Virulent Word of Mouse

April 15, 2012

A Big Payoff

Google and Apple are two of the most profitable companies on the globe today. They seem to share little in common except that achievement. They took very different paths to the stratosphere.

Google, after all, is less than a decade and a half old, a child of the web with a successful approach to advertising, built around a search engine and many services to enhance the user’s experience. Apple is more than twice as old. Its original product, personal computers, makes up a fraction of its sales today, while its future profitability lies with a mix of software in iTunes and new hardware introduced in the last decade—namely, phones, tablets, and portable music devices.

What economic insight emerges from setting these two firms next to one another? A brief discussion of both of their businesses will reveal something trite and something deep. The trite part is this: Some settings produce lots of market value, and some firms capture large parts of that value, but those rarely happen together. The deep part forms the key insight today: these examples are fabulously profitable because they are unique.

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February 13, 2012

The range of Linus’ Law

Filed under: Essays,Internet economics,Uncategorized — Shane Greenstein @ 11:26 pm

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. (more…)

August 25, 2011

The Grip of the Grid

Filed under: Amusing diversions,Essays,Online behavior — Shane Greenstein @ 10:30 pm
Tags: , , , ,

The grid has a grip on the rhythms of my family. This is not news, really, but it took a new setting, a vacation, to make apparent what should have been obvious.

This August my wife and I went west for a vacation out west, in this case, to Lake Tahoe. It was a good vacation, but not an escape from the familiar. As with prior vacations, this one became a catalyst for reflecting on the role of information technology in our lives.

Perhaps resistance was futile, but mine was pathetic. I submitted my family to the grip of the grid almost from the outset, when I purposely rented a house with a broadband Internet connection. It even had a wireless modem.

This post will talk about how the grid took over our vacation. Ultimately, the grip of the grid never loosened completely. In retrospect, this was not all bad.

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August 10, 2011

An Honest Policy Wonk

Captured regulators routinely take the blame for the ills of regulatory policy in electricity, telephony, and broadcasting. “Captured regulator” has been a pejorative term in these industries for decades.

It’s hard to say when it happened exactly, but this conversation migrated into electronics and the commercial Internet in the past decade, as both industries melded with communications and media businesses. Pieces of the topic even show up in the net neutrality debate.

Quite a bit of nuance got lost in the migration. While many episodes in the history of telephony and broadcasting illustrate regulatory capture, even the theory’s proponents know about exceptions—namely, situations that ought to have been captured but were not. For example, consider the Internet’s birth. There were numerous opportunities for regulatory capture in the Internet’s transfer out of government hands, and, yet, capture theory only explains part of the events and not the entire outcome.

I will refer to other episodes below, but for now, take that example as motivation for modifying the popular theory of regulatory capture. When does the regulatory environment work despite the tendencies toward regulatory capture? As best I can tell, the explanation has something to do with the presence of an honest policy wonk.

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July 4, 2011

The grocery scanner and barcode economy

Think about the world of bar codes and scanners. What was life like before their invention? This post offers an appreciation for this staple of modern retail life.

Give the barcode its due. The widespread deployment of barcodes and scanners reduces the costs of keeping accurate and timely inventories. It happened quietly in the last few decades and had numerous consequences.

Think about it. The number of products on the shelf of a typical retail store has increased by tens of thousands. The accuracy of cashiers has increased tremendously because the cashiers do not have to pause to read the price tag. Firms keep better inventory so the frequency of stock-outs — missing items — also has declined.

More to the point, all of that happened because somebody took the time to develop the bar code. Somebody made effort to get everyone in the industry to invent the equipment to take advantage of barcodes.

Among the influential people in that effort was a fellow named Alan Haberman. He passed away last week.

I never knew the man, so I cannot wax eloquent about his life. But I know something about bar codes, as well as the economics of value built around such symbols. Modern life could not exist without them. That is why this post is not a eulogy. It is an appreciation.

It would be an exaggeration to say that barcodes set me on my life’s intellectual path, but they were an influential example when I was a fledgeling and impressionable scholar. The bar code was one of the three canonical examples of the new era unfolding before us in the 1980s, a world of new standardization and increased interoperability. (VCRs and PCs were the other two). Those three examples, as well as a few others, did motivate my interest in the economics of this phenomenon. As readers of this space know, I have stayed here because new examples arise all the time, and in such diverse areas as WiFi, travel intermediaries, the MP3 player, smart phone, and in many places online.

Alright, maybe I am (a little) nuts, but read on.

