The bizarro world of technology investment

Rob Clark

I recently read an excellent blog post by Elmo Keep discussing the problems that have arisen as technology has stripped the profit and value out of content creation.

The article points the finger at services like Spotify and at us as consumers for making this devaluation happen. However, I believe you can't really fault consumers for behaving like rational beings and chasing the lowest price. It's how the system is meant to work. The problem has been introduced because of the bizarro world that exists in tech, where billions of dollars are showered on companies with only the vaguest hint of how that money will ever be made back. Where CEOs proudly state they have no desire, or intention, to turn a profit any time soon, or, indeed, really ever. Just like in the GFC, pouring billions of dollars into many investments that are not likely to make a decent return is probably going to end up in tears for all.
 

Post-Crisis Bizarro



Broken down to its simplest, for-profit companies are not complicated beasts. Share capital is put up in order to create a business, the business is created and profit is made, which is then returned to the shareholder or investor by means of dividends. Of course, money can also be made by capital gain on the shareholding which is realised by private market sales, at an IPO, or on the market sales once listed. But, in the long term, the model is only sustainable if the company is going to turn a profit, and turn the kind of profit which bears some resemblance to the amount of money invested in the first place. It's no use making a profit of $1 a year if it cost you $10 billion to build the business to make it happen.

This reasoning does not appear to apply in many tech companies.

Take Facebook. Facebook has turned a profit you say! Yes. However, the profit is a very small fraction of the billions poured into the company through its IPO, such that it will take a very, very long time, and a lot more profit, for Facebook's valuation to look at all sensible. Furthermore, Facebook was only able to get to this stage because of the billions that were poured into it by investors before it went public. Those investors made money, yes, but only because the value of their shareholding went up hugely. That increase in valuation, however, must still be predicated on the fact that the business will eventually make enough money to return that value. The jury is still very much out on whether Facebook can pull it off.

Ditto with companies like Twitter, Spotify and Amazon. These tech companies have a spigot of money attached to them, with far fewer strings on that money than most companies could ever dream of and, like almost all free money, this leads to perverse outcomes.

Content is one casualty of the free money. If a tech company has no real need to make money in order to justify its existence, and if investors keep writing cheques, the company can happily strip value out of whatever is the meat in its grist.

For example, Spotify charges no money, or a very small amount of money, to access almost all the music you could ever want to listen to. There is literally no reason to ever buy music again. It then takes some of the pathetic sum generated from advertising revenue and subscriptions and hands it on to the content creators, without whom it would not exist. It keeps some for itself, but of course not nearly enough to make its services profitable, but then this does not matter because its investors apparently don't care about the company ever turning a profit. Were Spotify actually profitable, and properly profitable, content creators could demand a bigger share of the pie and there would actually be a pie worth fighting over. Instead, being a pauper, Spotify simply does not have much to give. Its investors don't seem to care, but content creators do – they are left to fight over a small Lean Cuisine pie, which doesn't taste particularly good anyway.

This forces the value of the content down to near zero. Why don't content creators simply refuse to deal with Spotify? I'm sure they wish they didn't have to, but of course they have to try and get some money for their wares, because on the other side of Spotify is actual zero.

Isn't Spotify better than nothing then? Well no, because at least people know that the 'free' side is wrong. That may not stop all, but it will stop many. But now Spotify gives the stamp of legitimacy for paying almost nothing for content, and, as Elmo says in her article, conditions that to be the price of content. While iTunes stripped a lot of value out of content, $1 per song is still better than percentages of a cent per song.

A similar thing occurs with Amazon, as Matthew Yglesias of Slate points out. Amazon can afford to offer lower prices than everyone else because its investors apparently don't care that it makes virtually no profit. Amazon's share price continues to hold up despite CEO Jeff Bezos having shown no great desire to actually make any money for them. While this is very generous of Amazon's investors, to essentially pay the margin for goods that would otherwise be borne by the consumer, the end result of all this is that all the rest of the companies that don't have rich parents shovelling them free money are forced to also make virtually no profit and to squeeze their suppliers dry.

Something has got to give.

In the case of Amazon, maybe that's the plan: to drive everyone else out of business and then turn into a rent-seeking monopolist. But it’s a pretty ballsy plan, and one that relies on investors not to lose their nerve and withdraw their money early, having thrown in good money after bad and in the meantime putting almost everyone else out of business.

