<nettime> Rishab Ayer Ghosh: Cooking pot markets 2/2

[Felix Stalder <stalder@fis.utoronto.ca>]

----- beginning of part 2 -------

     Is reputation a convertible currency?

     Suppose you live in a world where people trade chicken and
     grain and cloth - a very basic economy indeed! Suddenly one day
     some strangers appear, and offer to sell you a car; you want it,
     but "Sorry," says one of the strangers, "we don't take payment in
     chicken; gold, greenbacks or plastic only." What do you do? It's
     not hard to figure out that you have to find some way to convert
     your chicken into the sort of commodities acceptable to car
     dealers. You have to find someone willing to give you gold for
     your chicken, or someone who'll give you something you can
     trade in yet again for gold, and so on. As long as your chicken is,
     directly or indirectly, convertible into gold, you can buy that car.

     What holds for chicken in a primitive barter economy holds also
     for intangibles such as ideas and reputation in the part of the
     economy that operates on the Internet [16]. And some of these
     intangibles, in the right circumstances, can certainly be converted
     into the sort of money that buys cars, leave alone pizzas to keep
     hunger away. This may not apply to your reputation as a cat
     enthusiast, though; it may not apply to all software developers all
     the time, either.

     In the primitive barter economy, trade is limited to basic
     commodities with only the occasional car thrown in, Not everyone
     will want to buy cars, however rich they may be in grain and
     cloth. Much of their earnings will go back into buying more basic
     commodities; only some of it will be converted into car-buying
     things like gold. Then again, only some people at some times will
     be able to find the right sequences of trades to convert chicken
     into gold, which may depend on context and the general demand
     for such unusual things in the economy.

     On the Internet - indeed in any knowledge economy - it is not
     necessary for everything to be immediately traded into "real
     world" money. If a significant part of your needs are for
     information products themselves, you do not need to trade in
     your intangible earnings from the products you create for hard
     cash, because you can use those intangibles to "buy" the
     information you want. So you don't have to worry about
     converting the warm feelings you get from visits to your cat Web
     page into dollars, because for your information needs, and your
     activities on the Net, the "reputation capital" you make will
     probably do.

     "The cyberspace 'earnings' I get from Linux," says Torvalds,
     "come in the format of having a network of people that know me
     and trust me, and that I can depend on in return. And that kind of
     network of trust comes in very handy not only in cyberspace." As
     for converting intangible earnings from the Net, he notes that "the
     good thing about reputations ... is that you still have them even
     though you traded them in. Have your cake and eat it too!"

     In 1990, Colin (Col) Needham was a research engineer for "a
     major US computing company which has a large industrial
     research facility in the UK." [17] What on earth was he doing
     developing the Internet Movies Database, which quickly became
     perhaps the most comprehensive source of data on films
     anywhere? [18]

     "I started the database as a fun activity back in 1990," says
     Needham. "There was already a list of actress filmographies
     being posted" - by the Net's ubiquitous hobbyists who don't want
     to charge for the work they do - "to [the USENET newsgroup]
     rec.arts.movies and I added to that by creating a companion
     actors list just for a little bit of fun combining movies and
     computing."
     I never believed that people could do so much work just for "fun".
     Yet it's the most common reason I have always seen for
     anything of value produced on the Net. Some of these people,
     including Needham and Torvalds, spend several hours a day,
     forgetting to sleep, writing programs and creating articles and
     Web pages. Fun?

     For close to three years, I have been publishing frequent articles
     on the Internet, analysing the Indian telecom and broadcasting
     markets. Unlike the weekly column that inspired this book, my
     analyses are published on-line only, and don't even get the fees
     Indian newspapers pay. True, I enjoy doing this, as I have
     enjoyed my prolific posts to various discussion groups over the
     years, but none of this has been just fun. But I have to admit that
     it takes a while to get to more substantial reasons for the
     Internet's huge productivity. After all, few people think of
     economics while developing free resources on the Net, and since
     they're not getting paid for it, the first answer that pops up to the
     question "why am I doing this?" is Fun.

     But there's more. "The original motivation," says Needham later,
     "and [the] sustained motivation right through to today was just to
     put something back into the Internet community in one small way
     ... [it's just that] over the years it turned into a bigger way!" Now
     that's more like it. Putting something back into the Net seemed
     not much clearer than "fun" at first, but it is at least a sign that
     there is something Needham, like all of us, took out of the Net in
     the first place.

