07 Jan 2015 Public goods and business models


Business models are not about supply and demand. They are about finding some dynamic where leverage is obtained allowing the model to get payment somewhere. Supply and demand is one dynamic, the leverage is that you could provide the good/service, but only if you get paid. The payment you can ask is about the extent of that leverage, which is determined by what other suppliers are offering. The dynamic is not always bad; for 'basic' supply and demand, the dynamic is effective at getting cheap products.

Other interactions, for instance with an aspect of the hold-up problem have less efficient dynamics. I suspect the existence of Vertical integration is partially a consequence of this. (although 'cost of interaction' is also a reason)

The interaction for TV and on the internet is that ads are being sold, and users spied on. Intelligence agencies do kindah need to respond by getting spying ability aswel, however, i believe they go far beyond this. (i.e. tapping the global fiber-optic network)

Source code "naturally" tends to be public goods; from wikipedia:

Excludable Non-excludable
Rivalrous Private goods
food, clothing, cars, personal electronics
Common goods (Common-pool resources)
fish stocks, timber, coal
Non-rivalrous Club goods
cinemas, private parks, satellite television
Public goods
free-to-air television, air, national defense

Things are excludable, if you can prevent others from using it, and they are rivalrous if use of the resource diminishes it for others. It is not clear-cut; for instance use of a quiet road isnt rivalrous, but of a congested one might be. Excludability also depends on technology; with GPS-ses in cars it is easy to charge on road. (Sound plausible :( )

Some of these are fixed by adding laws/rules that moving things to another quadrant.

Common goods → Private goods

For instance, by making land owned; allowing someone to exclude others off his land, you can avoid tragedy of the commons-like situations where land is over-grazed. It also allows people to put buildings on the land.

In my opinion, most ownership constitutes a move from common goods to private goods. After all, for items that you can hold in your hand, anyone can pick it up and run with it. Of course, used as a common good, the item could easily be misplaced or badly used and broken. Ownership is so ingrained, instinctually so, probably because this notion was so important for our ancestors.

Taking the view from the purpose of ownership, taking it as absolute seems a little silly. It does serve non-economic purposes aswel though; For instance ability to seclude, and privacy are made possible by ownership. I.e. it makes it possible to disallow people from just looking around at files on your computer, or not snoop around in your house. (Even renting provides these)

On a bigger scale, it is a way to allow for freedom of enterprise, for those that can convince(/are) those that own the wealth.

An alternative to private goods is to use quota, or rationing.

Public goods → Club goods

Rules to this effect immediately cuts in the utility of per-produced good, as people cannot as easily use said good, the idea is that the greater production of the good compensates for it.

For 'content' it is achieved by copyright and patents. ("intelectual property" is a misnomer intended to try give them the same weight as ownership) Since the internet, the reduction of utility is greater, because it makes copying easier.

Govt & taxation

One prominent alternative to club goods is to use a government that provides these goods funded off taxation.

A bureaucratic approach works well for some relatively easily understood infrastructure like roads, electrical networks. It does not work well for solving more open problems, and might tend to pose obstacles for free enterprise there. Furthermore it is also sensitive to politics and corruption.

Yet another solution is to create a business model on 'side channels' like advertisements. More on that later.

Why this matters to us

Open source uses copyright, either permissive, or to exclude the use of exclusion, copyleft. This narrows an avenue to get leverage. However, clearly, we want open source, for security,[N2] because it leaves the public more free to modify for their own purposes, and more generally, because the having less transactions around it allowing for more use has greater utility.

People have preconceived notions on how Public goods → Club goods works, and about leverages that are (not)acceptable. Communities can be harmed by decreased trust by the friction between different approaches. A strategic advantage could be strategic precisely because it blocks/slows down other places.

Thinking things through

Creation of laws and policies have always been between the tugs of ideologies, reasoned thinking, and the establishment at the time. The most fundamental of these changes have been after wars/revolution, and the great depression; after times of turmoil, when things move more easily, and people affected learn their lessons.

Those times were before the internet and easy copying. Now, after/during the financial crisis, with bitcoin, and resulting interest in blockchain technology, and other decentralized organizing methods, these need to be thought about in the new context. Not necessarily laws and policies, but things are to be buildt soon, if the foundations arent being made right now already. The purpose of this blog post is to try get people researching how to get interactions that work towards the goals, and/or putting existing knowledge in the current context. Additionally, the idea of Ethereum contracts gives a framework that might force people to be specific about their thoughts.

In thinking properly about them, there are two sides; What we want, i reckon:

  1. Wellbeing.
  2. Freedoms, including that of enterprise.
  3. Some degree of stability, or at least indicators that something needs changing & response time.(kindah implied by 1,2)

And how do we get it; Here we need to figure out:

  1. What is the dynamic of situations?
  2. What actions and rules make the dynamic act fitting the goal?

From considering different scenarios, and extrapolating from them, we can try find good ones.

Current searches

I wonder if research into this covers enough of the spectrum of possible schemes, if those are considered in earnest enough. I am certainly not well versed enough in economics, game- and decision theory to tell, but i can tell that it has not been applied to the current blockchain-technology context.