In short, despite the mystique, most tech companies leverage content created by others - whether it is Facebook and Twitter with content created by us, Spotify with content created by artists or Amazon with content created by almost every conceivable business in the world (you can buy light bulbs on there for goodness sake!). While some content is easily created for free (especially in the case of social media) other content unavoidably costs money to make. Unless or until the investors in tech companies start being more rational in their investments and in their demands of their companies (or alternatively stop looking to make billions on the flip), they could well allow their companies to kill the content on which they rely.

Business is business, and profit is the oil that makes all business run - tech is not special in that regard. When that requirement is removed in one link of the chain, it can cause havoc when all the other links in the chain are behaving in a self interested fashion. We consumers are like kids in a candy store, we're going to gorge on candy, even if we know its not good for us in the long run. So for goodness sake stop giving us cheap candy!

Image by ElDave, made available by Creative Commons licence via Flickr.

Digital Media and the, ahem, Business Model of the Future

Nicholas Sheppard

I worked for some years as a researcher in copyright protection technology, though my funding has long ended and I've since moved on. Digital copyright issues probably don't generate quite the fuss they did back in the hey-day of Napster, and this year I discovered that the ACM Workshop on Digital Rights Management — where I think some of the most interesting work in this field was presented back in its own hey-day — is no longer on the calendar. Does this subsidence indicate that issues of copyright and digital media have now been settled to everyone's satisfaction, or just that my former co-travellers in digital media and security have gone off to write about more current headlines, like Facebook's privacy policy?

One recommendation that I heard over and over again is the one that the music industry must combat infringement of its copyrights by "getting new business models." Ironically, perhaps, one of the original hopes for rights management technology was that it would enable new business models based on paradigms other than the exchange of physical copies, not usher in an era of confusing and inconvenient rules of use.

Retailers have, in fact, tried a number of different business models — possibly more than critics give them credit for — including subscription services like Rhapsody, ad-supported services like Spotify, "viral" services like PotatoSystem, and bundled-with-device services like Nokia's Comes with Music (now largely defunct). Well-known bands Nine Inch Nails and Radiohead even tried giving their music away for free or in return for a donation, though neither of them is doing it any longer.

By all accounts, though, the most successful retailer of digital music is Apple's iTunes, which charges a one-off fee for a recording to be kept and played as often as the buyer likes. Sounds rather like the old business model to me.

Might it be that music listeners — or the ones willing to pay for the pleasure, at least — are not as interested in new business models as would-be copyright reformers thought they would be? And did we go through all of that Napster-inspired anguish only to find ourselves doing exactly the same thing as before?

Not quite, obviously, since Rhapsody, Spotify and others do have customers — even if it's not so many as iTunes — and there may be factors other than business models contributing to iTunes' success. One certainly hopes that we've learned a thing or two from the experience.

The video industry, intially protected from file-sharing networks by the time it took to download a video around the turn of the century, is one that has had chance to learn from the experience of the music industry. The trend for copyright protection technology here has been towards so-called "rights locker" services like the Digital Entertainment Content Ecosystem's Ultraviolet and Disney's KeyChest, along with infringement-detection systems like YouTube's Content ID, rather than the copy-prevention technology that the software and music industries experimented with in times past.

A rights locker is, in essence, an Internet database that records a buyer's right to use a song, video or book. When the buyer wants to access the item, his or her device checks with the locker that its user has, indeed, purchased the right to use it. If well-designed and -implemented, rights lockers might eliminate some of the inconveniences that customers experienced with copy-prevention technologies, including incompatability, an inability to format-shift, and an inability to make back-ups. They also seem to fit nicely with the pay-once-for-eternal-usage model that we have become accustomed to.

Rights lockers, however, don't actually work very much like the books, CDs and DVDs that got us used to the pay-once model in the first place. Since the right to use something is governed by a record in a database rather than possession of a physical copy, it looks more like an "access right" than a "copy right".

How much does this matter? It certainly matters to lawyers, for whom an "access right" and a "copy right" could be quite different things (see Marcella Favale's analysis of EU law for a recent example). But will the average user continue to think that he or she owns something, even if it is an entry in a database rather than a physical book, CD or DVD? Or will the user get used to the idea that "this work is licensed, not sold", in the words of many a software agreement? And, if the latter, will he or she be more likely to explore alternative business models?

