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    <title>Culture &amp; Empire - Digital Revolution</title>
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<div class="advert"><a href="http://www.amazon.com/Culture-Empire-Digital-Revolution-Volume/dp/1492999776">Available for paperback and Kindle from Amazon.com</a></div>
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<section data-autoslide=1500 header="Page 1" footer="whatevr">
    <p style="font-size:3em; text-align:center">Culture &amp; Empire</p>
    <p style="font-size:2em; line-height:2em; text-align:center" class="fragment roll-in">Digital Revolution</p>
    <p style="font-size:1.5em; line-height:2em; text-align:center" class="fragment roll-in">Pieter Hintjens</p>
</section>

<section data-autoslide=1500>
    <p style="font-size:1.5em; text-align:center">Copyright © 2013 Pieter Hintjens</p>
    <p style="font-size:1.0em; text-align:center" class="fragment roll-in">Free to share and remix under CC-BY-SA-3.0</p>
    <p style="font-size:1.0em; text-align:center" class="fragment roll-in">Thanks for tweeting about it -- #cultureandempire</p>
</section>
<section>
<section>
<h1>Preface</h1>
<blockquote>
<p>Once upon a time, there was a great Empire that ruled the known world.</p>
</blockquote>
<p class="footer">1</p>
</section>

<section>
<p class="header">Preface</p>
<blockquote>
</blockquote>
<h2>Cost Gravity: The Endless Fall to Free</h2>
<p>For fifty years, Moore’s Law has reliably predicted the exponential upward trend of our silicon future. Yet every now and then, technology tabloids warn that Moore’s Law is about to end. It can’t last, we’re told, and when it ends, the future will fall into darkness and uncertainty. Yet inevitably and without fail, scientists find yet another way to extend it, and we collectively sigh in relief.</p>
<p>Moore’s Law isn’t a mythical beast that magically materialized in 1965 and threatens to unpredictably vanish at any moment. In fact, it’s part of a broader ancient mechanism that has no intention of stopping. This mechanism, which I call <em>cost gravity</em>, pulls down the price of technology by about half every two years.</p>
<p class="footer">2</p>
</section>

<section>
<p class="header">Preface</p>
<p>Cost gravity affects our entire human world. It is inevitable and unstoppable, driven by the spread of information and knowledge. Every two years, any given technology becomes twice as available at half the cost, and twice as powerful with half the bulk. Look around and observe that many old (and previously expensive and large) technologies are effectively free today, except for the influences of other ancient forces such as natural resources and friction. Cost gravity has existed and will exist as long as life itself.</p>
<p class="footer">3</p>
</section>

<section>
<p class="header">Preface</p>
<p>Superficially, technology is a human invention. Broadly, however, <em>all</em> life is information-based and therefore subject to cost gravity. Take bacteria, for example. Bacteria are highly advanced life forms that evolve rapidly to survive in almost any condition. Bacteria share their genes in the way open source programmers share their code. Antibiotic resistance is scary, not because there’s one colony of resistant bacteria somewhere, rather because these genes can pass to other bacteria that need them. Bacteria have recently been found in the inhospitably frozen Antarctic. Genetic information flows through the bacterial world just like knowledge flows through the human world.</p>
<p class="footer">4</p>
</section>

<section>
<p class="header">Preface</p>
<p>Or consider a living cell, which has more moving parts than a Boeing 777 and is smaller than a micron. Cells are self-healing, self-reproducing, and self-organizing. You might be tempted to invoke the supernatural to explain such sophistication. The real answer is that cells represent three-and-a-half billion years of cost gravity at work.</p>
<p>In human society, cost gravity makes expensive technologies into cheap ones. The curves are exponential: price falls to zero, power rises to infinity. Cost gravity does more than explain why so many things are more affordable than ever before; it provides a context for human history. Cost gravity takes emperors' toys and turns them into commoners' tools, and as it does this, it drives profound social, economic, and political change.</p>
<p class="footer">5</p>
</section>

<section>
<p class="header">Preface</p>
<p>Here’s how it works: A vital new technology enters society as an expensive item for the wealthy elite. The elite use it to expand their power base. However it’s the middle classes who actually make the products. The technology naturally falls into their hands and they aggressively improve it. They compete for customers by making it faster, cheaper, and more reliable. The technology enters mass production and becomes available to all. The farmer and the laborer suddenly gain access to this new power. Society reshapes itself like bubbles in a lava lamp. New businesses emerge and power moves from old to new.</p>
<p class="footer">6</p>
</section>

<section>
<p class="header">Preface</p>
<p>Inevitably, old money fights back and tries to squash the newcomers. It buys oppressive laws, builds police states, and crushes the commercial middle classes. Old money sometimes wins, though not for very long. Political systems crash and are replaced by new ones. The page turns and the story starts again.</p>
<p>Most histories overlook this process and focus instead on political changes and events without explaining why they happen. I argue that every great empire is born out of a monopoly on a vital new technology: bronze, iron, the horse, irrigation, roads, military organization, finance. In each instance, essential knowledge spreads until everyone has access to it. Then the empire loses its monopoly, crashes, and the cycle repeats.</p>
<p class="footer">7</p>
</section>

<section>
<p class="header">Preface</p>
<p>It is hard to understand exponential curves. Our minds give up as we approach the infinite. The curve tends to look either totally flat or like a straight cliff. We can look at history and collapse it into: “clean water and roads let the Romans build their empire” or “my portable phone has more computing power than the whole of NASA in 1962.” When I tell you that in 60 years, the average person on the planet will have and use more computing power than the entire Internet today, does that concept fit into your world view?</p>
<p class="footer">8</p>
</section>

<section>
<p class="header">Preface</p>
<p>One reason the phenomenon is hard to grasp is that there is not one single technology to consider, rather, millions. The key ones are those that solve critical problems yet remain too expensive for common use, such as solar power, genetic engineering, advanced medicine, privacy, high-bandwidth communications, higher education, political organization, insurance, banking, translation, and so on. It’s fair to predict that all of these — at least when the patents, which I’ll talk a lot about later in this book, have expired — are affected by cost gravity and will be one-thousandth the cost in 20 years, and one-millionth the cost in 40 years.</p>
<p class="footer">9</p>
</section>

<section>
<p class="header">Preface</p>
<p>Once we realize that the curve has always existed and will always exist, we see that there is no coming “singularity.” What does happen, predictably, is that as the cost of key technologies falls below certain thresholds, these technologies create explosive changes in society. While the curve is mostly invisible, these tipping points are not.</p>
<p>To take one historical example, paper existed for thousands of years, yet only in the fourteenth century did it become a mass-market product. There is a theory that the Black Death left enough cheap linen clothing lying around to spawn the mass production of paper. This is a possibility. More likely, the price of paper fell (thanks to cost gravity) below the critical level where any household could buy a printed book. At any rate, cheap paper broke the church’s monopoly on information and opened the way for the Renaissance.</p>
<p class="footer">10</p>
</section>

<section>
<p class="header">Preface</p>
<p>In the last decade, we crossed another one of those tipping points as computing — once the key to global monopolies in finance and industry — dropped into the range of the average household budget. Our twentieth century empires are crashing, and we’re witnessing that crash and the seeds of the rebirth.</p>
<p class="footer">11</p>
</section>

<section>
<p class="header">Preface</p>
<h2>What Happened to Wall Street?</h2>
<p>In 2007, it was already clear that multiple bubbles (consumer credit, the housing market, the trade in derivatives, and so on) were going to burst sooner rather than later. In 2009, banks and entire countries started to collapse. Today, we are still picking up the pieces and the bill. Most of us were — and still are — surprised and shocked. The common view was that banks were invulnerable. After all, they were among the wealthiest institutions on the planet. They were literally “where the money was.” How can a bank’s share price go down? Later, as bank after bank failed and had to be rescued by the taxpayer, the general public was shocked. The only possible cause must have been corruption and fraud.</p>
<p class="footer">12</p>
</section>

