SXSW notes: Commons Based Business Models

Speculation and hand-wringing about business models seem to go hand in hand these days.

Going on the premise that business models will “just emerge” isn’t sufficient motive for many start-ups, nor comfort to their potential investors. But neither is the solution simply always about scale (ie. traction plus “eyeballs”).

One interesting result of recent technology developments is the growing niche of commons-based initiatives, and SXSW Interactive scented a trend worth investigating in 2006 when they programmed a session on commons-based business models on Tuesday 14th March.

As teasers go, the programme blurb was quite enticing. ‘How will peer production models prove out in the content space? Learn how pioneering commons-based business models are creating what Business 2.0 calls the next multi-billion dollar industry.’ I was so there already 😉

Jimmy Wales – Wikipedia
Joi Ito – VC & Entrepreneur
Theresa Malango – Magnatune
Ian Clarke – Freenet

Outlining the company ethos, Theresa Malango explained that Magnatune still have a small staff as they want to hold onto their values as the business grows. They also want to sustain their artists and their artists do get paid.

Ian Clarke explained that Freenet’s A-round investors were the same team that first funded Skype. The internet is now fast enough to support video at a rate that people are willing to watch, and Google Video and YouTube are also in the market. Freenet attach unobtrusive marketing to their pages, he explained. All their videos are raised under a Creative Commons licence that doesn’t permit alteration of the video (which won’t allow people want to strip out advertising) but all artists retain copyright.

Investors & the commons space – oxymoron or bandwagonesque?

Jimmy Wales joked that to build a site that’s number 20 in the world they had beat off VCs with a stick. More soberly, he explained that Wikipedia have investors that understand how to grow a business in a commons based culture, people who are sensitive to the situation.

Aren’t commons-based business models VC incompatible, someone asked, as there’s no lock-in that guarantees a VC payout at the end? Also you can get in for very little money – that’s okay for angel investors, but for VCs?

Joi Ito explained that he has stopped investing completely, prompting an audience member to speculate on whether there’s a Web 2.0 bandwagon, with microformats, etcetera, whereby now, people with ideas and no business models are getting funding? Having a Creative Commons licence is not a religion, Joi observed. It should be about choice.

Automatic for the (Web 2.0) people

Theresa Malango interjected that the whole deal is about making the overhead manageable. They have a lot of flexibility that can suit artists and managers. It’s not an either/or situation – you don’t have to give up one thing (CC licence) or the other (making money).

Queried about DRM, Clarke reckoned that it’s the opposite of what technology should be about – it disables people and content, rather than enabling them. Joi Ito added that there’s a nuance to add to that – certain types of channels have DRM built in and the artists has no choice – and the new GPL code cannot be used without DRM (?)

Clarke observed that you have to be pragmatic: you can hate the game while still playing it, and you can criticise the game while playing it. In Malango’s view, CC is becoming flexible enough that they can give flexibility within commercial models.

Transcending the DRM model & mindset

What about emerging payment models, eg micropayments, or are they advancing that this [Creative Commons commercial licences, I presume] is the only feasible model at this time? Wales replied that iTunes is a new model that works, dubbing it “digital annoyance management”. He buys, burns and rips because his MP3 player won’t play iPod or iTunes files. What you’re paying for with iTunes is the service, he stressed – always there, reliable, and the IRS aren’t going to come knocking on your door.

Clarke said that advertising has the nice quality that you can just do it and you don’t have to create DRM or rely on inbuilt flaws to guarantee revenue. It will end up like cable TV where you have direct payment models and advertising will cover the rest. It’s the easiest way, he figured.

Mining the Long Tail and cultural differences

The traditional operating systems (OS) model is to have the stuff downloadable for free and all the support, etc, is what you charge for, an audience member remarked. Malango replied that they dealt with all this head on because they only did downloads; then they realised that there was still a demand for CDs, so they introduced that, but now it’s dropping off with the pervasive uptake of downloads plus broadband.

Ito explained that he has been taking it to people who do anime. They are changing their model in order to sell ultra-deep content to the few thousand hardcore fans. It’s about the relationship, he stressed, as you can cut out the middlemen and give more (as per the Long Tail) to less people and charge more for it. Endorsements and events are another way to supplement revenue. This approach is taking off in China where the worst thing for a musician is not to be copied.