     There is, here, the first glimpse of a process of give and take, by
     which people do lots of work on their creations which are
     distributed not for nothing, but in exchange for things of value.
     People "put it" to the Internet because they realise that they
     "take out" from it. Although the connection between giving and
     taking seems tenuous at best, it is in fact crucial. Because
     whatever resources there are on the Net for you to take out,
     without payment, were all put in by others without payment; the
     Net's resources that you consume were produced by others for
     similar reasons - in exchange for what they consumed, and so
     on. So the economy of the Net begins to look like a vast tribal
     cooking-pot, surging with production to match consumption,
     simply because everyone understands - instinctively, perhaps -
     that trade need not occur in single transactions of barter, and
     that one product can be exchanged for millions at a time. The
     cooking-pot keeps boiling because people keep putting in things
     as they themselves, and others, take things out.

     Torvalds points out, "I get the other informational products for
     free regardless of whether I do Linux or not." True. But although
     nobody knows all the time whether your contribution is exceeded
     by your consumption, everyone knows that if all the contributions
     stopped together there'd be nothing for anyone: the fire would go
     out. And that wouldn't be fun at all.

     Needham was a film buff, and had reason to put back into the
     section of the Internet that fed his interest in films. He had no
     plans to trade in the reputation capital the IMDb earned him for
     money, at first, because he had a job and was using his
     "reputation earnings" as brownie points, of sorts, in the on-line
     world of film. His intangible wealth was being used as a ticket to
     the consumption of intangibles, similar to the chicken-breeder's
     spending on grain and cloth, but not cars, in the primitive barter
     economy.

     In contrast, Rob Hartill, who developed the software for the Web
     version of the IMDb, and has maintained the Web version since
     its inception, is a self-described "computer junkie". Indeed, he's
     better known now one of the core developers of the free Web
     server, Apache [19]. As for movies, he says, "I like watching
     films when I get the chance, but I don't take it seriously; no video
     collection, no LD player, no movie books." [20] He didn't have
     much reason to put anything into the Internet - at least, not into
     its movie-loving parts. Nor could the reputation of having worked
     on the "greatest possible entity" that Needham sees as the IMDb
     be much good to Hartill; why should a computer junkie care
     about what film buffs think of him?

     Of course, the work Hartill was extremely computer-related. "I
     loved the idea of database being available to jog my memory and
     generally just be there to play with," he says, so "fun" was
     important for him too! "For me, the Web was a new media [sic]
     that hadn't been exploited for anything interesting," so Hartill
     was, naturally enough, willing to develop an interesting
     application with a lot of effort, in order to give it away. Someone
     had put the new medium of the Web into the Net, Hartill felt
     obliged to put in something himself. "I was looking for things to
     do with the Web ... and I just happened to have the [movies]
     database sitting in my filespace." So his involvement with movies
     was coincidental; what Hartill was putting into the Net concerned
     his area of work and interest, programming for the Web. Indeed,
     "if it hadn't been the IMDb," says Hartill, "I'd have burnt my eyes
     out with some other programming project I'm sure."

     Hartill, unlike Torvalds, then decided to cash in on the reputation
     capital his contribution to the IMDb earned him, perhaps
     answering those who asked "ask why on earth I spent so much
     time working on [IMDb] for no apparent gain." He went to work
     at Los Alamos National Laboratories. "My boss at Los Alamos
     hired me on the basis of what he'd seen of the IMDb" - which
     was pretty famous, and very popular, by that time. Hartill's
     contribution to it was well known, so "I didn't have an interview or
     even talk to [Los Alamos] on the phone before meeting him on
     my first day [at work]."

     But the IMDb, to use Needham's words, "snowballed." It has
     now grown so big, that Needham is working on it full-time, as are
     Hartill and several others with whom they formed a company.
     IMDb is still free, and still relies on inputs from readers - like the
     original version, based on the content of rec.movies.reviews. The
     motivation to develop it further, according to Needham, is not
     very different from what it was originally - "it's seeing what the
     database has become and means to hundreds of thousands of
     users and the challenges of taking it forward which motivate me."
     However, the fact that Needham and Hartill have formed a
     company to work on the database full-time means that IMDb has
     to be their source of real income. It is not enough for IMDb to
     earn intangibles such as reputation to meet their needs for
     intangible information products on the Net; Needham and Hartill
     now need their work to make some real money, tradable in the
     economy outside the Net. As Needham adds parenthetically, "of
     course I now have [the] added motivation that if we fail then my
     wife and kids starve too." Reputation capital can help earn
     tangible monetary returns: IMDb now takes paid advertising.

