The On Line Honesty Box

Many vendors give away free services, but usually there is a catch. For example, while Google has given away search services for more
than a decade, no user has any illusions as to why. Advertising buys space and tries to reach readers. As another example, for many years US cellular carriers came close to giving away handsets to customers (until expensive smartphones reduced the practice). Buyers knew these subsidies came with two-year commitments, and buyers could anticipate giving the carrier high service fees.

Free services without any apparent catches are rare, but it seems to happen with “honesty boxes.” It has always been so with street musicians. A listener can walk away or give any amount into an open hat—from nothing to any denomination of bill. Public campsites have relied on honesty boxes for years, letting campers fill out their permits, paying on their
honor. Office coffee pools frequently use honesty boxes as well.

What about the online world? There have been experiments with online honesty boxes. The lessons are quirky, but too interesting to ignore. Today’s column describes two—one from Radiohead, and another from Cards Against Humanity.

Consumer Surplus in the Online Economy

The Economist sponsors a blog called Free exchange. This week Free exchange solicited posts to complement an article in the magazine that discusses challenges measuring the consumer surplus generated by the internet. They invited experts in the field to comment on the piece and on related research. I made a contribution explaining the challenges in measuring consumer surplus of a free product.

Check it out.

 

 

Does Google get a good ROI in KC?

What in the world is Google doing with its high speed network in Kansas City? Does Goggle expect the revenue to exceed the costs of building the network? Dave Burstein has some numbers to illuminate the question.

Dave Burstein is a communications junky for the major communications junky. He covers many topics in communications markets, and he obsesses over finding the true facts, not merely the sound bites. Last week he provided an outline of the basic economic parameters behind Google’s investment in high speed broadband in Kansas City, and his notes make for interesting reading about the project.

I would guess that most readers of this space are not junkies. I know how to read what Burstein writes. The purpose of this post is to provide a translation.

The range of Linus’ Law

After more than a decade of successful growth, Wikipedia continues to defy easy characterization. It receives more than 400 million viewers per month. Close to four million articles grace its web pages in English alone. Volunteers built the entire corpus of text.

This experience suggests that Wikipedia has done something right, but begs the question: Which actions mattered, and which ones were merely incidental? Answering that question is the key to finding general lessons for countless other web sites that aggregate user-generated content.

Many Wikipedians believe that Linus’ Law is an important ingredient in their sauce. Coined by Eric Raymond, this law is less legal precept than slogan—namely, “Given enough eyeballs, all bugs are shallow.”

Few people know that it is actually a pert and terse restatement of a quote from Linus Torvalds, who originally said, “Given a large enough beta-tester and co-developer base, almost every problem will be characterized quickly and the fix obvious to someone.” Raymond’s restatement drops all the qualifiers, vesting the proposition with more certitude and making it more egalitarian by extending it to nonexperts.

Wikipedia’s experience suggests Raymond was onto something. Let’s consider when the Law works and why it sometimes fails at Wikipedia.

Wikipedia, Mitt, Barack, and a Hand Over the Heart

It was just a little skirmish, a mere tit-for-tat in the presidential race. It made headlines for a day and it also made Wikipedia just a little bit better.

To be sure, Romney and Obama infrequently appear in the same sentence as Wikipedia, so this is worth a look. How did the-encyclopedia-that-anyone-can-edit get mixed up with a verbal spit-spat between Mitt Romney and Barack Obama? More to the point, how does this little story illustrate why Wikipedia works, and why it works so well?

Ah, therein lies a tale.

The Lexicon of Networking Economics

Economics rarely improves with reference to etymology, but an exception should be made for the economics of networks. Many valid but distinct definitions of “network economics” compete for attention. That causes confusion in academic writing and in public discourse.

There are many symptoms of this confusion. Consider this one. When the late Senator Ted Stevens inarticulately referred to the Internet as a “series of tubes” it earned him derision from younger denizens of the Internet. To many youngsters it was unthinkable that the ranking Senator on the committee for regulating Internet commerce conflated the physical network – local area networks, backbone lines, access lines – with its applications – email, web surfing, electronic commerce.

To be fair to Senator Stevens, however, such a conflation is rather understandable. Stevens used a habit of mind common in monopoly provision of local electricity and telephony. It came into conflict with another and newer habit of mind, one that lives online. Only recently have these twains begun to meet regularly.