<section>
<p class="header">Preface</p>
<p>For sure, corruption and fraud were present. As Naomi Klein lucidly explained in her 2007 book <a href="http://www.naomiklein.org/shock-doctrine">“The Shock Doctrine”</a>, any crisis is an opportunity for the mega-bandits to move in and empty the coffers. It’s certain that some groups knew that banks would collapse and bet heavily on that. The crisis was long in the making. It was fully predictable; indeed, it was inevitable.</p>
<p class="footer">13</p>
</section>

<section>
<p class="header">Preface</p>
<p>Here’s why. Let’s rewind 30 years and see how the banks work. We’re in 1980, and banks are the shining cornerstones of modern society. They are large, boring houses for financial machines. The banks arbitrate between those who have money and those who need it, a vital service for which people gladly pay. Critically, this service takes vast amounts of computing power. Simply adding and subtracting and multiplying and dividing all those figures takes industrial-strength brute force. Banks have huge data centers: rows of blinking mainframes and humming disk drives, all adding up to tons of heavy metal in massive air-conditioned halls.</p>
<p class="footer">14</p>
</section>

<section>
<p class="header">Preface</p>
<p>Meanwhile — silent and unstoppable — the spread of knowledge drives down the cost of computers. First, smaller and cheaper minicomputers spread into departments. Then the personal computer explodes into the home, university, and business. Large firms like IBM try to keep their prices stable, meaning they give their customers more and more computing power for the same price.</p>
<p>The true cost of building a bank-sized data center drops by 50% every two years. The result is that older banks start to face competition from small aggressive competitors, especially as the Internet begins to make the local branches obsolete. The big banks grow by buying smaller local banks, an easy task due to the fact that they possess lots of excess capacity. Then, they cut costs by shutting branches and merge with insurance companies to expand their services.</p>
<p class="footer">15</p>
</section>

<section>
<p class="header">Preface</p>
<p>All the while, competition is driving down profit margins. If your bank asked 5% per year for a mortgage and another bank 1,000 km away offered 4%, you would not hesitate to go with the lower rate. Similarly, if your bank offered 3% interest on savings, and a foreign competitor offered 6%, where would you put your money? For years, in Europe, you could literally earn 2-3% more on deposits than you had to pay on a mortgage. This should have been a clear sign of trouble, yet people just assumed there was some magic at play.</p>
<p class="footer">16</p>
</section>

<section>
<p class="header">Preface</p>
<p>Fast-forward a few more years, and banks' main traditional markets are close to worthless. The European single market means they face ever more competition. They’re in a trap, borrowing money from the stock markets in order to expand internationally so that they can compete. It’s a one-way trip. If you don’t make your quarterly profits, your stock price falls and your cost of borrowing rises. The only banks that escape are those who stick to luxury products for the richest clients and avoid the stock markets.</p>
<p class="footer">17</p>
</section>

<section>
<p class="header">Preface</p>
<p>The large banks <em>must</em> find ways to continue to make their 6% profit annually. And higher profits come only from higher risks; there is no other route. So governments oblige by removing regulations, and banks get new high-risk space to move into. They push mortgages onto people who cannot afford them. They push credit cards so aggressively that even a dog can get one. And as they accumulate more and more risk, they hide it from view by repackaging it all into derivatives, which they sell to foreign banks. Eventually, the trade in derivatives becomes the new territory and banks turn into bookmakers, betting against themselves and taking a commission on each deal.</p>
<p class="footer">18</p>
</section>

<section>
<p class="header">Preface</p>
<p>Meanwhile, cost gravity never stops. By 2013, the cost of running a 1980's bank had fallen by 128,000 times. If it cost $10 per month to handle one customer in 1980, by 2013 it cost just over $75 per month for 1M customers. And by 2052, it will cost only $1.00 per month to handle the banking needs of every person on Earth.</p>
<p>The collapse happened because those ever-riskier bets didn’t pay off. It was predictable, and <a href="http://www.eupaco.org/report:david-martin">some people did predict it</a>, yet there was a huge incentive for those involved to not think it through. You might feel as though it was criminally stupid to make those bets. Certainly, it was immoral to have the public purse pay the debt while still giving bonuses to all involved. In the end, every empire bets on borrowed time. It’s always the same, whether the time scale is “next quarter” or “next century.” Bank or beggar, life is always “so far, so good.”</p>
<p class="footer">19</p>
</section>

<section>
<p class="header">Preface</p>
<p>When we understand that cost gravity caused the banking crash, we can try to predict the future of banking. Banking is an essential service. However, it cannot be profitable except by rolling back time and banning cheap information technology, or by creating artificial barriers to competition.</p>
<p class="footer">20</p>
</section>

<section>
<p class="header">Preface</p>
<p>There seem to be two plausible outcomes. One is to nationalize the large banks and turn banking and insurance into a not-for-profit service of the state. Europe seems to be going this way. As part of their rescue packages, many countries took control of failing banks like ING, BNPParibasFortis, Dexia, and ABNAmro, and cleaned out the existing management. Whistle blowers have helped the new technocrat owners launch prosecutions for manipulation of share prices and other forms of fraud. Ironically, 20 years ago and before the trend of privatization, many of these banks were publicly owned state banks.</p>
<p class="footer">21</p>
</section>

<section>
<p class="header">Preface</p>
<p>In the US, the trend is quite different. Instead of intervening in the running of the banks, the US government intervened in the markets. They helped the largest banks like JPMorgan Chase &amp; Co. buy up their competitors at fire sale prices, keep their existing management with no investigations or prosecutions, and gain monopoly control over the market to extract profits as before. The US approach seems similar to how mobile phone operators have an effective cartel, with government support, to extort profits from phone and Internet users.</p>
<p class="footer">22</p>
</section>

<section>
<p class="header">Preface</p>
<h2>The Digital Revolution</h2>
<p>When I started studying at the University of York, Computer Science wasn’t yet a proper subject; it was an abstract (and mostly tedious) offshoot of mathematics. It was another 10 years before I got my first modem and connected to the embryonic Internet of email, news groups, and bulletin boards of the early 1990's.</p>
<p>We are close to <a href="https://www.google.com/search?q=how+many+phones+in+the+world">full planetary connectivity</a> by at least mobile phone, and increasingly via smartphones that provide Internet access. Getting on line — even if “only” via a shared mobile phone — is the surest way to escape poverty, just as moving to a city was previously the best way to escape poverty since the nineteenth century.</p>
<p class="footer">23</p>
</section>