In appreciation to Haberman’s life’s work, this is an opportunity to wax on a bit about the joys of the scanner economy. Once you begin to recognize the economics of bar codes, you realize that these economics are everywhere.  I hope you find this interesting, illuminating, and a little amusing. (more…)

June 22, 2011

The Open Internet Order

After a year of hearings and considerable public discussion, the Federal Communications Commission (FCC) adopted the Open Internet Order on December 21, 2010.

Fireworks flared on the blogosphere almost immediately. Net neutrality advocates cried that the order betrayed and sold-out sacred principles, while Tea Party supporters heaped scornful criticism at government activism. Both sides made intemperate and grim forecasts about the Internet’s future.

Levelheadedness left the political sphere as well. Pushed hard by Tea Party sympathizers, the House of Representatives passed House Joint Resolution 37 in April 2011, largely along party lines, disapproving of the order. As of this writing, the Senate hasn’t yet taken up the measure. President Obama promises to veto it.

Frankly, this conversation needs a calm and considered middle ground, not utopian visions abutting practical considerations. The Internet has never lacked government oversight, and Internet participants have occasionally compromised on neutrality to function. There are subtle economic issues to debate here, and simplistic absolutes don’t contribute much to finding reasonable economic solutions. (more…)

June 12, 2011

The meaning of free Wi-Fi: A traveler’s vignette.

Filed under: Amusing diversions,Essays,Uncategorized — Shane Greenstein @ 10:02 pm

Abundant outlets and free Wi-Fi can improve the mood in a lonely terminal. Those outlets were meant for cleaners with vacuums, but some time ago serious road warriors began using them for their laptops and mobile devices. Free Wi-Fi simply makes those devices more useful.

Terminal 1 in the Toronto Airport contains that combination of Wi-Fi and outlets, especially the part devoted to local flights in Canada, operated by Air Canada. Last Thursday evening this terminal was sparsely populated. It served as my prison and home for a few hours.

The Wi-Fi and electricity flowed freely that day, as did the advise from strangers. This post describes what happened.

I did not try to have a day that illustrated the various meanings of free. It just happened.

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May 31, 2011

The revolution will not be televised, but it might be your ring-tone

Filed under: Essays,Uncategorized — Shane Greenstein @ 5:06 pm

The revolution will not be televised. The phrase has been paraphrased many times. It has become routine, and almost safe. And it took on new meaning in popular conversation when the Arab spring erupted in Egypt and Tunisia, and the revolution really was on television — as well as You-Tube, Facebook and Twitter.

Do you know its origins?

Gil Scott Heron invented that phrase. It is the title for an angry and sardonic poem, written in the heat of youthful rebellion.  Oversimplifying, the poem tells the listener not to look to mainstream sources for the social revolution they seek. It will not be found in the slogans and routines of the existing media structures (the full text of the poem is at the end of this post).

The phrase surfaced again last week upon the news that Scott-Heron passed away. I do not know have anything profound to say about his passing. Yet, I did notice something odd about how the Internet has changed my memory of Gil Scott Heron. That is the basis for this post. Scott-Heron’s passing illustrates it.

To wit, the rise of the Internet has not changed death. Death is still not for the living. The Internet has changed one thing about death, however. It has changed the way the dead are remembered by the living.

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March 2, 2011

Digital Dark Matter

Astrophysicists draw on the term “dark matter” to describe the unseen parts of the universe. Many symptoms, such as the rotational speed of galaxies and gravitational effects, indicate the presence of dark matter. Yet, our present science lacks the appropriate concepts and tools for measuring directly what we only see indirectly today.

Economists need a similar label for some important building blocks of the digital economy that we do not measure using standard tools. Many indirect symptoms indicate their growth and importance. Many labels have been proposed—invisible infrastructure and private provision of public goods, for example. These labels capture a grain of truth, and, yet, miss something, too.

Let’s just call it “digital dark matter” and review what we know. (more…)

December 13, 2010

Building Broadband ahead of Digital Demand

Many governments today, especially outside the US, are considering making large subsidies for broadband. Some governments, such as South Korea’s, have already done so, making next-generation broadband widely available.

In the US, debates about subsidizing broadband touch two sets of overlapping issues. One set considers the benefits and costs of an expensive action: building wire-line broadband in low-density areas. A second set considers stretching the frontier for broadband far beyond its present capabilities to enable next-generation Internet applications (typically video).

In the US today, those favoring building ahead of demand are the most dissatisfied, as are those who want to subsidize rural broadband. This column considers the economic origins behind that dissatisfaction.

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