A Universe of Data is Not Enough

Colin Picker

Humans have always recorded information (or data). From early cave drawings to Edison’s phonograph cylinders to the photos and music on I-phones, data recordation and storage seems to be a human attribute. But today we live in furious period of data storage. That data today includes pictures, video, music, documents and records of almost every type of human activity and thought (though, a very large percentage is, as has always been the case, pornographic – there are even pornographic cave paintings).

Today that information is increasingly stored at the electronic level. In the future we can expect almost all data to be stored electronically, and even sub-atomically (utilising the smallest constituent parts of the universe). While occasionally we record over past recordings, we more and more produce data that will be archived, eventually producing archives that will be able to last forever—or at least until the end of the universe (assuming there will be such an end, more on that below). As our technological needs increase, more and more data is needed, more and more is therefore going to be stored. But, is there an upper limit to the amount of data that can be stored? I don’t mean the limit on a hard drive, or a very large data storage array. I wonder whether there is a theoretical limit imposed by the very nature of the universe.

I first started to think about such an upper limit when considering the non-existence of infinity (more on that later, though admittedly an unusual thought experiment for a law academic). In any event, my ruminations took me to a place and time where we, humanity, had already moved to store our data at the quantum level, utilising the smallest sub-atomic components to represent the zeros and ones of data (assuming the correctness of quantum limitations). One quark, or whatever will at that time be the smallest unit, would represent one piece of data; another quark, or its specific absence (a non-quark), would represent another piece of data. But, if the universe is finite in size and composition, then there are a finite number of quarks available for use from the existing matter of the universe—including that used in the memory portion of our brains and that which can be converted from the various forms of energy in the universe. There is therefore a finite amount of data that can be stored on that finite number of quarks. True, utilization of that large capacity is a long way off, but it is, critically, a finite long way off. Furthermore, once imagined, it then exists—and that limitation has some very significant metaphysical consequences.

One consequence ties in with my original concern about infinity. One way to consider numbers is that they only exist if they can be represented (in our memory, on paper, as data, as cave drawings, etc). But if there is a data limit on the total representations of numbers, then there is a limit on those numbers. In other words, there is a finite number of numbers that can be expressed, and hence that can exist, a number limited by the data storage capacity of the universe. True, it is a large number, but it is a finitely large number. In other words: not infinite.

But back to the data storage issue. Perhaps the most important consequence is that eventually, when we do hit that data storage capacity, all new knowledge has to displace some of the previously recorded knowledge. Thus, while the composition of that knowledge may change, it can never exceed the total finite storage space. Once replaced, the data will then be lost forever (assuming no duplication, which we should assume, for until we have eliminated all excess duplications there really is no storage problem). While much that will be lost at first will be inane, eventually all the inane and frivolous pieces of data and knowledge will have been deleted to make way for more serious and important information. What happens then? We will need to be careful about the creation of new data (including new memories), for it will then require us to make hard choices about what other data must be erased to make room for the new data.

So, every time you download an “app”, create a new document, take a photo on your camera and then download them to your hard drive or into some data cloud or other, you are hastening the day when we run out of data, and hence limit our collective collection of new knowledge. Maybe, like fossil fuel conservation, we need to start thinking about data conservation – not for us, but for our children. A good start would be to delete this comment from your computer and then to forget all about it.

Cyborg Cops, Googlers and Connectivism

Alexander Hayes

We have become the camera and it has become us. (Aryani, 2012)

©Marco de Angelis

I rarely leave my mobile phone out of physical reach or indeed earshot and it is almost always powered on. It has become my compass, calculator, calendar and main communication channel with literally thousands of contacts in my networked cloud.

You might agree that this is not dissimilar to your own current relationship with this disruptive technology, your personal electronic portfolio. It might also occur to you, upon reflection, the profound impact this technology is now having upon your communications with family, friends and work colleagues. At a stretch you might even acknowledge that your cell-phone is "closer" to you that you ever imagined possible a decade ago, and thus is, in relative terms, wearable.

Project Glass is a research and development program by Google to develop an augmented reality head-mounted display (HMD). The intended purpose of Project Glass products is the hands free display of information currently available to most smartphone users, allowing for interaction with the Internet via natural language voice commands.