<section>
<p class="header">Preface</p>
<p>Powered by steam and coal, the Industrial Revolution of the late eighteenth and early nineteenth century brought people into new cities where they redefined social, economic, and political reality. The new social concentrations of nineteenth century industrial cities allowed an entrepreneurial middle class to emerge, and quite rapidly their economic power turned into political power. In 1848, a political revolution occurred across Europe, leading to the establishment of parliamentary democracy in many countries.</p>
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<section>
<p class="header">Preface</p>
<p>The Digital Revolution is having the same effect: people congregate into new communities and entrepreneurs build new economies around those communities, which form a new economic class. When their economic power exceeds that of their old “legacy” competitors, and as the fights break out, they begin to seek political representation and power. Economic change leads to social change and then political change: all of it driven by cost gravity.</p>
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<section>
<p class="header">Preface</p>
<p>Technological revolutions express themselves as class struggles. The upper class is the “old money”: those who were rich and powerful under the old system. The middle class is the “new money”: those who have adapted to exploit new opportunities by breaking and redefining convention, and who are growing richer. The lower classes, unable to make the leap into the new social models, are excluded from the new prosperity. The true lower classes of the Industrial Revolution were not the factory workers. They were those in rural areas who were unable to migrate and take part in the new city life.</p>
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<section>
<p class="header">Preface</p>
<p>Old money fights back, using whatever weapons are available. Occasionally, they use guns and bayonets. More typically, old money restricts economic freedom and throttles the life out of the new middle classes by using trade laws, repressive taxes, and subsidies — whatever it takes to slow or stop their growing economic power. Few people realize the role technology is playing in an ongoing revolution until it’s too late to stop it. The emperor’s old toy doesn’t look disruptive until it’s in the hands of millions. Then come the laws banning, controlling, and restricting it. Horses only for the nobles. Books only for the priests. As we’ll see, these attempts to control and restrict the technology of the Digital Revolution are central to our story.</p>
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<section>
<p class="header">Preface</p>
<p>In 1815, as the Industrial Revolution peaked, British landowners (the old money) enacted the Corn Laws to block the transfer of power to the new middle classes by taxing industrialization. The historian <a href="https://en.wikipedia.org/wiki/Corn_Laws#cite_note-2">David Cody writes</a>, “After a lengthy campaign, opponents of the law finally got their way in 1846 — a significant triumph which was indicative of the new political power of the English middle class.” By 1850, the Industrial Revolution was over and across Europe, power shifted away from landowners and towards the new urban middle classes.</p>
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<p class="header">Preface</p>
<p>In the early twenty-first century, the upper classes are business and political elites who accumulated their wealth and power over the last fifty years. The middle classes are all those who “got connected,” soon to be most of world’s population, and the lower classes are the shrinking few who cannot yet get on line. We will, over the next decades, see similar attempts by this generation of old money to throttle the growing power of this global digital middle class.</p>
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<section>
<p class="header">Preface</p>
<h2>The Counter-Revolution Today</h2>
<p>What is the twenty-first century equivalent of Britain’s nineteenth century Corn Laws? How is old money fighting the revolution? There are two main strategies: property laws and simple repression.</p>
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<p>The first is based on continuously extending the legal definition of “property” so that it appropriates any and all assets built by the digital economy. Property is entirely a political construction. Imagine an economy where upstream farmers have easy access to water and dominate agriculture. Adhering to the natural laws of cost gravity, technology for irrigation and flood control falls to free, and the downstream farmers, who previously lived in a swampy delta, start to prosper. Up to then, water is not considered property. Now the upstream farmers, who control the political system, enact a law stating that the water in a river belongs to whoever lives furthest upstream. The downstream farmers must pay exorbitant taxes or go to prison.</p>
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<p class="header">Preface</p>
<p>Political systems claim to do what is best for society. That is not how things happen. Laws are written by the powerful for their own benefit first, that of others incidentally. It’s up to the downstream farmers to organize, gain power, and fix the laws. Democracy does not create balance in a society; it can only express its balances or imbalances.</p>
<p>In the early twenty-first century, an insipid set of copyright and patent laws are lazily and cynically bundled together as “intellectual property.” These laws are designed — just like those water laws — to tax the new “digital farmers” and slow down or stop their growing economic and political power.</p>
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<section>
<p class="header">Preface</p>
<p>The second strategy is classic good-cop/bad-cop repression. On the one hand, we have the bread of cheap goods and the circus of “reality TV.” On the other, we have the bloody hand of the wars on drugs, terrorism, piracy, indecency, and privacy. Our cities are blanketed with spy cameras, our networks monitored, and our police forces casually militarized. We label undesirables as dangerously anti-social: “drug criminal,” “terrorist,” “hacker,” “pirate.” Then we lock them up, torture them, use them as slave labor, and/or execute them. Those who raise a hand in defense of the undesirables or leak information about the state’s excesses are tarred with the same brush.</p>
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<p class="header">Preface</p>
<p>Society is measured by how it treats those outside the mainstream. In 2011 in Norway, a man who killed 77 people for political reasons was labeled “insane” and treated as mentally ill. In other countries, he would have been labeled as a “terrorist” and tortured for years. Abuse of children is a terrible thing. Branding teenagers who send nude pictures of themselves as sex offenders, with life-long consequences, does not protect anyone. We are often so afraid of losing our bread and circuses and so quick to fear and hate others that we’re ready to give up our neighbors without a struggle. We often clap as authorities drag away the wretched lawbreakers.</p>
<p>And the labeling continues: “extremist,” “communist,” “liberal,” “union organizer,” “intellectual,” “atheist” — and the midnight knock on the door is for our parents, brothers, children, ourselves.</p>
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<section>
<p class="header">Preface</p>
<p>Torturers and brutes know no limits except those we place on them. That is, we cannot as society <em>expect</em> authority to behave itself and then act surprised when it does not. The secret services will spy on us illegally. The police will detain and abuse vulnerable individuals illegally. This is how authority behaves when it is free of oversight. So in the long term, a peaceful society has to learn to regulate its police forces and spies, keep them in line, and moderate their behavior by force.</p>
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<section>
<p class="header">Preface</p>
<h2>Creating the Future</h2>
<p>Conflict defines us. It destroys us, or makes us stronger. It’s out of conflict that new political structures emerge, for politics is essentially about organizing disparate groups and factions to win power through some kind of conflict, and then keeping these groups in balance to prevent further conflict. The new political structures of the twenty-first century will be unlike any we’ve ever seen before. Today, we have the seeds, and already they are international, anonymous, decentralized, self-organizing, fast, and accurate.</p>
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<p>When we say that the Internet “removes borders,” this will one day literally be true. Two generations from now, the political structure of nation-states will be as quaint as medieval city-states, shires, and dukedoms. Just as with the Corn Laws in nineteenth-century Britain, the injustices of the counter-revolution are driving a generation to political activism. Perhaps the first and most significant digital activist was Richard Stallman, who in 1989 nailed the GNU General Public License (GPL) to the church door. I’ll come back to Stallman’s story in “Magic Machines”. Today, activists across the world are occupying the squares and streets of our cities, demanding an end to crony politics.</p>
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<p>I started to decrypt and document the dynamics of the digital revolution and counter-revolution in 1999, and then in 2005 took over as president of the <a href="http://www.ffii.org">Foundation for a Free Information Infrastructure</a> (FFII), a European activist network that fought software patents. We built websites and campaigns, organized conferences, and wrote laws. They called us “anti-business” so we wore suits and brought countless small business owners to speak. We tried to convince emerging Internet giants to support us.</p>
<p>We were five years too early. At the time, Google had a single solitary patent lawyer and could not take the patent problem seriously and help us. While we defeated a huge army of lobbyists in the European Parliament in 2005, it was a temporary success. Every committed FFII activist burned out and had to go back to a “normal” life.</p>
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<p>The FFII is more or less shuttered now. It spawned successors like <a href="http://www.april.org">April</a> and imitators like <a href="http://endsoftpatents.org">End Software Patents</a>. Younger minds, unhampered by twentieth century conventions of style and reputation, continue to deconstruct the concept of “organization.” They are creating new activist communities capable of challenging entire governments. From FFII to Anonymous, they are the Anti-Corn-Law League of the digital revolution.</p>
