Transcript Post cards from digitalization and copyright

For Sloan Foundation, April 7th, 2010.
Shane Greenstein
Northwestern University and NBER
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Motivation
Some Economic Experiments.
◦ Involving Copyright
◦ Involving Governance and Support.
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Summary: Where to go?
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What are the central theoretical and empirical
challenges for understanding…
– How digitalization has shaped the creation and diffusion
of information.
– How copyright has shaped digitalization, and whether its
role has changed, or should change.
– How the design of open and accessible governance
structures shaped digitalization, and how lessons from
that experience suggest these should be designed.
– Evaluation of the rate of return on investments in
digitalization by public/private organizations.
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My oh my. Why such modest aspirations?
• Where to start? Lets review some of the motivation…
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Just like any new general purpose technology?
• Digitalization achieves outcomes previously not possible
b/c it reduces cost of performing existing activities…and
• Digitalization enables development of new services and
processes that did not exist – and could not have existed.
•
New opportunity generates resource reallocation…
• Deployment of technology – by itself – not sufficient for
understanding economic growth…
• So we study mechanisms behind restructuring of routines,
market relationships, patterns of the flow of goods and services.
• We would expect considerable investment.
• Widespread, localized, uncoordinated, and adaptive, so study
how demand induced innovation arises…
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Yes, but this is not enough for digitalization. Why?
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Costs & risks for creating information may be high…
◦ But once expressed, costs of learning can be very low.
 Investment conundrum, especially for codified information.
 Notable economists have observed this…Arrow, etc.
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Benefits from reusing learning may be high.
◦ Lessons learned in one context yield distinct gains in other.
 Especially for learning from market experience that resolve
uncertainty about value of demand, cost of supply…
 Accumulation & recombination essential to new knowledge.
 Notable economists…Rosenberg, Romer, etc.
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Standard production function frameworks little help.
◦ Productivity analysis little help for key issues for policy.
 Innovative forms of copyright. Assessing its contribution?
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Me right now: What role does copyright play in
economic experiments involving digitalization in
information-producing markets?
• What can we learn about agenda from a few stories from
recent experience? A few stories = postcards.
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My modest goal now: A possibility result.
• Digitalization reshaping creation/diffusion of information.
• It is possible for copyright law to play a variety of important
roles in environments where learning shapes rate and
direction of innovative conduct.
• Hard to measure the relevant pieces.
• The first order effects and nuances worthy of further study.
◦ Economic Experiments: market activity oriented towards
learning about value of commercial technology.
 When costly to perform lab based learning activities, as is
typically the case during earlier periods of diffusion when
the value of commercial activity remains uncertain.
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Costs of delivery, features of demand, organization of
business units unknown to firms, observers, analysts, etc.
Either directed by one, or collected thru actions of many.
• Digitalization: activity that creates, support, uses, or
consumes digital representation of information.
 Enabled by (but not the same as) Moore’s Law, diffusion of
the Internet & the Web, the deployment of mobile devices,
and invention/diffusion of other complements for storing,
delivering, accessing and managing digital information.
 Look at some economic experiments. See what we learn.
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Motivation
Some Economic Experiments.
◦ Involving Copyright
◦ Involving Governance and Support.

Summary: Where to go?

Encyclopedia Britannica (and World Book) were leading.
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Encarta’s rise mixes experiment in lab and in market.
◦ Britannica’s revenues peaked in 1993.
◦ Role of copyright in that era? Gimmick for sales personnel. Each
year a new printing. A concern about staying close to the
frontier while selling accumulation of insight.
◦ EB refuses to license text to Microsoft. Experiments on own.
• Skunk works inside MS designed to help PC sales. PC at 25% of
HH. Digitalization  new storage & multimedia display of info.
• The CD-ROM is inexpensive storage. Need to invent application.
◦ Blur boundary w/current info. Pop culture & business news.
◦ Enormous disruption for EB. Today EB is 10% of peak.
◦
Did copyright shape rate & direction of experimentation?
◦ Gave incumbent & entrant option to cooperate, but channeled
experiments into competition b/w established & new org form.
 Rather straightforward. Copyright facilitates ownership of assets that
could merge interests or compete as differentiated goods.
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Wikipedia (not for profit). Since 2001.
◦ Unexpected approach to vexing CS problem. Wiki a byproduct
of Wales/Sanger (failed) experiments w/Nupedia encyclopedia.
– Decentralized format for accumulating information from wide
communities of contributors. Mixing “tourists” and “frequent
contributors”. GFDL plays a role in fostering accumulation of info.
◦ Experiment: multimedia format, organization of presentation…
 Once again, blurring boundary w/current info & news – on steroids.
 As a structured organization… scalable. Among ten most visited
sites on Web. Three million articles in English. Multiple languages.
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Wikia (for profit). Growth since 2005. Wales a founder.
◦ Management views it as “greenfield opportunity.” Incremental
technical advances, but massive economic experiment.
◦ What organizational form supports advertising-supported
communities in a wiki format that generalizes?
 Trade-offs b/w satisfying contributors/advertisers/readers.
 CC license plays a role in accumulating info, fosters exploration in
complementary issues to make valuable. Recently profitable.
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MP3 format diffusion enabled many experiments.
• Napster gave users a directory, swapping files less costly.
Violated any legal def’n for “aiding and abetting piracy.”
• Experiments from MS, Real, others gain no mkt traction.
• iTunes & iPod as proposed legal outcome. Distributors/CR
holders could make revenue this way (better than zero).
• Structured to take advantage of Apple’s core software.
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Interplay b/w legal and illegal boundary-setter
• Copyright law defines boundary of exploratory conduct an
established firm could undertake. Copyright prevents the bold
experiment. Channeled/selected experiments into risk-taking (online wild ducks…) population, who are undeterred by such limits.
• Established firms learn lessons by watch experiment and
innovate in ways consistent w/own business.
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User-shared video. Intermediary role experiments.
◦ Safe harbor compliance w/DCMA a key issue. Gray legality.
◦ YouTube’s innovation: If notified, take down video in
procedure that complies with DCMA.
 Experienced entrepreneurs behind the scenes.
 Other firms : different procedures *Including Google*.
 What would survive legal scrutiny? Unclear.
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◦ YouTube grew – with help of copyrighted video?
 New firms take risk? Limited liability? Google bought them.
Once again, copyright channeled conduct into sector where
risky (& illegal?) experiments are undeterred.
◦ Some established firms learn lessons by watching.
◦ In this case, one firm bought the early leader.
 More experiments: Others intermediaries (e.g., Hulu).
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Motivation
Some Economic Experiments.
◦ Involving Copyright
◦ Involving Governance and Support.

