A couple of weeks ago, when I was in New York for the AJAXWorld conference, the city welcomed me with a major downpour most of the time I was there. The metaphor about storm clouds building over Wall Street was wrong - the storm clouds had opened up and were hitting Wall St. and Madison Ave. and Broadway all pretty much with equal vehemence.
The consequence of the more financial fallout on Wall St. is only now just beginning to hammer at the average American (and is at least on the horizon for the average Canadian). If you were employed in the housing or financial sectors, chances are rising that you’re no longer in the housing or financial sectors. As the credit markets continue to seize up and the government bailouts begin to soar into the hundreds of billions of dollars, this WILL have a negative impact upon employment in most other sectors, I’m not going into the details - I’m sure that you are probably already as attuned to the shaky state of the economy as I am.
However, this has helped to highlight for me an issue that I’m seeing hit with increasing savagery. We live in an impedance economy, an economy in which the value of goods or services is directly proportional to the scarcity of those goods or services. On the commodities side this is reflected in dramatically rising food prices as demand for staple crops - rice, wheat, corn, soybeans - rises … whether that rise be the rise of a Chinese and Indian middle class (with corresponding shifts in taste), reduced arable land due to climactic pressures, subsidization of ethanol, rising petroleum costs .. there are certainly enough vectors..
Labor costs are of course subject to the same equation (though there are exceptions). The skill necessary to work at McDonalds is low, therefore there are a lot of people who are in that labor pool, pushing down wages. On the other hand, if you’re the manager of a McDonalds in Edmonton, Alberta, where demand for oil workers is still very high, then you’re shelling out nearly $20/hr in order to keep the employees you do manage to find. There are distortions - the more direct your contributions to the bottom line of an organization, the more you’re paid, which is why sales people (and CEOs are ultimately sales people), who typically have the easiest metric between their efforts and the resulting income into an organization, tend to be paid disproportionately to the work that they do compared to an engineer or a researcher even though it is most often the work of the latter that the sales force is selling. But for the most part the law of supply and demand at least acts as a guiding principle in the economy.
One of the things that tends to attract people into working with XML and the web in general is that both are surprisingly efficient at reducing impedances. The web makes it possible to significantly reduce the cost of distribution for almost anything of an intellectual nature, and moreover makes it possible to transform those things in increasingly complex ways to address different platforms, languages and needs. The question “what is a book”, once so obvious, now requires a fair amount of thought about where specifically in the production pipeline that book is and what medium its embedded in. Indeed, one of the most significant aspects of intellectual property development now is the degree to which a given representation of such an entity is to the “source code”, not just in terms of software development but in the production of books, music, art and even contract law. Indeed, authorship is increasingly being defined legally as the possessor of the earliest instance of the source code for a given product, with fairly strict requirements placed upon the degree of certainty in that accuracy of that date.
However, because XML in particular has the potential to be the “source code” for so many intellectual ventures, those who work with XML should sometimes sit back and examine the ethics of reducing impedance, and the ramifications for society as a whole. You reduce impedance in production, and one immediate effect is that you increase the number of people who can participate in the activity. Thirty years ago, if you wanted to be a professional illustrator, it typically meant that you had to be skilled at putting brush to canvas or pen to paper, and it also meant that you had to be effective at selling yourself as competent in your field … not necessarily the best, but capable of doing the job at hand for a publisher or advertisers. This process tended to be self-selecting … if you weren’t very good, you eventually were forced out of the field, but if you were good enough, you could live reasonably well (okay, you could live) on what you could make in that field.
Today, you can go up to any number of sites on the web such as DeviantArt.com and find work that is, in many cases, stunning. As an artist, this increases your exposure from perhaps a few dozen people in a given year to in some cases millions, but it also means that the number of competitors you face becomes much, much higher. There are those that argue that this encourages mediocrity, but I’m not really sure that’s the case … indeed, I’d be more inclined to say that it forces people who otherwise would have few incentives to improve their schools to do so, and it likely rewards those that have done so more handsomely, if in likely smaller checks.
It is an argument that I see raised at O’Reilly and other publishers. Traditional publishing has been a comparatively high risk occupation for an investor. From a business standpoint, publishing is not that far removed from gambling. As a publisher, you typically would have to identify a particular niche in the market that you felt was underserved, then you would either accept a bid by a writer to write a book in that niche. The publisher would extend an advance to help the author cover their costs and would reserve time on presses, then when the book went to publication, would outlay more money (usually significantly more money) to get the book printed and into the distribution channels. If the book sold well, you made a profit (and returned some of that to the author and occasionally the editor of the book). If the book sold poorly, you could lose a lot of money.