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<p>The scene is vast and global. While in the nineteenth century, political change could be triggered by a single event in a single city, today’s political structures reach into every pocket in the world. There is no dividing line between the battles over the occupation of Tahrir Square in Cairo and the endless patent lawsuits fought in the Court of Appeals of the Federal Circuit in Texas. “The odds are on the cheaper man,” <a href="http://en.wikisource.org/wiki/Arithmetic_on_the_Frontier">said Rudyard Kipling</a>. Cost gravity can’t be stopped, except by burning the libraries and murdering every person with an education, and even that only pauses things for a generation. It has been tried in Soviet Russia, Uganda, Cambodia, Rwanda, and North Korea.</p>
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<p class="header">Preface</p>
<p>As the official site of the UK Parliament notes about the Anti-Corn-Law League in the late-1800's: “<em>Growing pressure for reform of parliament in the eighteenth and nineteenth centuries led to a series of Reform Acts which extended the electoral franchise to most men (over 21) in 1867</em>.” The repeal of the Corn Laws was just one part of a wholesale transfer of power from the old to the new. The same will happen in the post-industrial world.</p>
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</section>
<section>
<section>
<h1>Chapter 1. Magic Machines</h1>
<blockquote>
<p>Far away, in a different place, a civilization called Culture had taken seed, and was growing. It owned little except a magic spell called Knowledge.</p>
</blockquote>
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<blockquote>
</blockquote>
<p>In this chapter, I’ll examine how the Internet is changing our society. It’s happening quickly. The most significant changes have occurred during just the last 10 years or so. More and more of our knowledge about the world and other people is transmitted and stored digitally. What we know and who we know are moving out of our minds and into databases. These changes scare many people, whereas in fact they contain the potential to free us, empowering us to improve society in ways that were never before possible.</p>
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<section>
<p class="header">Chapter 1. Magic Machines</p>
<h2>From Bricks to Bits</h2>
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<p>During the Industrial Age, many corporations were born and grew large, becoming what we see today as “old money.” This established group tends to view the wilder aspects of the digital economy as a threat. In fact, it often directly tries to control, slow, or reverse technological progress. It’s a safe bet that despite its best efforts, every product of the human mind that can be digitized, will be digitized. We’ve already crossed the digital horizon in many industries and the rest will follow. Whether it be the notes of a new symphony, the design of a new pair of jeans, or the frames of a subway surveillance camera, human culture is ultimately going to end up as one very long number: a stream of bits. This is a historic inevitability.</p>
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<p>Knowledge has largely moved on line, with Google acting as the general index and Wikipedia and Facebook as the aggregates of human knowledge. Who you know is as important as what you know. Business has moved on line in many cases: email, VoIP, wikis, mobile phones, video chats, and virtual teams working for virtual companies selling virtual products to virtual customers for virtual money.</p>
<p>Digital entertainment products — music, video, games, social networks, pornography — are the main attractions of digital society to many people. Art students in the rich world switched to easier “new media” like video in the late 1990's and early part of the twenty-first century. Analog culture — typewriters, board games, printed books, handwritten letters — are becoming antiques. Collect those postcards, because your kids won’t ever receive one.</p>
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<p>When culture becomes digital, it’s more than just a technological shift. With this shift, we also see new behaviors emerge. Take the music industry as an example. It used to be a top-down, industrial economy in which large firms delivered products to the market and small firms wanted to become large. Today, the avant-garde music industry consists of DJ mix communities centered around a handful of artists. Scale and growth means reaching more people, not hiring staff and buying larger offices. Music has always been language. When that language is digitized, a group of underground DJs with computers are more creative and powerful than the largest music business. Not only are bricks and mortar irrelevant in the digital economy, they are a handicap.</p>
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<p class="header">Chapter 1. Magic Machines</p>
<h2>Cost Gravity and the Digital Petri Dish</h2>
<p>In 1965, Gordon Moore, the founder of Intel, wrote:</p>
<blockquote>
<p>The complexity for minimum component costs has increased at a rate of roughly a factor of two per year... by 1975, the number of components per integrated circuit for minimum cost will be 65,000. I believe that such a large circuit can be built on a single wafer.</p>
</blockquote>
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<blockquote>
</blockquote>
<p>Moore’s prediction that chips would double in capacity each year became known as “Moore’s Law.” At the time, he predicted that the rate of exponential increase would last about 10 years. It has in fact lasted over 40 years — though Moore’s 12 months became 18 — and shows no signs of decelerating. Chips (and disks, which follow the same curve) are the soil in which our digital culture grows, and we’ve seen that space double every year-and-a-half for the last half-century. That’s an increase of 4,000,000,000 times.</p>
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<p>It was not always like this. Space for the digital culture was limited and painfully expensive for a long time. When I bought extra memory for my first computer — a Commodore VIC-20 — in 1981, the bulky expansion pack provided me with 3,500 bytes of memory and cost 50 pounds. As I wrote my computer science degree thesis (a fun little programming language), I had to strip all the comments out of my software source code so that I could fit it on a floppy disk. The benefit of this was that as a young programmer, I learned how to make software that was lean and mean. The cons of this are obvious.</p>
<p>In 2013, as I write this, $10 buys me a 32GB memory card. In 2015, as you read this, that ten-spot will buy a 64GB, and by 2022, as you read this again to see how wrong I was, it will buy a terabyte on a chip.</p>
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<p>Let’s put that into perspective. As a writer, I can produce 10 pages of finished text in a day, which is about 30K bytes. I could fill the Commodore’s 3.5K memory pack in about 1 hour. It took me about 3 months to fill the 170K floppy on which I stored my thesis. It would take me about 32 lifetimes of non-stop writing to fill my cheap little memory card.</p>
<p>It is significant that we’ve passed a point where space for the digital culture has changed from a luxury to a paper-cheap commodity. The cost of capacity — disk, memory, network, processor — has long been a limit to purely experimental or not-for-profit projects. By 2004 or so, there was a glut in capacity. A new wave (aka Web 2.0) of experimentation and social growth started, based on the availability of close-to-free resources for any individual or team with an idea.</p>
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<p>I’ve observed that Moore’s Law applies to much more than silicon: it applies to all technology, and always has applied. I call this general law “cost gravity”: the production cost of technology drops by half every 24 months, more or less. Ignoring materials, labor, distribution, marketing, and sales, the cost of any given technology will eventually approach zero.</p>
<p>For instance, the other day I bought a surprisingly cheap little black and white laser printer. The quality is impeccable; it’s silent and fast. I recall the first consumer laser printers, which were expensive, huge, noisy, and slow. While it’s nice to see things improving over time, it struck me that we could compute the cost gravity of laser printers quite easily. You can repeat this measurement with any technology that you can compare across two or three decades.</p>
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<p>We will compare the HP LaserJet Plus, introduced in 1985, printing 8 pages per minute at 300x300 dots per inch, with the Samsung ML 1665, from 2010, printing 17 PPM at 600x1,200 DPI. When they were introduced, the HP cost $4,000 and the Samsung $50. Past 2010, black-and-white laser printers became so cheap that price “noise” makes accurate measurement impossible.</p>
<p>First, we adjust for inflation. That $4,000 in 1985 is just double in 2010 dollars, at $8,000. Next, let’s adjust for technical specifications. The Samsung prints twice as rapidly at eight times the resolution and is about a quarter of the size. So I’m going to rate it at 32 times better, technically.</p>
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<p>If there were no cost gravity at work (gravity of 0%) — and assuming that we’re paying proportionally for technical quality — that original $4,000 printer would cost around $250,000, which is 32 times the price, doubled for inflation. If cost gravity were 10% per year, today’s little printer would still cost $18,000. A cost gravity of 29% per year brings us to the 2010 price. That’s a fall of about 50% every 24 months (0.71 x 0.71). $50 probably represents the bottom of the price curve: effectively zero. Technical specifications will improve (WiFi, color, longer-lasting cartridges), and then Korean and Japanese manufacturers will stop making them.</p>
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<p>You may be wondering, then, why all old technology isn’t literally free? Well, immaterial products do become free. Material products, however, are not just raw technology. They also require raw materials, time, energy, and knowledge. A fine wine is expensive because it depends on rare raw materials, as well as knowledge, time, and scarce land. Green beans grown and handpicked on the hills of Kenya are expensive to western consumers because they must travel a long distance rapidly, which costs energy.</p>