Whilst we might recoil aghast at Steve Mann’s predictions as to our wearable, portable and existential future, we must also acknowledge that this consumption of hyper-connectivity is simply yet another transformation in humanity. Given that Project Glass now connects wearers en-mass and ostensibly ensures that they can continue with physical activity hands-free, it creates arguably one of the largest known veillance vehicles into previously unmapped territories that humans already frequent. A hands-free, fashionable and constantly connected technology positions the product well amongst the seemingly unending array of Google's seamless and integrated services.

It is notable that Google's CEO Eric Schmidt is attributed with publicly dismissing privacy concerns as unimportant or as old fashioned according to Dwyer:"When companies sell information for a living, privacy is not their priority."

Irrespective of what challenges Google now faces around its users' privacy, it seems evident that this body-worn technology is set to revolutionize the manner in which we will interact with each other in the not too distant future and conversely how others will interact with that open and captured data thereafter.

At a recent presentation, I expressed my own feelings of unease at the roll-out of body wearable technologies across the Australian Police Force, where officers are conducting trials of location-enabled body-worn cameras and digital video recorders as part of law enforcement activities not unlike what is already fully deployed in the US and UK.

At this brief cross-sector meeting of minds, of surveillance studies experts, academics, law enforcement officers and private investigators, was also an equal proportion of actors, artists, educational technologists and technology service providers. What was apparent from what might sound to be a dissimilar array of roles and occupations at this workshop was a unified interest in what this technology now poses for the law enforcement officer, for the jury and ultimately for either the victim or perpetrator. It became also very apparent at this workshop that in a crowd-filled public, the seemingly innocuous role that a cell-phone is now poised to facilitate, is, in fact an emergent omniscient inverse sousveillance.

I also spoke to cases of the use of the location enabled body worn cameras in sports, medicine, health sciences, utility services, agriculture, manufacturing, engineering, construction and transport to name but a few of the areas where these technologies are being used in an international education and training context. In many of these cases the premise for deployment of these technologies is to build upon and improve existing work practices, selected by seemingly well informed and trusted technical experts, substantially guided by organisational policy and secure data management plans pursuant.

The interoperability between these location-aware body worn technologies now opens new domains of socio-ethical consideration as to the affects that an always-on network will have on humanity as a whole.

Educators will need to shift to a networked learning theory for the digital age, a connectivism [11] so profound the very architectures of participation are set to become only but a loosely bound accreditation arrangement.

"It is widely understood that the area of digital technologies in education covers education through digital technologies. However, it must also, crucially, encompass education about digital technologies, and particularly about their social, sociopolitical and ecological consequences." (Pegrum, 2009)

What is apparent is that the general public will now need to embrace change more rapidly than ever to accommodate a cyborg cop, a omnipresent jury and a recollection of events frame by frame.

Google's first "Glass Session", which demonstrates what it’s like to use Glass while it is built, follows Laetitia Gayno, the wife of a Googler, "as she shares her story of welcoming a new baby, capturing every smile, and showing her entire family back in France every “first” through Hangouts.” (Google+ post, 2012)

Our role has changed from a passive participant in an abstract recollection to a first-person perspective; where we have become the camera and it has become us, in essence a state of Uberveillance.


Image by De Angelis, Canadian Committee for World Press Freedom, Cartoons 2012.

This post is based on http://www.alexanderhayes.com/publications/2012-cyborg-cops-googlers-and-connectivism. For more from Alexander Hayes, please visit http://www.uberveillance.com. For information about the 2013 IEEE International Symposium on Technology and Society in Ontario, Canada in June 2013, please visit http://veillance.me/.

Crowdsourcing a Constitution

Alana Maurushat with David Lee

When I worked at the University of Hong Kong, I had the privilege of engaging in many conversations with the world-renowned constitution-writer and scholar Professor Yash Gai. Professor Gai led constitutional reviews in Kenya and Fiji, and was asked to assist with Constitutions in Iraq and Afghanistan. Over many casual lunches with colleagues in Hong Kong, I can still recall how passionate Professor Gai was for constitutional writing that was “right” for the people of the country in question. He was a staunch believer of the idea that extensive discussion and consultation among all communities of a nation was essential for building a strong constitution that would stand the test of time: constitution writing by consensus. These constitutional reviews often involved Professor Gai and his committees to lead meetings throughout urban and remote areas of a nation. These consultations often lasted years, in order to ensure that small ethnic minorities were not neglected. The process was epic.

