Copyright2005-06

1

Business Models Providing Incentives to Open Content

Roger ClarkeXamax Consultancy Pty Ltd, Canberra

Visiting Professor in Cyberspace Law & Policy, U.N.S.W. and in eCommerce, Uni. of Hong Kong; and Dept of Computer Science,

ANU

http://www.anu.edu.au/people/Roger.Clarke/EC/...BMIOC-0607 {.html, .ppt}

Unlocking IP Conf. – U.N.S.W. – 11 July 2006

QuickTime™ and aTIFF (Uncompressed) decompressorare needed to see this picture.QuickTime™ and a

TIFF (Uncompressed) decompressorare needed to see this picture.

Copyright2005-06

2

Business Models / Incentives / Open Content

Themes

• The Challenge

• Old Wine

• Old Wine, New Bottles

• New Wine

Copyright2005-06

3

THE CHALLENGE

• The Digital Era• Atoms ==>> Bits

• Internet• Bits can go

anywhere• Powerful User Devices

• Bits do go anywhere• Peer-to-Peer (P2P)

• Bits go everywhere• Interactive Publishing

• Bits get used

• Whether content wanted to be liberated or not, the digital era has liberated it

• Appropriation of digital content is easy, cheap, largely untraceable

• Technological protections are seriously problematical, even for the powerful

• Sony, EMI and Disney need Open Content Business Models as badly as you and I do

Copyright2005-06

4

What’s a Business Model?

It’s an Answer to the Question:

Who Pays?

For What?

To Whom?

And Why?

Copyright2005-06

5

OLD WINEConventional Proprietary

Approaches

Exploit the Monopoly through High Prices

Leverage the Monopoly• Extend the Brand• Cross-Promote Sustain the Monopoly• Lock-in through

Switching Costs• Very Tight Licence-

Terms• Technological

Protections

Lawsuits to stop behaviour and to chill behaviour:

• Commercial Violations

• Single-Purpose Technologies

• Incitement (‘Authorisation’)

• Multiply-Usable Technologies

• Consumption

Copyright2005-06

6

OLD WINE, NEW BOTTLES• Give Away (a little of) your content, and charge for:

• convenient access• repeat access• other-party access• enhanced versions• searchability/navigation• timely access• archival access• ...

• But recognise when to let the market grow itself

Shapiro & Varian – ‘Information Rules’, 1999Ch. 4 pp. 83-102: ‘Rights Management’

Copyright2005-06

7

A Sustainable Proprietary Approach• Identify customers’ price

resistance-point (by finding out ‘what the market will bear’)

• Set prices accordingly (and thereby sustain payment morality)

• Discourage and prosecute breaches where the purpose is commercial

• Take no action over breaches by consumers (time-shifting and format-change; but even sharing?)

The Evidence• Since 2003, Apple

iTunes charges $US 0.99/track !?and now $A 1.69 !!??

• Copyright-Owners get 70% of the fee

• In 2005-06 they’ve been asking for:

• more money• more flexibility

Copyright2005-06

8

Publishers Need to Re-Discover Confidence in Their Ability to Value-

Add

• Conception• Pre-Promotion• Expression• Copyright Clearance• Preparation for

Publication• Quality Assurance• Promotion and

Marketing• Logistics• Payment Collection

Contingent Liabilities, in any jurisdiction whose courts deem publication to have occurred:

• Copyright Infringement• Breach of Confidence• Defamation• Negligence• Negligent Misstatement• Misleading or Deceptive Conduct• Contempt of Court• Breach of Laws relating to:

• Censorship• Discrimination• Racial Vilification• Harassment• Privacy

Copyright2005-06

9

NEW WINEA Catalogue of ‘Business Models on the

Web’• BrokerageMarketplace Exchange, Buy/Sell Fulfilment, Demand Collection, Auction Broker, Transaction Broker, Distributor, Search Agent, Virtual Marketplace

• AdvertisingPortal, Classifieds, User Registration, Query-based Paid Placement, Contextual Advertising, Content-Targeted Advertising, Intromercials, Ultramercials

• InfomediaryAdvertising Networks, Audience Measurement Services, Incentive Marketing, Metamediary