<p>Cost gravity is what keeps the digital world alive: as our digital universe doubles in size every two years, the hardware it depends on falls in price by half every two years. For example, the hardware budget for Wikipedia has remained constant for years even as the size of the project has grown exponentially.</p>
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<p>What drives cost gravity? The software industry, which creates purely immaterial products, shows how this process works. Software represents distilled knowledge about how to approach specific types of problems that can be solved using general-purpose computers. Collecting this knowledge is expensive at the start because it means fishing it out of individuals' brains. People need to travel, meet, talk, and think together. Once that’s done, it is almost free to distribute, share, and remix the resulting knowledge.</p>
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<p>So the digital economy has these rapid cycles where new products move from costly luxury to free commodity within one or two decades. Email was invented around 1980 and was available to very few privileged people. In 1990, my professional email account cost me about EUR 1,200 a year — more than my rent! By 2000, email was widely and freely available to everyone through web services like Hotmail.</p>
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<p>The digital economy is built around either accepting or distorting this process of cost gravity. There are many ways to make a lot of money in the digital economy. One way is to create a company based on a not-yet-commoditized product and sell it to a larger, less agile firm (Hotmail, Flickr, YouTube and many others followed this model). Another is to make and give away products that other (slower) firms are still trying to sell, and use this to open the market to new services (Google does this very well).</p>
<p>A third approach is to create your own captive society and force it to use your products where, without real competition, prices can remain artificially high (Microsoft and more recently Apple are good examples of this). Finally, you could sell luxuries and fashion to people who have lots of disposable income (Apple is a fine example).</p>
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<p>Cheaper digital technology also affects the larger economy. Transport gets more efficient, and cheaper. Production becomes automated and cheaper. Administration becomes more efficient, automated, and cheaper. The rapid global spread of digital technology is a principal cause of the growth in global prosperity over the last decade.</p>
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<h2>The First Law</h2>
<p>The Internet — the fabric of digital society — was born on 7 April 1969, a few years after Gordon Moore coined his law. The event was the quiet and rarely celebrated publication of a “request for comments” on something called the “HOST software.” The document, <a href="http://www.faqs.org/rfcs/rfc1.html">simply called “RFC001”</a>, says:</p>
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<blockquote>
<p>During the summer of 1968, representatives from the initial four sites met several times to discuss the HOST software and initial experiments on the network. There emerged from these meetings a working group of three, Steve Carr from Utah, Jeff Rulifson from SRI, and Steve Crocker of UCLA, who met during the fall and winter. The most recent meeting was in the last week of March in Utah. Also present was Bill Duvall of SRI who has recently started working with Jeff Rulifson.</p>
</blockquote>
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<blockquote>
</blockquote>
<p>Crocker, Carr, and Rulifson are not household names. Steve Crocker and his team invented the Requests for Comments, or RFC series. These documents became the laws of the Internet, specifying every standard in a clear form that was freely usable by all. These were spectacularly successful standards by any measure. They were implemented in hundreds of thousands of products and have survived for forty years with no sign of decay. The RFC system did not only define standards for protocols, it also defined rules for the legislative process itself.</p>
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<p>Today, despite this success, it is becoming harder and harder to make new protocols and standards. There are too many billions that depend on controlling, taxing, and corrupting standards. Patents are a major threat. The calculation is simple: imagine if email had been patented — how much money would the patent holder (let’s call him the “inventor” or “job creator” for effect) have earned? If email had been patented — which happily it was not — then we would have suffered two decades of stagnation and suspension of cost gravity.</p>
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<p>This has happened often in history, notably during the Industrial Revolution, with James Watt’s steam engine patents. As Michele Boldrin and David K. Levine wrote, in their book <a href="http://levine.sscnet.ucla.edu/general/intellectual/against.htm">“Against Intellectual Monopoly”</a>, “During the period of Watt’s patents the United Kingdom added about 750 horsepower of steam engines per year. In the thirty years following Watt’s patents, additional horsepower was added at a rate of more than 4,000 per year.”</p>
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<p>Any expensive product or service that is widely used, yet immune to cost gravity — such as medicines or mobile phone calls — is protected by a patent cartel. If silicon is the space in which digital society grows, knowledge is its blood, and software its muscles. Patents make it illegal to reuse knowledge and (despite the old rhetoric of the patent industry) kill the broad incentive to invest. We’ll come back to patents later. For now, I’ll leave you with that glimpse of how dangerous they are.</p>
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<h2>A Brief History of the Internet</h2>
<p>I will summarize the history of the Internet thus: a generation that grew up with computers in college and university went out into the real world and colonized it with their freaky and ultimately accurate vision of what was possible with ever more cheaper and faster communications. It took only four decades to go from three terminals on a local network to <a href="http://mobithinking.com/mobile-marketing-tools/latest-mobile-stats/a#subscribers">almost seven billion mobile phones</a>, of which two billion are smartphones, on a global network.</p>
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<p>In the 1960's, mainframes ruled. These were huge expensive machines run like private empires. People were experimenting with simple networks. In 1962, I was born, and someone also invented network packets. These are like envelopes of information that could be sent around different routes to get to their destination. The military began developing packet-switched networks that could survive a lot of damage. Around 1965, people invented mainframe electronic mail; in 1969, the first RFC was written; and in 1971, the @ sign was born.</p>
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<p>The first Internet was actually built out of smaller networks like Arpanet, which had a whopping 213 hosts in 1981, and Usenet, which had 940 hosts by 1984. The Internet doubled in size every eighteen months. The Internet Protocol (IP) made it possible to route packets between networks (not just inside single networks) and after Big Brother failed to appear in 1984 (except in Apple adverts), the Internet grew into a worldwide research network that reached most places except Africa.</p>
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<p>The Internet’s dark side as we know and love it — spam, viruses, porn sites, download sites, credit card fraud, identity theft, malware — blessed us with a brief preview in 1988, when the first worm flattened the academic Internet. We had to wait until 1990, when commercial restrictions on Internet use were lifted; and then 1991, when Tim-Berners Lee invented the web at CERN, in Geneva; and finally 1993, when Al Gore found funding for the development of a graphical web browser named Mosaic. Suddenly, any fool with a PC and a modem could get on line, and The Real Internet was born.</p>
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<p>It still took Microsoft more than two years to catch on. Rather than recognize the new Internet, it stubbornly rolled out its own “Microsoft Network” that hardly talked to the Internet at all. Windows 95, despite being the most installed software of 1995 after <a href="https://en.wikipedia.org/wiki/Doom_(video_game)#Release">the game Doom</a>, had no Internet functionality whatsoever. When Netscape became the dominant browser, Microsoft realized its mistake, and brought out a patch for Windows 95 and a branded version of Mosaic. It then slowly beat Netscape to death by giving its browser away for free, destroying Netscape’s market, and establishing itself as the new bully on the Internet block.</p>
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<p>In 1998, the domain name system was privatized and opened to competition. Suddenly, the cost of buying a dot-com name fell to rock bottom. Not surprisingly, lots of people bought dot-com names. Sensing a gold mine, the island kingdom of Tonga started selling .to names, and soon every country was selling its “national” domains to all and sundry. The coolest were probably .tv and .fm, though.</p>
<p>Also in 1998, Google was founded, and soon their revolutionary concept of “it works the way you expect” made them King of the Search Engines. Once upon a time, the list of all websites was twenty pages long. I still have a book that has the entire World Wide Web printed as an appendix. Then the list got too long to print and sites like Yahoo! organized them into categories.</p>
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<p>Then the category list got too large to keep updated, and Lycos invented the full-text search. This was too slow, so Digital Equipment Corporation built a natty search engine called Altavista to show how to do it properly. The results for any search got too long, so Google invented the ranked search, which pretty much fixed the search issue. Google also threw all the clutter off the main page. Less is more.</p>
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<p>The dot-com boom bubbled in 1999, driven by the dream of cheap access to millions — no, billions — of consumers. Investors threw huge amounts of money at firms whose business plan typically went: “<em>1. Give people something free. 2. ??? 3. Profit!</em>” In 2000, the dot-com bubble burst, mainly because big firms had spent so much cash on solving the millennium Y2K “crisis” that they had to freeze all new IT spending for two or three years. Big IT firms' profits fell, investors panicked, the stock market collapsed, and so did most dot-com firms. Most of those companies' business plans were empty anyway.</p>
