Free or Fee? Biggest Tech Trend of 2012

Photo: GeekTech

Black Markets as Drivers of Innovation?

Back in December a well-known journalists – I think it was Steve Gilmor – posted that it was “a fool’s game” to try to predict trends for 2012. Figuring he’s probably right, I nixed the idea of drafting such a post.

Yet here we are, less than three weeks through the first month of the year, and I have to say we’ve probably already seen one of the most sensational tech events of the year, the takedown of MegaUpload and Kim Dotcom – and one of the largest events, the crowdsourced rejection of SOPA and PIPA, two congressional proposals designed to protect intellectual property by shuttering websites suspected of delivering unlicensed content.

Obviously, it would be almost impossible to mention one of these events without mentioning the other. Indeed, there is every reason to believe that the takedown of MegaUpload was designed to coincide with a hoped-for passage of IP protection legislation, which would have bolstered the government’s [read: lobbyists for the entertainment powerhouses] position, but of course that hasn’t happen…yet.

Still, these events are fundamentally just points along the way to a much, much larger trend that has existed since the dawn of the Internet and likely long before: The never-ending clash between those who believe the Internet (and by extension everything on it) should be free…and those who want to protect the rights of content creators to fair compensation.

Clearly, this trend has existed for a long time, which is why I’m sure there are some readers who question how I could offer this as the most important trend of 2012.

But the world has changed in fundamental ways in the last few years, and we’re now at a place where businesses that don’t have an Internet presence are feeling the impact. Everyone has a stake in the game, and consequently, everyone is vulnerable. Even more to the point, some important groups are actively pushing massive proposals which could shift the Internet landscape in fundamental ways.

We’re in a period analogous to the post-modern industrial age, when the earliest companies in nascent industries such as automobiles, pharmaceuticals, aeronautics and communications were faced with unrelenting competition, often from former employees who carried away vital information to form competitive concerns. Some of these companies weren’t able to fight and adapt. Others were so fierce that they ran ahead of the law, overrunning, acquiring and stealing from the competition faster than governments could react.

Overarching all of this activity – now as then – is the black market.

It’s been estimated that as much as 40 percent of the world’s commerce is now conducted on the black market, and most of this involves illicit manufacturing, distribution and sales of protected products.

In the first half of the 20th Century, noticeable increases in black market activity accompanied and then followed significant military engagements. Much of what the Asian world knows of modern Western commerce sprang out of this era (it’s no surprise, in this respect, that Dotcom built his fortified mansion in New Zealand.) Since the 1960s, an entirely new avenue for black market distribution has evolved – the Internet.

Perhaps ironically, this New Gold Rush is attractive to black marketeers for the same reason Wall Street traders love their playing field: it’s a direct line to the greatest profit with the least possible overhead.

Entertainment properties are at the nexus of this activity because of their immense potential for quick profits, and they’re even more attractive now because they can be reproduced and distributed over the Internet for almost nothing.

But caught up in this trend are all manner of other businesses whose primary products are also software based. This includes everyone from book writers to electronic design automation companies, which make the software used to design and build the very latest semiconductors.

In fact, anything that can be transmitted in software form is vulnerable to piracy. Any business which relies on the Internet to distribute its products is at the height of vulnerability.

SOPA and PIPA have been sent back to the drawing board, but the threat of wholesale distribution of unlicensed intellectual property looms over the boardrooms of legitimate businesses everywhere. (Another proposal, the Anti Counterfeit Trading Act or ACTA, has achieved significant global support and is also on its way to the Senate.)

Even non-profits are vulnerable.

An organization to which I belong is experiencing serious tumult because the literature sales that have financed this self-help group for the past 60 years are likely to be wiped out as followers around the world opt to download free or low-cost PDFs from third parties on the Internet rather than pay for hard copies. Unless the organization rethinks its marketing strategy and embraces online content and ecosystems, this trend could wipe out more than half of the organization’s annual income and force a complete restructuring, irrespective of whether anyone wants to go down this road or not.

Is the legislative approach the only option to protect content creators? I don’t think so.

The current best strategy seems to be outpacing the black market by embracing emerging technologies. In the last couple of years, we’ve seen the emergence of apps as replacements for the full Internet experience. This was deemed necessary as most smart phones did not have the processing power to support a full Internet experience. Just as important, it took the user off the Internet itself and gave him or her a small portion of that Web, on a pay-to-play basis.

Almost unwittingly, millions of people have shelled out billions of dollars for these apps, 99 cents at a time, and in doing so have protected the intellectual property of thousands of companies. The same can be said for people buying books through the Kindle and iPad on Amazon and the iTunes stores. For a substantially reduced cost, they are supporting legal commerce and protecting the rights of content creators.

To enhance this approach, entertainment concerns are also changing up distribution strategies by delivering content to the internet almost as fast as it goes to book form or to theaters. Some publishing and movie producers are coordinating marketing to ensure maximum benefit before the black market channels begin their work.

Yet this strategy is also vulnerable. For every dozen or so people who buy books and movies in app form, there are at least four who know how to circumvent the pay sites and download essentially the same copy for free. So other distribution strategies have to be devised.

Business-to-business companies have somewhat of an advantage in that their customers are respectful of sophisticated IP protection mechanisms including special passwords, encryption schemes and coded dongles. But consumers want a far easier user experience.

So technology companies continue to innovate new answers.

Ultimately, however, the onus rests on us, the consuming public, to decide whether we want to honor content creators by justly compensating them for their work, or do we want it for free?

Morality and commerce are, it seems, inextricably linked.