Creative Commons culture spreads

Creative Commons has intrinsic values but is also a means to an end, as the founders of Threadless (solicits and runs competitions for t-shirt designs) discovered. They have no CC inbuilt. The same goes for Kathy Sierra’s ‘Creating Passionate Users’.

How does Create Commons engender these communities? Joi stressed we need to differentiate CC from OS (operating system) licences. CC are trying to create metadata so that Google etc have a systematic way of searching the licences and so that they’re machine-readable, he continued. Lawrence Lessig is trying to get together clumps of other commons-based licences that are not CC. A lot of OS licences are very poorly framed legally.

Joi flagged the recent Adam Curry case, whereby someone used the licence without attribution. Curry took them to court and won. Many, many people are using Creative Commons with different goals, and CC allows that, they are trying to provide choice for everyone.

Remixing culture & content let loose

Malango explained that Magnatune use the non-commercial licence for the podcast service they have started. They also use the attribution licence to buy. While Wikipedia don’t use CC, Malango continued, Magnatune believe that the more people hear a track, the more likely they will be to come back and buy it. In turn, it encourages the remixing trend and they want to be part of it – it’s their lifeblood.

Jimmy Wales reflected that Wikipedia pre-dates the CC licence. They use a free documentation licence. There’s also the branding element to consider – if I’m thinking of working with Magnatune, the licence tells me a lot about them. It also gives further reason to participate, creating the “network externality effect”.

Clarke said all their videos are release under a “no derivatives” CC licence. The problem encountered in getting people to create short-form video content is that people tend to think of using others’ music. Why not do a test, Wales suggested, where you leave the advertising in? People probably won’t remove it as it’s at the end, he surmised, because it’s so unobtrusive. If they were remixing it they would strip out the ads, Clarke countered.

Patronage, peer investment & the Revver model…

Mike Linksvayer, who is the Creative Commons CTO, asked the panel what they saw to be the role of patronage in future commons-based business models.

Clarke replied that they developed the idea a couple of years ago to create a marketplace where people could invest in video production of others content, and if others invested later the earlier investors would make money (Google fair share was also namechecked in this context). But the idea wasn’t picked up, he said. Revver, was another concept in this vein.

Tantek Celick (CTO of Technorati) commented that there are tools in the content distribution chain that force DRM in. But the challenge is education rather than tools. Are there alternatives?

Format silos and the multi-channel approach

Joi responded that people should try to come up with and document alternatives. It’s different with software where many different types of content are stuck in a format, for example, if you’re a film-maker you have to use DVDs as one of the distribution channels because it makes sense (while using BitTorrent as well). Thus it becomes a tactical decision and it’s the choice of the artist if you need to hit people with your content next week.

But Tantek countered that DVDs can be made “Region Zero”, and you can make them without bad CSS (?).

Branding, trademarks and the community dilemma

Tara Hunt raised the notion of a commons-based education model, and a marketing model where all the communities participate. Chris Messina added that one of the things that shut down the ‘Spread CC’ and ‘Spread Firefox’ movements was the brand, as if it’s licensed under a trade mark that’s a lot harder to do. Most lawyers of course would argue that not controlling it deteriorates your ability to manage it. Is there a commons-based way to treat trademarks, he wondered.

Jimmy Wales responded that you want fans of Wikipedia to promote it; and then there’s bad people who would misuse the brand. Joi said, with his iCann hat explicitly on, even though we want everything to be distributed, trademarks are one way to find and distinguish communities. As the session wound-up, fittingly, final comment came from an audience member who reckoned we should get rid of top-level domains as they’re not good for anything.

[NB. This was a very fast-paced and high level discussion and I can’t stand by the complete accuracy of everything I noted down in its duration. But, a podcast of this session is available from this page:]

All SXSW Interactive 2006 panels:

My other SXSW Interactive 2006 session write ups:

What’s In A Title?

Beyond Folksonomies – Knitting Tag Clouds For Grandma

Book Digitisation & The Revenge Of The Librarians

James Surowiecki on The Wisdom Of Crowds

Running Your New Media Business

The Perfect Pitch

What People Are Really Doing On The Web

And there’s still time to check out and book for SXSW 2007!


3 responses to “SXSW notes: Commons Based Business Models

  1. Thanks alot for these write ups because they are really useful. will check out the book!

  2. The Perfect Pitch – great article. I’ve always found this the toughest bet when selling.

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