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<p>In 1999, Napster started to let people trade songs on line. It was blatantly illegal and incredibly popular. Napster was almost immediately sued and shut down by lawsuits in 2001, the same year that Wikipedia, the blatantly legal and incredibly popular shared-knowledge collection website, was launched. After shrugging off many years of contempt and ridicule for allowing anyone to edit pages, Wikipedia made Encyclopedia Britannica redundant by around 2005.</p>
<p>Around the Millennium, it was not yet clear that the digital revolution was real. By the late 1990's, the widespread use of computers at work had lowered — not raised — productivity. Everyone was playing Solitaire instead of worrying about the coming end of the world. The dot-com crash seemed to prove that brick-and-mortar was still the real world and that “digital mindshare” was a hoax.</p>
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<p>From 1999 to 2004, huge swathes of the post-industrial service economy quietly continued to go digital. The fast fiber optic cable links from the US to India that were used in 1998-99 to do Y2K conversions became the portals for massive outsourcing. And as businesses quietly off-shored and reorganized around an ever cheaper global communications network that let them move help desks to Bangalore and insurance claims processing to Haiti, the second Internet boom, aka Web 2.0, exploded sometime around 2003-2004.</p>
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<p>Ironically, given their reluctance to innovate and their dependence on captive markets, it was Microsoft that triggered Web 2.0. In 1999 they released a small toolkit called XMLHTTP that let web authors escape the click-driven box of the classic web page. Suddenly pages could update themselves, and started to look like real applications. Google flew with the idea, using it for Gmail and Maps, and “Ajax” was born. Flickr and YouTube, launched in 2004 and 2005, mixed the pretty new Ajax technologies with community and self-created content to create massive hits.</p>
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<p>The Internet has continued its explosive takeover of technical, social, economic, and political life. Pretty much every person on the planet is connected — if not directly, then by immediate proxy. We amplify our lives through Facebook, Twitter, massive multiplayer games, email, chat, Skype. The only people who are not on line fairly regularly with a diverse network of contacts are too poor, too old, too young, or (and I’m speculating here) young men who are so socially isolated as to present a “lone wolf” threat.</p>
<p>Digital political activism has never been more aggressive, confident, and successful as it confronts abusive cults, authoritarian governments, and dictators, and spreads its <a href="https://en.wikipedia.org/wiki/Philosophical_anarchism">philosophical anarchist vision of the future</a>. Anonymous, the faceless un-organization that grew from image-sharing forums like 4chan.org, is <a href="http://news.nationalpost.com/2012/05/12/insider-tells-why-anonymous-might-well-be-the-most-powerful-organization-on-earth/">arguably</a> one of the most powerful organizations on earth.</p>
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<h2>What Drives Digital Society?</h2>
<p>Technology is not inevitable. Powerful drivers must exist in order for people to keep pushing the envelope and continue demanding more and more from a particular field of knowledge. In my view, digital society is driven by several factors.</p>
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<h3>Cheaper Communications</h3>
<p>The first and most important driver is our demand for ever cheaper and easier communications. In 1960, we could perhaps keep in touch with 50 people by meeting them face-to-face, writing them letters, and sometimes giving them a phone call. Very well organized people kept indexes of people they knew. Today, we can keep in touch with tens of thousands of people, and computers have become social memory banks. They help us track who we know, in what context, and what we’ve talked about.</p>
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<p>All of human society depends on communications. When we can reach a hundred times more people, all of society is turbocharged. The demand for communications is intense and apparently limitless. In Tanzania in 2007, there were 150,000 fixed phone lines, representing the pre-digital phone network, and already 2 million mobile phone subscribers. In 2011, <a href="http://www.africanbusinessreview.co.za/news_archive/tags/canada-s-international-development-research-centre-idrc/fifty-percent-tanzania-s-population-usi">more than twenty million</a> Tanzanians used mobile phones.</p>
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<h3>Entertainment</h3>
<p>Humans are neotonous animals: we act like kids for most of our lives. It was our own invention of fire that gave us cooked food and freed us from needing the large adult ape jawbone. A smaller jaw and cooked food meant a thinner and lighter skull, which allowed more space for the brain. Since humans learned to make fire, every labor-saving invention has gradually reduced our need to be self-sufficient wild animals and turned us into a self-domesticated species.</p>
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<p>Like our dogs, which are domesticated and neotonous wolves, we play even as adults. The Internet has always been a fertile space for imaginative ways to have fun. Chatting with friends, on-line games, porn, aimless surfing, shopping, swapping music and films; the Internet has a powerful pull on our baby ape nature.</p>
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<h3>Communities and Social Networks</h3>
<p>Since the earliest bulletin board systems, humans have been drawn to join and hang out in on-line communities. Since its birth, the Internet has offered a rich world of special interest groups. Whatever your passion, the Internet provides hundreds, even millions, of people who share it, right at your fingertips. Pre-Internet commercial networks like Compuserve and AOL essentially sold “community” as their main product, and today this drives big sites like Facebook, Twitter, Reddit, and YouTube.</p>
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<h3>Business</h3>
<p>Even though the Internet opened to commercial use only in the early 1990's, it’s become an essential tool for all industries. Obviously, communications is a big driver for business. Email is very cheap. We also adopted the Internet because it became an excellent research tool, a cheap way to handle clients' problems (via forums and wikis), a cheap way to do marketing and sales (websites), a cheap distribution channel for digital goods (especially for the software industry), and a cheap backbone for virtual organizations.</p>
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<p>In 1996, one of our large clients was shocked when we proposed to make a new application using the web. Their disbelieving response was, roughly, “this could never work.” By 1999, everyone was trying to move their business on line, and despite a rough start, most US and European businesses were firmly on line by 2003 or so.</p>
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<h3>Politics</h3>
<p>The citizens of digital society have over time organized themselves to fight off the threats they saw from hostile organizations, and these organizations became political structures that used the Internet in an extreme fashion. When I took over as president in 2005, the FFII had more than 500 mailing lists and 20,000 wiki pages. In the US presidential elections of 2000 and 2004, the Internet played a big role in reaching people, exchanging news, and organizing people. The US presidential elections of 2008 and 2012 were organized and waged in the blogs and forums more than on TV. The Boston Marathon bombings of 2013 were reported — and misreported — in real-time on Twitter and Reddit, and more people followed and created the stories there than on TV.</p>
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<h3>Globalization</h3>
<p>Despite the emotions that the “G” word still invokes, we’ve awoken in a global society where it’s almost as easy to reach someone in Bangalore as it is in Brussels. Keeping in touch with friends abroad used to be arduous and costly; now it’s easy and free using email, Skype, Facebook, and Twitter. The same goes for business: cheaper communications enable US businesses to outsource massively to the other side of the planet. If the dream of real free trade without the price fixing and geopolitics that still typify today’s markets ever comes true, it’ll be largely thanks to the Internet.</p>
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<h3>Defiance</h3>
<p>Rarely discussed, yet present in the minds of many early Internet users, was a feeling that they were changing the world. One small step at a time, we’ve deconstructed industrial-era industries like telecommunications, insurance, and travel. Banking, retail, and academia are slowly and surely following. Another decade or two, and school holidays will disappear. Politics is seduced by the idea of building new movements. The feeling of power and freedom that comes from helping to bury the past is addictive to many people. Perhaps it’s a combination of rebellion and faith in a bright, shiny future.</p>
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<h2>Of Mice and Dinosaurs</h2>
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<p>The thing we call “a business” has been revolutionized in the four decades since that first RFC broke the ice. A serious firm used to require physical premises, stock, notaries, salesmen, equipment, directors, vice presidents, secretaries, a mail room, printing service, human resources, middle managers, regional offices, regional managers, and so on. The cost of starting even the smallest firm was so high that people were compelled to make complex financial arrangements to collect the necessary capital. The high price to society of failed businesses meant that every aspect of starting and running a business was heavily regulated, which added to the cost and complexity. Most people had no choice except to work as employees for existing firms.</p>