Given that a constitution is construed as one of the pillars of a nation’s identity, one might ask the question – why not ask the citizens to draft the constitution? With the rise in online user input platforms such as Twitter and Facebook, collaborative innovation has never been easier. It should come as no surprise that Facebook alone is used by nearly 12 million people just in Australia.

This increasing popularity of social media is exactly what the Nordic European nation of Iceland needed. Following collapse of its economy and outcry from its citizens, the Icelandic government has decided to take advantage of this method. The government introduced a process in 2011 involving a unique democratic approach of using social media such as Facebook and Twitter to identify ideas, recommendations, and provisions to be included in the new constitution. The social feedback will not be binding to the Parliament of Iceland, but it will most likely have significant influence on politicians.  Because the proposals are drafted by the public, it will be impossible for politicians to "sweep popular proposals under the carpet". Icelandic citizens are welcoming this idea too – 66% of the voters agreed in a referendum to use the resulting document as a framework for the nation’s new constitution. This unique drafting method adopted by Iceland is a prime example of "crowdsourcing".

First coined by Jeff Howe in an article posted on The Wired, the term "crowdsourcing" refers to a similar concept to outsourcing. Outsourcing involves an identified and selected individual or group of individuals developing a concept or performing work duties. Crowdsourcing is a much bigger idea – it brings in the public and involves the crowd in a creative, collaborative process. Many businesses have taken advantage of this method from as early as 2001. iStockPhoto was created as a marketplace for bloggers and web-designers to purchase stock images from a gallery of photos contributed by amateur photographers. The collaborative input provided by thousands of contributors allowed these images to be sold at very low prices, often undercutting professional photographers by as much as 99%. Other notable businesses benefiting from crowdsourcing include Reddit, Youtube and Innocentive.

Crowdsourcing through social media creates exciting opportunities, as it empowers people to participate in a true democratic process. Evidently, this method has been utilised mainly by businesses for financial gains. As such, Iceland must be commended for taking the unprecedented approach of employing crowdsourcing in politics, in an effort to produce a constitution that is “right” for its citizens. Other nations will undoubtedly take note; it won’t be long before other governments follow the unique path created by Iceland. It is arguable that the constitutions of other nations are long over-due for a reformulation, with netizen contribution.

For example, the Australian Constitution was drafted by the delegates of the States in the late 19th Century, and the only input provided by the people was voting for its adoption. However, this is a debate for another time.

    Image by James Cridland, made available by creative commons license via Flickr.

Living with our heads in the Cloud

Hadeel Al-Alosi

Technology has led to rapid advancements in our society.  While reading this, many of us will probably be scrolling through a Facebook page or flicking through an iPhone.  Much of the data we are accessing may well be stored in the Cloud.

At its broadest level, cloud computing is the provision of computing resources as a service over a network, usually, the Internet. Cloud computing services have been made available for a number of years, including by well-known organisations such as Google, Microsoft and Hotmail.  These services allow consumers to access data and applications without having to install or store these on their personal computers.

The personal cloud promises many benefits. It allows you to manage all of your PC and mobile devices, and to have every piece of data you need at your fingertips, so that you can share your information with friends, family and colleagues in an instant.

But before becoming over-excited by all the benefits that cloud computing promises to deliver, there are important issues to consider.

Theft and loss of data: should cloud service providers be bound by some minimum security standards that ensure personal information is not lost or stolen? Should service providers be able to limit their liability contractually for lost or stolen data? What if the service provider is forced to close down due to financial or legal problems, which causes customers to lose their data? Who should be responsible in having back-up and recovery processes in place?

Data location: the fact that data is stored by a cloud provider, which may be located overseas, means that individuals and businesses have less control over their data. Users should be questioning who is actually holding their data and where it is being located. With the growth in reliance by Australians on cloud computing services, it may be worth choosing a provider based in Australia. This would reduce risks in storing data with overseas providers, which may be in countries that have inadequate privacy laws or are prone to natural disasters.

