thomas jefferson, web monetization