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<p>Today, of course there are still firms that look exactly like their predecessors of the last century. These are the dinosaurs, and their size and weight disguise their weaknesses. For every large firm that occupies an impressive building in the “business district,” there are tens of thousands of entities that operate from cyberspace with no offices, formal construction, or capital. Most scarily for classic businesses, there is a single, increasingly level playing field. Clients barely care about the impressive offices. The high costs that used to act as a useful barrier to entry are now just overhead.</p>
<p>Let’s look at the practical realities of starting a small business today:</p>
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<ul>
<li>We don’t need impressive offices because customers don’t care much about seeing how solid and well established we are. It’s all about the ability to deliver and building a long-term (Internet-based) reputation. The perception that a real firm must be backed by a real building died in theory around the turn of the millennium, and in practice perhaps five years later. All we need now is a postal address, fast Internet access, coffee, and temporary meeting spaces.</li>
</ul>
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<ul>
<li>We don’t need to hire employees or have a human resources department because more and more skilled staff choose to work as independent contractors or small businesses. Contracting and partnerships are more flexible than classic employment — especially in Europe, which still struggles with an over-regulated labor market. Europe’s heavy laws on permanent staff were effective tools against labor abuse in the last century. Today they’re increasingly punishing for small, agile businesses.</li>
<li>More of our communications infrastructure (websites, email, archival) can be handled by free or low-cost managed services. This means we don’t need dedicated computer systems or support staff.</li>
</ul>
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<ul>
<li>Resources and information are available on line. This means we don’t need staff to do research. For example, we used to need to pay a travel agent to organize travel. Today, we can do it ourselves, so trivially that we forget what a chore this used to be.</li>
<li>The cost of creating legal entities is falling, driven by a very competitive US market. Europe still lags behind. Some smaller European countries such as Estonia and Macedonia are positioning themselves as the Delawares of Europe (not to be confused with tax havens like Cyprus, which have as their model secrecy and low taxes rather than simple efficiency).</li>
<li>Government departments are increasingly using email instead of paper, and accepting tax returns and other reporting via the Internet through standardized formats. This reduces the need for accountants and other middlemen.</li>
</ul>
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<ul>
<li>Products have gone digital in many domains, eliminating manufacturing costs, and sharply reducing the costs of packaging and marketing. When physical products need to be built, there are many “assembly” firms that will make these; dedicated manufacturing is a thing of the past.</li>
<li>Funding, which used to be sought from a few significant investors, can now be sought directly from prospective buyers through crowdfunding platforms like Indiegogo and Kickstarter.</li>
<li>And of course, as I’ve explained before, the costs of communications, both internal and external — the biggest cost of the classic firm — have been reduced to near zero.</li>
</ul>
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<ul>
</ul>
<p>Let me take a concrete example of a young business that wants to develop and sell a new high-tech product. The core design and engineering team consists of perhaps 10 people. This hasn’t changed. In the classic firm, this team would need about 100 further people to help develop, package, market, sell, and support a product. More products would mean more people. A successful product would mean growth — not of core engineers, rather of salesmen, middle managers, and support people. Today that team needs no further support at all, and can handle large successes without requiring expansion.</p>
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<p>And so we see something totally unique in the history of commerce: the largest firms on the planet face direct competition from tiny start-ups that can move rapidly, experiment with high-risk strategies, adapt overnight, and grow large to fill new areas before large firms even realize those markets exist. Many competitors of established businesses do not even consider themselves “businesses,” rather “projects” or “communities.” This makes them hard to fight using the traditional weapons of the marketplace, namely marketing, aggressive pricing, buyouts, and so on.</p>
<p>Let’s look at some major old industries that cling on, and see what challenges they’re facing from new forms of organization:</p>
<ul>
<li>The old news industry faces social networks, WikiLeaks, Reddit, mobile phones.</li>
<li>The old advertising industry faces Google.</li>
<li>The old music industry faces file-sharing, home studios, and mixing.</li>
</ul>
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<li>The old telecoms industry faces Google and Facebook, Skype, email.</li>
<li>The old academic industry faces Wikipedia.</li>
<li>The old software industry faces free software and ad-sponsored mobile applications.</li>
<li>The old television industry faces YouTube and BitTorrent.</li>
</ul>
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<ul>
</ul>
<p>From looking at this breakdown, I conclude that many industries have passed a “digital boiling point” where their industrial-age products and services are turning into digital vapor, and like frogs in the pot, they are often slow to make the leap to safety. Will the music industry ever embrace file sharing? Will academia ever learn to embrace Wikipedia? Perhaps the key to answering these questions is to understand that the real competition does not simply come from smaller, faster, lower-cost organizations. These merely drive down prices. The real competition comes from radical new approaches to the very nature of work, which have the potential to destroy existing markets as they create new ones.</p>
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<h2>The Establishment Under Assault</h2>
<p>In the early 1990's, I wrote an article imagining the future. “I want to be able to record the bytes off my music CDs, which are digital, and compress them,” I wrote. “Imagine, my own digital music jukebox.” This was a year or two before CD rippers and MP3 compression became available. Already music studios had gone digital and no one seriously doubted that CDs would beat vinyl. Today I can hold the digital contents of my old thousand-CD collection on a tiny memory card. Music has become the epitome of the digital good, exchanged and collected by billions of people, while the music industry goes through a slow, complex, and painful rebirth around this new reality.</p>
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<p>It’s instructive to look briefly at the digitization of the music industry, because the same process is happening in many other industries. DVDs replaced the VCR, and video followed music onto the Internet as a shareable artifact of popular digital culture.</p>
<p>The music industry moved to digital technology for its own production processes in the eighties. Sony and Philips published the CD-ROM audio standard in June 1980, consumer music went digital, and consumers found themselves with a cornucopia of new digital content, albeit at a higher price. Music CDs were typically priced 25% higher than LPs and sold as higher-quality luxury items. The price of producing CDs fell, of course. However even when CDs cost under a dollar to produce and distribute, they still remained very expensive in the shops.</p>
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<p>The perceived unfairness of this pricing model gave many people the feeling that Internet music “file swapping” was justified. Later, the on-line exchange of movies, TV programs, and music simply became so convenient and widespread that it normalized. Audio CDs were not initially “digital goods” because we could only play them in CD players that roughly imitated LP players. However, in the mid-1990's, home computers became powerful enough to “rip” and store these digital goods, squeezing them into more efficient forms (the MP3 format). And by the late 1990's, the Internet was capable of transporting these files, resulting in the birth of mass-market file sharing networks.</p>
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<p>The first such network, Fanning and Parker’s Napster, lasted three years from launch to bankruptcy and liquidation, hitting 26.4 million users and multiple music industry lawsuits in the process. Its successors (FastTrack, Gnutella, Kazaa, WinMX, AudioGalaxy) were also smashed by music industry lawsuits. In a pattern we see many times, stamping down one pirate business created dozens of new ones to take it place. Killing Napster turned a handful of networks into dozens, then hundreds, mostly using the BitTorrent peer-to-peer (P2P) technology.</p>
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<p>It has proven impossible for the music industry to kill file sharing, yet they have tried endlessly, declaring “war on downloaders,” suing file sharers, buying laws to criminalize copyright infringement, and on and on. A Russian site, AllofMP3.com, launched in 2000, was very successful at selling music cheaply by the megabyte. It did not pay royalties to the US music industry. After many years of conflict with the established music industry, including suspension of its credit card payments — heralding a form of attack that would be used much later against WikiLeaks — it was finally killed in 2008 by direct political pressure from the White House all the way to the Kremlin.</p>
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<p>During the long fight between the industry and the pirates, Apple managed to produce the first industry-sanctioned model that let users easily buy digital music and play it on their portable players. It was hugely successful both in making it an easy experience for users and a profitable one for itself and its music industry partners. In 2004, Apple’s stock was around $10; it peaked at over $600 in 2012, and digital music played a major part in their success.</p>
<p>So after a lost decade of lobbying and lawsuits against every plausible new model of music distribution, the music industry finally accepted that the mass market wanted to play music via the Internet and opened up to new business models like <a href="http://www.spotify.com/">Spotify’s all-you-can-eat service</a>.</p>