How did this happen? In brief, public discourse typically uses three distinct economic meanings for the term “network” and, without making due distinction, applies these to the same situations.  Let’s  get straight on the meaning of words. This post explains the lexicon of networking economics.

Did one invention lead to the decline of newspapers?

Did one invention lead to the decline of newspapers? What is economic myth and what is true?

Don’t get me wrong. The decline of newspapers is NOT an economic myth. The business continues to lose more revenue each year, and so does other advertising-supported media, such as magazines. Much of this happened in the last decade. It is  unclear if executives at any newspaper have any good strategic choices. None of this is a secret.

But one invention and one firm did not produce this outcome. The typical story blames Google and Internet search, and does so a little too blithely. There is a grain of truth in the common story, but it misses a lot. While it is correct that the firm to profit the most from this trend is Google, Google alone did not kill the newspaper.

This post is not an apology for Google. Rather, it presents a broader economic history than typically found in public discussion. As more issues get debated in public it important not to premise decisions on a distorted view of how we got here. 

The Internet and Wage Inequality

What has the Internet Done for the Economy?

The puzzling spread of the commercial Internet could explain wage inequalities

It is hard to overstate how much the business world relies on the Internet. Powerhouse retailers like Target and Wal-Mart can simultaneously manage their changing inventories, warehouses, distribution routes, and sales. FedEx and UPS can code every shipment online so that customers can find out exactly where their packages are and what time they will arrive at their doors. Buying a wedding gift? Just pull up the couple’s online registry and browse the items that have not been purchased yet. Shopping for insurance? You can get quotes quickly via secure online chats with company representatives.

None of that was possible before 1995, when the large, government-controlled networks somewhat begrudgingly opened their lines for commercial use. Advanced Internet technologies spread rapidly in businesses across the country—in small cities, sprawling suburbs, and dense urban hubs. Although this sparked wage and employment spurts everywhere, the gains were far more striking in regions that were already well off, according to a study to appear in the American Economic Review….To read more, click here.

Kellogg Insight provides summary of research articles. This is a summary of “The Internet and Local Wages: A Puzzle,” by Avi Goldfarb, Chris Forman and Shane Greenstein. For more about this topic on this blog see “Will the iPad Flatten us all?”

Planes, Payments, and the Vast Muddle

What do Starbucks and American Airlines have in common? Recently they each made a major strategic decision regarding their online networking presence. In each case, this decision brought the firm closer to the vast economic muddle.

Let me explain. At any point in time a network will find itself in roughly one of three states: Frozen disaster; Vast muddle; and Blissful connectivity. The first and the last of these define dystopian and utopian outcomes, respectively. The vast muddle defines what actually occurs the majority of the time.

For reasons that are somewhat mysterious to the average person, for the last two decades the world’s major networks managed not to be frozen disasters or vast muddles. For many of us with a sense of history, this state of things seemed remarkable, almost unreal, and very fragile. There always seemed to be a danger that blissful connectivity would not last.

Recent events, such as those illustrated by American Airlines and Starbucks, suggest that these concerns might have been on target. Through one step or another, society seems to be returning to the vast muddle.There are some interesting economic lessons in that experience.

Making podcasts and creation costs

I made some podcasts and learned a few things while making them.

To be sure, it was not too hard. But, then again, I had help from someone, Tim DeChant. Though it was the first time either of us had made a podcast, Tim had more of a clue about what to do than I did. Still, we did not cruise through it either,  and the reasons illustrate some lessons about creating content in the digital era.

Anyway, before I get any further, here is a little plug, namely, a link to the pod casts. You also can go to i-tunes and put in my name. A couple (free) pod casts will come up (and more as a new one is released each month). Enough plugging… back to the topic.

What did we learn about the costs of making pod casts? At one level, not much. The cliche’s are really true. The costs of creating information have declined in the digital age. After all, creating content is so easy today that my 13-year old son creates videos for You-Tube. It is not so surprising, therefore, that a couple of PhDs can create a podcast.

I did learn, however, that it pays to invest in high quality equipment. And it sure helps to have somebody around who knows what they are doing like Tim DeChant. There is a learning curve, and his help got us down that curve much faster than if I had done this by myself.