• MerchantVirtual Catalogue, Click&Mortar, Bit Vendor

• Manufacturer (Direct)Purchase, Lease, Licence, Brand Integrated Content

• AffiliateBanner Exchange, Pay-per-click, Revenue Sharing

• CommunityOpen Source, Public Broadcasting, Knowledge Networks

• SubscriptionContent Services, Person-to-Person Networking Services, Trust Services, Internet Services Providers

• UtilityMetered Usage, Metered Subscriptions

Rappa (digitalenterprise.org/models/models.html)

Copyright2005-06

10

Internet-Era Business Models Lessons from Open Source and

Content Who Pays? For What? TO WHOM? And

Why?Direct Intermediated

• Retailer• Franchisee• Value-Adder• Bundler• Transaction

Aggregator

Copyright2005-06

11

Internet-Era Business ModelsLessons from Open Source and

ContentWHO PAYS? For What? To Whom? And

Why?• Customers

• Providers

• Third Parties(ads and sponsorship)

• ‘A Fairy Godmother’

Copyright2005-06

12

Who Pays? A Fairy Godmother• Subsidy / Patronage

Funding from ‘external’ sourcesDeprecated as a gift, unless ‘market failure’

• Cross-SubsidyFunding from ‘internal’ sourcesDeprecated (but less so), because it’s ‘distortive’

• Portfolio ApproachMutual Cross-Funding from ‘internal’ sourcesThat’s how business works – ‘cash cows’ fund the rest

Copyright2005-06

13

Internet-Era Business Models Lessons from Open Source and

Content Who Pays? FOR WHAT? To Whom? And

Why?• Goods & Services• Value-Added

Goods & Services• Complementary

Goods & Services

• Data• Information• Expertise / Knowledge

• An Idea in Good Standing

• Timeliness• Quality

Copyright2005-06

14

Revenue from Complementary Services

• Installation• Infrastructure• Customisation• Education and Training• Consultancy

• Network-building• Search for Network

Effects• Viral Marketing

‘The After-Market’• Accessories• Upgrades• Enhancements• Extensions• Replacements

Copyright2005-06

15

Internet-Era Business Models Lessons from Open Source and

Content Who Pays? For What? To Whom? AND

WHY?

The Negative• Resource Control• Switching Costs

(capture, lock-in)• Grief Avoidance

(no lawsuits orguilty conscience)

The Positive• Perceived Value

(‘the genuine article’)• Cost Advantage

(incl. Time)• Quality Advantage

(incl. accuracy, security, timeliness, completeness, complementary services)

Copyright2005-06

16

Open Content Business ModelsStrategic Opportunities

1. Reputation

• Reputation-Establishment, -Building, -Maintenance

• Collateral, Visibility, Discovery:• Papers / Postings / Blogs (cf. CV, Ads)

• Hence Brand and Sub-Brand Value, which enableNetwork-Building, Network Effects, Viral Marketing

Copyright2005-06

17

Open Content Business ModelsStrategic Opportunities

2. Market Building• ‘Freeware’ – use it now, become habituated, and

buy something later – to build a future market

• Engage Toffler’s ‘prosumers’, who will provide:• feedback to enable quality assurance• feedback to enable product refinement

(market research and focus groups for free) • enhancements and extensions

3. Customer Engagement

Copyright2005-06

18

Strategic Opportunities – 4. Costs

• Cost-Reduction: Reproduction and Transmission are hugely less expensive for Digital cf. Physical Media

• Cost-Transfer to Consumers:• Product Conception (‘prosumer participation’)• Pre-Promotion (e.g. fan-zines)• Production (e.g. prosumer mixing)• Promotion (e.g. ‘viral marketing’)• Distribution (P2P shifts transmission costs

away from the corporate server, to theoperators of participating client-servers)

Copyright2005-06

19

Business Models Providing Incentives to Open Content

Roger ClarkeXamax Consultancy Pty Ltd, Canberra

Visiting Professor in Cyberspace Law & Policy, U.N.S.W. and in eCommerce, Uni. of Hong Kong; and Dept of Computer Science,

ANU

http://www.anu.edu.au/people/Roger.Clarke/EC/...BMIOC-0607 {.html, .ppt}

Unlocking IP Conf. – U.N.S.W. – 11 July 2006

QuickTime™ and aTIFF (Uncompressed) decompressorare needed to see this picture.QuickTime™ and a

TIFF (Uncompressed) decompressorare needed to see this picture.