Privacy issues: there are endless privacy issues raised by cloud computing, such as who will have access to your data and whether (and which) privacy laws will apply. Are there circumstances that justify the disclosure of data (for example, to aid law enforcement)? Also, what happens to data once a contract with a cloud service provider is terminated? For example, Google Docs states that it “permanently deletes” data from its system. However, it also warns that “residual copies of your files and other information may remain in our services for three weeks”.

Most individuals and some businesses overlook these important issues. As is often the case with e-commerce transactions, many people blindly click on the “I agree” button when signing up for services without reading the terms and conditions provided. We tend to think more about these issues when something goes wrong. For example, when someone's Facebook account has been hacked into by a revengeful ex-partner, or when precious data has been lost.

As to the future of cloud computing services, I think it is timely that we generate some solutions to these problems. Perhaps, somewhere over the rainbow, we can find solutions that allow us to reap the benefits of the cloud, while ensuring we are protected from all external threats.

So, what do you think? – is cloud computing a threat or an opportunity?

A Mobile Phone, Amid the Darkness

David Larish

I just read Amy Spira’s post on this website, “What we lost when we gained the light bulb”, 18 November 2011, in which she detailed the sadness of Nicaraguan townspeople at the prospect of electricity darkening their lives. I want to share a similar experience from my time in Kenya in 2010 but from an altogether different perspective.

I was working at Olmaroroi Primary School, which consisted of a series of sheds haphazardly constructed on dusty, red dirt in Maasai territory in the Rift Valley. The nearest town, Ngong, was a bumpy, 45 minute motorcycle ride away. I stayed with a local family of fourteen, including two wives. They lived in mud brick huts, used a hole in the ground as a toilet and, in the absence of electricity, burned wood for cooking and lit candles when the sun set. There was no running water. The nearest source of it was the communal well at the school, a ten minute walk.

Like Amy, I found myself as far away from technology as I had ever been.

This, in my mind, was a good thing. On my first night, after the older children had finished looking after the cows and goats for the day and after the younger ones had returned home from school, the family gathered in the kitchen, drinking tea, cooking dinner, eating together and then chatting into the night in semi-darkness. I contrasted this with a Western childhood of the Noughties – spending the afternoon on the phone to friends while commentating on the video games I was playing, watching TV during dinner, rushing back to the computer in my bedroom to go on MSN – and I was envious. What I had when I grew up meant that there were a lot of things that I did not have.

The bliss I was experiencing that night was punctured by the shrill beep of a text message which, to my immediate relief, did not sound as if it had come from my phone. In fact, there was confusion as to whose phone it had come from because, as it later emerged, each of the children aged over 13 had one.

My initial thought was that convincing a family who lived without running water or electricity of their need to own multiple mobile phones must have taken some phenomenally effective marketing on the part of the then major Kenyan mobile phone companies, Safaricom and Zain. In fact, these companies had even implemented a system whereby you could buy phone credit and transfer it to loved ones, family or friends (imagine that: ‘happy birthday my brother – here’s enough credit to call me on my birthday’).

I felt that this was a clear instance of these companies exploiting the technologically-starry-eyed family by enticing them to spend the limited money they had on things that they did not need. This view was reinforced when I later became aware that a family member was required every few days to make a trip into Ngong in order to charge a half dozen or so battery-depleted mobile phones at the “electricity shop” that had opportunistically sprung up to service this niche.

I was also concerned that the special traditions held by the family and the atmosphere when the family came together would be eroded by the mobile phone, which I saw as a gateway – both symbolically and practically – to the spectre of other technologies spreading into their lives.

One night towards the end of my stay, I (subtly) raised these issues with those members of the family who were old enough not to have received a mobile phone when they had reached puberty. As they pointed out, I had failed to see the benefits the mobile phone had brought to the togetherness of the family. The family was now able to stay in touch with family members who had moved away for school or work. It was easier for the family to make arrangements for everyone to be in the one place. By keeping in contact with past volunteers who had returned home, the family would reminisce together.

I still have mixed feelings about the impact of the mobile phone on the family, but I now see it in a more balanced light than I first did. In hindsight, it was difficult for me to dissociate my anxiety about having too much technology in my life from my views. I now think that the mobile phone is far less of a threat to the family’s connection and values than the computer, iPod or television – which are a while away yet.

But if I want to know if any of their attitudes have changed, I’ll just ask them next time I Skype their mobiles.


Image by Charles Crosbie, made available by Creative Commons licence via Flickr.