     Cooking-pot markets

     One can attempt to estimate the monetary value of the static
     resources of the Internet. This could be extended to software
     systems such as Linux, even though this not truly a static
     resource as much of its value lies in the organisation of its
     developer community, rather than any single copy of the
     operating system software.

     For instance, calculating that since Linux users have, on average,
     much fancier hardware than Windows users and could therefore
     pay more for the software, the 5 million-odd estimated installed
     base of Linux is worth some $500 million in annual revenues.
     (This sort of valuation is faulty, as not everyone who uses free
     software would buy a full price version; however, the Business
     Software Alliance uses the same method to calculate losses
     through software piracy, where the same caveat applies.) The
     Apache Web server if paid for in cash ought to have revenues
     exceeding $500 million, given its commanding technical and
     market lead over regular commercial software.

     Such valuations may be imprecise and controversial - I could
     using similar estimates give a figure of at least $50 billion as the
     notional revenues of "free" resources on the Net - but at least
     they can be reasonably attempted using statistical valuation
     methods not altogether unfamiliar to analysts of brickspace
     markets. Using the Net, though, has made it quite clear that the
     real worth is in dynamic resources, the communities of people
     that make up much of the value of even the "static" software on-
     line. The worth of dynamic resources is exceedingly hard to
     quantify, particularly since, like communities in the "real world",
     they are riven with intangibles. Try calculating the worth in dollars
     of, say, your neighbourhood watch community; or your
     old-boys'/girls' network; or simply the folk you hang out with to
     discuss politics (perhaps even economics!). Not easy, maybe
     impossible.

     Yet a rough estimate of the importance of dynamic resources is
     possible: just figure out how much of your energy on the Net is
     spent in interacting with other people - through discussion
     groups, interactive Web sites or sites where you give feedback,
     on-line chat, e-mail - and compare this with the time spent simply
     reading static Web pages. Until recently on the Net it was
     universally the case that people spent most of their time
     interacting with others; now with the explosion of new content,
     and new people who are still finding their way around, the ratio
     may not be so high, but I expect that it will always be, in the long
     run, the Net's dynamic resources that are most valuable.

     If dynamic resources are the most difficult to evaluate, they are
     also the most intangible to trade in. Yet whenever you post to
     rec.pets.cats this is what you're doing: trading in dynamic
     resources, in your post- of-the-moment that is valuable
     temporarily, while your value remains. The workings of this
     system of trade stem from the same motivation of "fun" present
     when Colin Needham developed the Internet Movies Database -
     which, built upon newsgroup discussions, is half-dynamic. It is
     Needham's need to "put back" into the Net after having "taken
     out" so much that drives most trade in dynamic resources. It is
     the cooking-pot market of a seemingly altruistic value-in-giving
     norm that drives the economy of interacting people.

     If it occurred in brickspace, my cooking-pot model would require
     fairly altruistic participants. A real tribal communal cooking-pot
     works on a pretty different model, of barter and division of labour
     (I provide the chicken, you the goat, she the berries, together we
     share the spiced stew). In our hypothetical tribe, however,
     people give what they have into the pot with no guarantee that
     they're getting a fair exchange, which smacks of altruism.

     But on the Net, a cooking-pot market is far from altruistic, or it
     wouldn't work. This is thanks to the major cause for the erosion
     of value on the Internet - the problem of infinity [21]. Because it
     takes as much effort to distribute one copy of an original creation
     as a million - and because the costs are distributed across
     millions of people - you never lose from letting your product free
     in the cooking-pot, as long as you are compensated for its
     creation. You are not giving away something for nothing. You are
     giving away a million copies of something, for at least one copy
     of at least one other thing. Since those millions cost you nothing
     you lose nothing. Nor need there be a notional loss of potential
     earnings, because those million copies are not inherently valuable
     - the very fact of them being a million, and theoretically a billion
     or more - makes them worthless. Your effort is limited to
     creating one - the original - copy of your product. You are happy
     to receive something of value in exchange for that one creation.

     What a miracle, then, that you receive not one thing of value in
     exchange - indeed there is no explicit act of exchange at all - but
     millions of unique goods made by others! Of course, you only
     receive "worthless" copies; but since you only need have one
     copy of each original product, every one of them can have value
     for you. It is this asymmetry unique to the infinitely reproducing
     Internet that makes the cooking-pot a viable economic model,
     which it would not be in the long run in any brickspace tribal
     commune.