Note that taking game theory beyond what to expect from reality would be the Ludic fallacy, but then, the Ludic fallacy doesnt cover something like the conservation of angular momentum; what i mean is that if some system has clear constraints, people will be forced operate within them. Indeed, i expect the better approaches create context-dependent-constraints, not set a single path.

One thing where it is possibly particularly important to be careful about game-theory(like) approaches too seriously, is when consider what motivates people, and what allows them to work/interact together usefully. Larger rewards can yield worse performance.[N4]

The search for business models is sometimes[N3] the search to find something where other peoples' utility is increased enough so that this would entice them to pay for it. So in a sense the quest for business models is sometimes like searching for these good dynamics. However, because of the extractance of pay, it cannot easily be a public good there, and if it is, it has to be kinked to work as business model. It also suggests that coming from a business perspective biases a person towards non-public-good solutions.

Some Ideas

They are just ideas at this point, of course. I am not entirely sure about them at all. They're mainly about software and the web.

Do it for free?

One obvious approach is to just make the stuff for free to people, and ... not get paid. It is what wikipedia, lots of open source projects do. But then i don't think that necessarily works well. It doesn't provide enough motivation and time spent. Lacking income, a community might not encounter developers that happen to be good at making user interfaces, or polishing. And then there are things to be done like managing expectations, popularizing the end product.

I suppose that you could try do it from donations; leverageless payments.[N5]

Other approaches need some leverage to get income. As said, the goal is to try figure out how to get dynamics towards that purpose, in a way that avoids centralization of power and maximizing utility.

Coalition DAO

One idea is to create a sort of coalition DAO, where other participant businesses (DAOs) can join, agreeing to so idea of what ways to get income are acceptable.

This idea is in part in response to Peter Thiel's "competition is for losers" article, which suggests that if you get strategic innovations right, you get a monopoly for a while. I think these stem from network effects and the effects from consumers having a cost on their side, getting used to particular products. During hat time other entrepreneurs with innovations that are not strategic enough can at best hope they get bought in.

However, some aspects of how Ethereum works already mitigate this to an extent. Particularly the use of public keys(and contract addresses) as accounts. One should consider the pressure to find business models is to find leverages, and the leverage of having exclusivity is an effective one. So it is possible that they will find 'innovations' to reduce mitigating aspects.

Back to the coalition DAO; it will likely have to make decisions, probably through a kind of voting based on weighed constituancies from the subDAOs.

It might also try figure out how to prevent or subsume potential monopolistic innovations or strategies. In the case of subsuming, it has to be itself yet same another company that blocks free enterprise. I think preventing is more desirable because of that risk, but only if that actually has a chance of success.

This DAO could even create public-goods from it's income, or strip the leverage from some of the things it provides, if it is deemed that the income isnt worth disadvantages of the leverage. This could be done from a sort-of tax or by having its own coin it can issue.[N6]

Leverage in the Ethereum context

Ethereum contracts, and software around them are essentially 'content'. Some of these might apply.

1.Advertisements. In some cases wastes the users time, or worse, clog our minds with these messages.
2.Spying on users, selling the information. destroys privacy
3.

Hold-for-ransom; exclude, but only to everyone. Has been done for written articles. Possibly this could involve an assurance contract.

Note that contracting to make software for government/organizations could be like this. However, in that case, you basically approach these organizations.
Might have to follow up on threat.
4.In the case of software, providing related services. Creator only gets small advantage.
5.Donation, or, payment-without-leverage. (no leverage)
6.Strategically use Public goods → Club goods approaches, to get a leveraged position. Only for software, not complete, assumes some SaaS, might block other players
7. Grabbing network/user-attention effects Might exclude others
8. Politically garnering direct tax money investment. (Note: getting it from government is (3), with government as customer) Difficult to obtain, incentive structures often break if you try inject value.

With the exception of spying,(2) whether these are good depends on the context.

Publishing DAO as example

The Publishing DAO would presumably it would use (1), (3), (5) Its constituancies would be some (unclear as of yet)weighing of the donors, creators and advertisers. Note that something like this might simply use copyright. I think for non-software, that is fine.

The PubDAO is the context in which i thought of (8). Tax funding is often directed in a bureaucratic way. By contrast, an hypothetically working publishing DAO, tax-funding it could magnify advertisement and donation income. However, it breaks the incentive structure, you could donate to yourself and reap the magnification. It'd turn into a kind of "UBI with a suggestion/default to donate to the publishing DAO". Avoiding that would cause a cat-and-mouse-game that is probably not worth having. It is not like the suggestion/default has zero impact.



Notes

[N2] Although opensource-for-security could release sources -but use restricting copyright.
[N3] Not always; Some search for business models dont necessarily seek to improve lives, instead seeking to create an idea what lives should be like and then the product fits a role in there.
[N4] I.e. this RSA-animate suggest otherwise. They allude to research, but this blog post would definitely be better off citing papers.(as would that link) Note that without a OnePerID, taking this for true, and acting on it might not be practical.
[N5] Both Flattr and gratipay know to try reduce negative associations of donation as "charity for poor people". "Leverageless payment" is an angle on that too. Still, i think it might be overconfident relying on it totally.
[N6] Of course, issuing coin tends to devalue the coin. I tried to figure more general cases of Kelly's criterion and on how to deal with investment-from-issuance on the long term, but mostly failed.


Other Blog Posts