Summary: Where to go?
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Copyright is somewhat “late”. Precedent: IETF designs and
updates the Internet protocols. Claims to have an open process.
◦ No restrictions on participation
◦ Decisions are made by rough consensus
◦ Anybody can access info and use it w/o restriction.
W3C designs/updates World Wide Web (URLs, html, xml, etc…)
◦ Participation is restricted to paying members.
◦ Decisions are made by Tim Berners-Lee and staff.
◦ Anybody: access info & use it, strong norm against forking.
In 1990s computer industry an explosion in experiments with
open governance structures supporting commercial activities…
◦ Linux, Apache, MySQL, Perl, PHP, KHTML, etc…
◦ Similar rate of explosion in experiments to find valuable
commercial form for implementing these.
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IEEE committee 802.11 founded in early 1990s to
develop wireless Ethernet
◦ First projected for businesses; wireless terminals, wireless
campus, logistics in warehouses for large businesses.
 Not home use or coffee shops.
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Range of apps unanticipated but emerge from
multiple users/suppliers/applications experience.
◦ Open source s/w supports many devices & applications.
 First design in 97-99, then redefinition & repositioning for mass
market after 99. Invention of the “Wi-Fi” “hot-spot” in 00-02
supporting coffee shops, homes, businesses, municipalities.
 02-03: Intel initiates its strategies to promote Centrino in spite
of some resistance from Dell and others. Nurture certification
and large scale deployment.
◦ Large number of variants arise. Implementation by large
number of actors. Make their information available.
 License software w/unrestricted use. Unrestricted
documentation supported collective learning.
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Creative commons founded in 2001
◦ Modeled after GPL. First license in 2002, 1m “users” in ‘03.
◦ Explosive growth in use. By 2008 estimate 130m.
◦ CC has become predominant license for non-code online.
◦ Assessing those experiments beyond example?
 How do they make these estimates, and what does this really mean in
terms of investment and usage? The alternatives?
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Scientific commons founded in 2005
◦ Trying to negotiate contracts for online information that
facilitate scientific activity…what protects returns from
scientist’s experiment & allows others to learn from it?
◦ Aggregation of information key to research activity…
◦ Learning from each other key to research activity…
 Change should take place, but what form should it take? What
are the alternatives.
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Google’s advertising revenue ($20B+)
◦ AdWords. Keyword auction related to page-rank search. 2/3 rev.
 Ads are valuable to those performing searches b/c relevant.
 Today; is search valuable because it takes advantage of fair use of
on-line news sites? Or a natural use of many CC web sites?
 Economic experiment: matching relevance of web page to user
need. Google solved the problem that Overture did not (and
could not – systematic measurement of relevance).
 Enormous numbers of participants tailoring actions to Google.
◦ AdSense. Placing ads on blogs/content pages. 1/3 rev.
 A service for those who aggregate content, but do not have
facilities to develop advertising affiliate networks.
 Supported explosion in Web 2.0 experiments using CC.
 Nobody thinks growth is done. Many firms are trying to imitate.
 Big opportunity attached to online video.
When video becomes digital on the Internet what happens to
the yellow line? Does yellow line start to resemble the blue line?
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Motivation
Some Economic Experiments.
◦ Involving Copyright
◦ Involving Governance and Support.