     With a cooking-pot made of iron, what comes out is little more
     than what went in - albeit processed by fire - so a limited
     quantity must be shared by the entire community. This usually
     leads either to systems of private property and explicit barter
     exchanges, or to the much analysed "Tragedy of the Commons."
     [22]

     The Internet cooking-pots (in the plural, as it turns out, an
     examination of which is beyond the scope of this paper) are quite
     different, naturally. They take in whatever is produced, and give
     out their entire contents to whoever wants to consume. The
     digital cooking-pot is obviously a vast cloning machine, dishing
     out not single morsels but clones of the entire pot. But seen one
     at a time, every potful of clones is valuable to the consumer as
     the original products that went in.

     The key here is the value placed on diversity [23], so that
     multiple copies of a single product add little value - marginal
     utility is near zero - but single copies of multiple products are, to
     a single user, of immense value. If a sufficient number of people
     put in free goods, the cooking pot clones them for everyone, so
     that everyone gets far more value than was put in.

     An explicit monetary transaction - a sale of a software product -
     is based on what is increasingly an economic fallacy that each
     single copy of a product has marginal value. In contrast, the
     cooking-pot market rightly allocates resources on the basis of
     where consumers see value to be, in each distinct product.

     A calculus of reputation

     A crucial component of the cooking-pot market model is
     reputation, the counterpoint to ideas. Just as money does not
     make an economy without concrete goods and services,
     reputation or attention cannot make an economy [24] without
     valuable goods and services, which I have called "ideas", being
     produced, consumed and traded.

     Like money, reputation is a currency, i.e. a proxy, which greases
     the wheels of the economy. Monetary currency allows producers
     to sell to any consumer, without waiting for the right one to offer
     a needed product in barter exchange. Reputation encourages
     producers to seed the cooking-pot by providing immediate
     gratification to those who aren't prepared to pull things out of the
     pot just yet, or find nothing of great interest there, and keeps the
     fire lit.

     Money also provides an index of value that aids an understanding
     not just of individual goods (or their producers), but the entire
     economy. Reputation, similarly, is a measure of the value placed
     upon certain producer-consumers - and their products - by
     others. The flow and interaction of reputation is a measure of the
     health of the entire cooking-pot economy.

     Unlike money, reputation is not fixed, nor does it come in the
     form of single numerical values. It may not even be cardinal.
     Moreover, while a monetary value in the form of price is the
     result of matching demand and supply over time, reputation is
     more hazy. In the common English sense, it is equivalent to
     price, having come about through the combination of multiple
     personal attestations (the equivalent of single money
     transactions).

     Money wouldn't be the same without technology to determine
     prices. Insufficient flow of information required for evaluation, and
     insufficient technology to cope with the information, has always
     been responsible for the fact that the same thing often have the
     same price across all markets.

     The management of reputation is far too inefficient today to be a
     useful aspect of a working economy. Its semantics are poorly
     understood; moreover, there is nothing remotely akin to the
     technology that determines prices based on individual
     transactions in the monetary economy.

     In a forthcoming paper I examine the calculus of reputation
     networks, especially as they would work in a cooking-pot
     market, and describe a possible technological solution to the
     problem of efficient reputation management.

     Conclusion

     The common assumption that the Net feels at home with free
     goods and vague trade because its population is averse to
     money, altruistic or slightly demented is wrong. It is becoming
     more obviously so as floods of "normal" people arrive from the
     world outside, and initiate themselves into the ways of the Net.

     An economic model based on rational self-interest and the
     maximisation of utility requires the identification of what is useful -
     sources of value - as well as a method of expressing economic
     interaction. In the cooking-pot market model, it is seen that while
     scarcity creates value, but value is subjective, and may therefore
     be found in any information at all distributed on the Net.

     The cooking-pot model provides a rational explanation for
     people's motivations to produce and trade in goods and services,
     where a monetary incentive is lacking. It suggests that people do
     not only - or even largely - produce in order to improve their
     reputation, but as a more-than-fair payment for other goods -
     "ideas" - that they receive from the cooking-pot. The cooking-pot
     market is not barter, as it does not require individual
     transactions. It is based on the assumption that on the Net, you
     don't lose when you duplicate, so every contributor gets much
     more than a fair return in the form of combined contributions of
     others.