Today, that equation has changed pretty dramatically. The number of writers has risen somewhat, meaning that attracting talent becomes somewhat easier, though in certain areas such as technical publishing, that’s not as true as it may be in areas like romance. What it does mean in both fields, however, is that the writers that you can choose from tend to have considerably higher profiles than they would otherwise, because the successful ones general have learned that you need to be selling yourself constantly through blogs, through articles, through stories that are freely available. The niches are not necessarily fewer (if anything, there are more of them) but they tend to be increasingly out on the long tail, so trend chasing is still an art that a successful publisher needs to engage in.
Printing has changed - printers that survived the rise of the Internet have adapted, and for the most part contemporary presses are able to electronically print even a handful of books at a reasonable profit, which means that the impedance of economy of scale has also diminished. As large bookstores continue to consolidate in the wake of Amazon, Lulu.com, Abe Books and other online mega-retailers, this has also meant that increasingly the cost of distribution and warehousing is itself being distributed to the customer, rather than being an upfront cost to the publisher. This usually means that the profit margins on a book drop because that retail markup is no longer as big a factor. This means that in order to make the same profit, you have to originate more books
Thus, what this has meant is that in general, even before the issue of piracy gets raised (more on that in a bit), the reduction of impedance has generally been a mixed thing for publishers - their capital investment risks are much smaller, but so are their profits. If this sounds a lot like what’s been happening in the financial sector, its largely because the mediating agency (low impedance infastructure) is the same in both cases.
Whether you’re pushing more books through the production pipeline or originating more mortgages in order to keep even, you’ll still run into the same problem - you still have to find buyers, in a market that’s usually not that elastic. Many sectors (tech books in particular) run into strong diminishing marginal rates of return. Once you buy an XML book, you may want to get one or two more to get different perspectives, but after those three your incentive to purchase more XML books drops fairly steeply.
Now kick into this mix the fact that anything digital can ultimately be copied and redistributed at effectively no cost. Is this ethically a crime? It can certainly be legislated as one, but given that what was “stolen” was a particular pattern of electrons, rather than a physical product, ethically it makes it much harder to argue that you have performed theft. Have you deprived a person of their livelihood in performing this theft? Again, this gets tricky, because it may be argued that 1) in taking the electronic representation you may in fact have stimulated the sale of the physical book, game, movie, whatever by that person, and 2) that person is more likely if the quality of the work is sufficient to recommend the work to others who may also otherwise purchase it.
Thus, one representation of the resource in question can in many cases prove to be an incentive for the purchase of the resource in another representation. The electronic version serves as an advertisement to the physical version (meaning that the economy as a whole is moving into a trial version modality). At this stage this process is strongly deflationary, in great part because in many cases in the past what was sold to customers was a bright and shiny box that held crap inside of it. Again this mirrors what’s happening in the financial space, as fancy sounding financial vehicles with impressive marketing driven buzzwords all round ended up containing what amounted to the detritus of loans originated to people who had no means to pay them off. In both cases, once the lid is taken off and the reality is displayed, the “real” value of the product depreciates quickly.
I’m not sure that this is a race to the bottom so much as the market establishing a new equilibrium based upon an increased speed of communication. Those people who have talent, a compelling product, a good idea, are more effectively rewarded in this particular marketplace than they were in times past, while the mediocre loses value quickly. You see this in the blogosphere, where blogger personalities have arisen (and who generally manage to survive quite well, thank you). You see this in the gaming industry where the most successful titles are almost invariably the ones that also have the greatest degree of piracy.
This is the reputation economy - and like most economic models before and likely since it has both its strengths and its flaws. It’s been my experience that the people who bring the most value to this kind of economy actually get rewarded quite well, but like certain presidential candidates, the rewards come in large numbers of bills of small denominations. It is, in some ways, more egalitarian - its easier for a stay-at-home housewife to gain both a following and a reputation in this day and age than it was in the past - but a coordinated smear campaign can prove especially swift and devastating, and the mighty can be brought down in an eye-blink. It’s arguable whether it’s stable … indeed, my suspicion is that collapses are likely to occur far more often in this type of economy, but because they don’t have the time to build deep destabilizing influences, their effects are usually much more local than they would be otherwise.
The reputation economy does not supersede the resource based economy. Real goods still cost real money. However, in a reputation economy, the reputation of the instability of a currency can make the correlation between “real” wealth and nominal wealth tenuous at best. Money will not go away in such an economy, but as seems to be happening paper money too becomes simply another virtual data stream, with any currency simply becoming one among many (not all of which are necessarily government backed), its value directly tied into its reputation - with the greatest fear being that it becomes yet one more thing to attempt to arbitrage.
Thus, I’d beware both the doomsayers and the utopians. A person’s worth is in their reputation, now more than ever … and while I don’t think this is necessarily a bad thing, neither do I think it is ideal. It’s a different world, and it will take a while (and no small amount of disruption) to figure out what the rules are.