Summary: Where to go?
• Digitalization enabled by many factors, and had impact on
many parts of the economy.
• Examples were quite easy to find, investigate, develop.
•
Suggests economic importance of phenomenon.
• Copyright plays a role in shaping experimental conduct.
• Shaping learning from experiments, competitive conduct,
collective lessons for all market participants.
• Is the size of the economic research proportionate to the size
of the phenomenon? To the size of the policy issues?
•
Over the last decade the emergence of a community of researchers
who use data from the web to address a variety of questions…
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Many are in the room right now!
Focused on information production, distribution, storage, and
commercialization…? Yes, to some extent. But the policy issues and
economic important merit much more.
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GDP measures the flow of goods and services.
◦ It measures pecuniary transactions.
 Does not measure non-pecuniary transactions.
 Does not measure consumer surplus.
 Does not measure un-priced externalities.
 Not oriented toward the information economy except in so far as
that part of economy mimics the pecuniary economy.
 E.g., “Revenue from sale of music disks, sale of books, sale of
newspapers.”
◦ Does not measure technological transitions and impact. GDP captures
creation of new revenue – and decline of existing – revenue, such as new
ad revenue, new Internet access revenue, less newspaper revenue…
◦ Does not adjust for radically lower cost of information and its benefits to
using industries.
 Economic experiments not part of GDP R&D expenditure.
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Standard procedures inadequate for understanding
digitalization and impact.
 Not a part of conventional mainstream economic journals. Limited
forums for professional conversation.
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Digitalization accounts for a big change.
◦ Plethora of economic experiments in info markets.
◦ How much real investment in digitalization?
◦ In innovative activity affiliated with commercializing?
◦ How large an impact on economic activity?
◦ Changes in revenue, leadership in the using sectors?
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Data that could capture – but we do not yet.
 Conceptual framework for impact on GDP
◦ Better and more systematic tools for assessment.
 Assessing investment in information services.
 Tools and drivers of adoption by both public & private.
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Informing policy w/analysis and measurement.
 Important and central to recent economic experience.
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Hybrid Corn: Zvi Griliches, Hybrid Corn: An Exploration in the Economics of Technological Change,
Econometrica, 1957. 501-522.
Economic Experiments. Nathan Rosenberg, Economic Experiments, in Exploring the Black Box,
Technology, Economics, and History, Cambridge Press, pp. 87-108.
Encyclopedia Britannica. Shane Greenstein and Michelle Devereux. The Crisis at Encyclopeadia
Britannica. August, 2006. Revised August, 2009. Kellogg Case Collection.
Wikipeidia. Shane Greenstein and Michelle Devereux. Wikipedia in the Spotlight. August, 2006. Revised
August, 2009. Kellogg Case Collection.
Wikia. Shane Greenstein and Rebecca Frazzano and Evan Meagher, The Triumph of the Commons: Wikia
and the Commercialization of Open Source Communities in 2009. Kellogg Case Collection.
Economic Experiments and Internet Access: Shane Greenstein, "Economic Experiments and Industry
Know-how in Internet Access Markets," in (eds) Adam Jaffe, Josh Lerner and Scott Stern, Innovation,
Policy and the Economy, Volume 8, MIT Press.
Advertising graph. Hal Varian, Newspaper Economics, Online and Offline, March 13, 2010, Testimony
to the Federal Trade Commission.
US Access Adoption: NTIA, Digital Nation, 21rst Century America’s Progress Toward Universal
Broadband Access, February, 2010.
International broadband adoption: OECD Broadband Portal, http://www.oecd.org/sti/ict/broadband,
Table 1i.
Pricing for Internet Access: Connecting America: The National Broadband Plan.
http://www.broadband.gov/
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What research questions are central?
Which directions for progress require
attention?
Your agenda?
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Extra slides to follow.
Entirely new category of economic activity. Grows in less than
two decades to accommodate enormous range of new
applications. Is this the only value created by digitalization? No…
24% annual growth rate from 1998 to 2006. Symptomatic of
growth in a wide array of complementary activities, and a large
reallocation of leisure time and work priorities. How to measure its
economic value outside of contribution of revenue to GDP?
Broadband penetration, G7 countries through December
35
Canada
30
United Kingdom
France
25
Germany
20
United States
Japan
15
Italy
10
OECD
5
0
2001- 2002- 2002- 2003- 2003- 2004- 2004- 2005- 2005- 2006- 2006- 2007- 2007- 2008- 2008Q4
Q2
Q4
Q2
Q4
Q2
Q4
Q2
Q4
Q2
Q4
Q2
Q4
Q2
Q4
S
Every developed economy going through similar
economic transformation.
The upgrade from dial-up to broadband clearly brought some
benefits to households and businesses. It largely went unrecorded.
After that? Internet access (quality adjusted) prices for broadband
service have not declined very much in the recent past.
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Nearly every industry – but a few – employs the
basic technologies of the Internet, such as email
and browsing.
◦ More advanced uses are more dispersed, over lower base
◦ Aside: the last such Census by Forman, Goldfarb &
Greenstein was in 2000.
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The industries with the most use: Management,
data processing, printing, utilities, pipelines,
finance, insurance, technical services, electronics
◦ Surprise: Wholesale trade.
◦ Also leaders in retailing: autos, electronics, book & music,
non-store retailers.
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Consistent leaders/laggards over time.
◦ So expect similar result and some persistence.