     Reputations, unlike ideas, have no inherent value; like money,
     they represent things of value, as proxies. Reputations are
     crucial to seed the cooking-pot and keep the fire lit, just as
     money is required to reduce the inefficiencies of pure barter
     markets. However, reputations require a calculus and technology
     for efficient working, just as money has its price-setting
     mechanisms today.

     The cooking-pot model shows the possibility of immense value
     being generated through the continuous interaction of people at a
     numbing speed, with an unprecedented flexibility and aptitude
     towards intangible, ambiguously defined goods and services. The
     cooking-pot market already exists, it is an image of what the
     Internet has already evolved into, calmly and almost
     surreptitiously, over the past couple of decades.

     The cooking-pot model is perhaps one way to find a rationale for
     the workings of the Internet - and on the Net, it finds expression
     everywhere.

     About the Author

     Rishab Aiyer Ghosh (rishab@dxm.org) is Managing Editor for
     First Monday. This paper was written in December 1996 and is
     updated from a version published in First Monday, Vol 3, Issue 3,
     March 1998. http://www.firstmonday.dk/issues/issue3_3/

     Notes

     1a http://www.linux.org

     1 http://www.amazon.com

     2 Rishab Aiyer Ghosh, 1994. "The rise of an information barter
     economy", Electric Dreams, #37 (21 November), at
     http://dxm.org/dreams/dreams37.html

     3 http://www.linux.org

     4 http://www.apache.org

     5 http://www.genmagic.com/Internet/Trends

     6 Rishab Aiyer Ghosh, 1995. "Implicit transactions need money
     you can give away", Electric Dreams, #70 (21 August), at
     http://dxm.org/dreams/dreams70.html

     7 see, e.g. Linux distributed by Red Hat Software, Inc -
     http://www.redhat.com

     8 This, and other quotes from Torvalds, are from e-mail
     dialogues held with the author since October 1996. A
     consolidated version is published as an interview in First Monday,
     Vol. 3 Issue 3, March 1998,
     http://www.firstmonday.dk/issues/issue3_3/

     9 Credited to John Perry Barlow.

     10 Electric Dreams, http://dxm.org/dreams/

     11 Rishab Aiyer Ghosh, 1995. "Paying your readers", Electric
     Dreams, #67 (31 July), at http://dxm.org/dreams/dreams67.html

     11a Michael Goldhaber, 1997. "The Attention Economy: The
     Natural Economy of the Net", First Monday, Volume 2, issue 4,
     http://www.firstmonday.dk/issues/issue2_4/goldhaber/index.html;
     Richard A. Lanham, "The Economics of Attention,"
     http://sunsite.berkeley.edu/ARL/Proceedings/124/ps2econ.html

     12 Paul A. Samuelson and William D. Nordhaus, 1995.
     Economics. 15th ed. New York: McGraw-Hill.

     13 http://www.timesofindia.com

     14 Or the similar Blue Ribbon campaign, see
     http://www.eff.org/blueribbon.html

     15 Tim Clark, 1996. "Gates: Explorer will be huge", C-NET News
     (August 1), at http://www.news.com/News/Ite
     m/0,4,2009,00.html

     16 Rishab Aiyer Ghosh, 1995. "Implicit transactions need money
     you can give away", Electric Dreams, #70 (21 August), at
     http://dxm.org/dreams/dreams70.html

     17 Needham's quotes are from private correspondence on file
     with the author.

     18 http://www.imdb.com/

     19 http://www.apache.org

     20 Hartill's quotes are from private correspondence on file with
     the author.

     21 Rishab Aiyer Ghosh, 1995. "The problem with infinity",
     Electric Dreams, #63 (19 June), at
     http://dxm.org/dreams/dreams63.html

     22 Garrett Hardin, 1968. "The Tragedy of the Commons,"
     Science, Volume 162, pp. 1243-1248, and at
     http://dieoff.org/page95.htm

     23 Rishab Aiyer Ghosh, 1995. "Trade reborn through diversity",
     Electric Dreams, #65 (10 July), at
     http://dxm.org/dreams/dreams65.html

     24 On the importance of attention, see Michael Goldhaber,
     1997. "The Attention Economy: The Natural Economy of the
     Net", First Monday, Volume 2, issue 4,
     http://www.firstmonday.dk/issues/issue2_4/goldhaber/index.html



     Copyright � 1998, � � � s � - m � � d @ �





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