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<p>In the end, all we wanted was a free choice of music, always available, with a “Play” button on our phones, tablets, and laptops. It was never about getting something for free as such, rather about convenience and choice, and it turns out we’re mostly happy to pay for this. Indeed, downloading and sharing free music was never a cheap hobby; it needed large hard disks, fast connections, and powerful PCs. That people were willing to spend quite a lot to do this disproved the “piracy is theft” claims.</p>
<p>It’s very much the same story with television and cinema. For a decade, these industries have watched the growth of faster networks and larger hard disks with dread. “The Internet is going to eat us alive,” quoth the movie industry. It happened to music, so clearly video was next.</p>
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<p>Except that it didn’t happen. The incredible volume of television shows and movies shared via BitTorrent networks didn’t kill the global appetite for moving pictures; it spurred it on. As for music, we downloaded because there was no other way to get the convenience and choice, and shared out of disgust with the state of affairs. And as for music, the movie industry (more than the television studios) used the courts and legislators instead of simply giving the market what it wanted.</p>
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<p>Today, the TV and movie streaming service Netflix eats a full third of peak Internet traffic to homes. The most pirated television shows are also the most watched on the for-profit networks. What every software project has known for decades is now apparent to the movie and TV studios as well: the real threat to long-term survival is not piracy. It is obscurity. Piracy didn’t kill the moving picture. It probably saved it from disappearing among the many other digital attractions.</p>
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<h2>It’s All in the Remix</h2>
<p>The software industry is arguably the one with the best record of reinventing itself multiple times over during the last decades. Innovation in this industry tends to bubble up from small, extremely competitive teams and businesses, with slow adoption by larger businesses over time. For example, around 1985-90, the dominant business model for tiny software firms was “shareware,” software you could try for free and buy if you wanted it. Today this is how the largest firms like Oracle still sell their software.</p>
<p>The leading edge of software development often sets the tone for other knowledge industries. A clear example of this is how we solved the “software crisis” of the late twentieth century.</p>
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<p>In 1987, Fred Brooks, a leading expert of the problems of the software industry, <a href="https://en.wikipedia.org/wiki/No_Silver_Bullet">famously wrote</a> that “<em>we see no silver bullet. There is no single development, in either technology or in management technique, that by itself promises even one order-of-magnitude improvement in productivity, in reliability, in simplicity.</em>”</p>
<p>Brooks listed a number of steps that might solve the software crisis. In 1987, the software industry was already seen as vital to the economy and was considered to be in crisis. We could not, at the time, produce sufficient software of high quality and low price to satisfy demand. Brooks was previously head of a major IBM project to write a new mainframe operating system. The experience was one of trying to manage ever-expanding budgets and failing deadlines. It left him deeply skeptical of the software industry’s capacity for self-improvement.</p>
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<p>He wrote, in his landmark 1975 book, “The Mythical Man Month” that “<em>adding manpower to a late software project makes it later</em>,” a lesson that Microsoft would have been wise to understand when they built Windows Vista over five long years from 2001 to 2006. Fred Brooks was technically right when he said “no single element” could solve the software crisis. Yet like everyone at the time, he missed the point and failed to see the oncoming revolution in software development. History shows that two elements combined to create a thoroughly effective silver bullet.</p>
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<p>The first was the relentless pressure of cost gravity, which from 1975 to 1995 brought the cost of software development infrastructure — computers and networks — down by 1,000 times, and by 2015, a million times. Cost gravity is what makes the Internet possible at all. Without it, the boxes that route today’s traffic around the world would be the size of airports and consume more electricity than entire cities. Actually it’s a nonsense vision: without cost gravity, we’d not even be here.</p>
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<p>By 1995, it had become easily possible for individual programmers to buy computers and link them together using email, the file transfer protocol (FTP), and other young protocols like the hypertext transfer protocol (HTTP). So while Fred Brooks’s IBM had to bring expert developers together in huge research facilities, the Internet allowed the same developers to work from anywhere, to create flexible ad hoc teams, and solve problems in much more intelligent ways.</p>
<p>The second element is what I consider one of the key technological developments of the twentieth century digital revolution, which was a new private contract for collaborative development called the GNU <a href="https://en.wikipedia.org/wiki/GPL">General Public License, or GPL</a>. It was this document, this license, that finally solved the software crisis.</p>
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<p>I doubt that Richard Stallman, the man behind it, had such lofty goals. As far as I can tell from his writings at the time, he simply wanted to prevent volunteer efforts — quite common in the software sector since its first days — from being converted into closed commercial products, locking out the original contributors. Stallman also inadvertently fixed the software crisis, spelled the end of the classic software industry, and laid the foundations for the twenty-first century software industry.</p>
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<p>The GPL is a model for a broader kind of collaborative innovation that people call “remixing,” which we see in other sectors such as music and digital art. Remixing is a surprisingly effective way of producing certain kinds of knowledge goods. It occurs when a group of creative people agrees to allow each other to reuse (“remix”) their work into new forms, freely, and under the condition that any new mixes are available to everyone under the same conditions. It is a “share-alike” form of collaboration that feels comfortable to many groups and is widespread in society, once we look beyond the gates of media businesses.</p>
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<p>Creative groups often adopt remixing conventions without formality and legalisms. For example, many music scenes consist of DJs who remix original material with new samples, lyrics, and their own sounds. Or, a group of graphic designers might swap material and combine each other’s work. Lawyers tend to remix contracts without guilt. A knitting circle will share patterns and techniques. Gardener’s clubs exchange tips, seeds, and plants. Doctors exchange remedies and diagnostics. Farmers share solutions to animal husbandry and pest control. The fashion industry utterly depends on remixing.</p>
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<p>Remixing is a natural way of working that has a long history with roots in our social psychology. Sharing one’s ideas and work is good for everyone. No one likes a hoarder: imagine the reaction to a doctor who discovers the cure for a disease — using all the knowledge given to him by others — and refuses to share his new knowledge with others. He or she would be condemned as criminal.</p>
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<p>The lust for money, especially in the form of business, breaks down this collaborative model. This can be an example of how the free market, which I generally like and respect, can work completely opposite to the interests of society at large. When businessmen get involved with commercializing a successful work, they have little choice — in the conventional business model — except to stop people from remixing the now precious work into new forms. It is of little consequence that the commercial hits are based on others' work. Informal sharing agreements cannot survive when the economic incentive to cheat is higher than the incentive to share.</p>
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<p>Some types of work are deemed so “utilitarian” that they don’t have copyright protection. This is the basis for the fashion industry, for example, where designs are copied without shame. Courts repeatedly refuse to punish those who copy designs for shoes and clothes, as long as they don’t copy the trademark. The fashion industry is also an order of magnitude larger than industries that use copyrights. Software, despite being highly utilitarian, falls under copyright law and that makes it easy for businesses to close off software source code. They can easily take software that is developed collaboratively, such as by students at a university, and create closed products that even authors whose work was used in those products cannot remix.</p>
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<p>Stallman found the answer to this problem. He defined a simple license that put the remixing agreement into written form backed by copyright law, and made it much harder to cheat. The license says it is, “<em>designed to make sure that you have the freedom to distribute copies of free software (and charge for them if you wish), that you receive source code or can get it if you want it, that you can change the software or use pieces of it in new free programs, and that you know you can do these things.”</em> Licenses like this are easy to enforce, and the GPL has been upheld by courts in many instances.</p>
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<p>The GPL is the dominant share-alike license for software. For music, photography, and writing, the Creative Commons project offers a whole raft of share-alike licenses (as well as other types) that “give everyone from individual creators to large companies and institutions a simple, standardized way to grant copyright permissions to their creative work.”</p>
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<p>When done properly, a remixing license is incendiary. First, it effectively prevents cheating, giving creators a strong guarantee that their work won’t at some future date be taken out of the remix and perhaps even used to compete against them. Second, it allows the remix to scale (that is, grow to any size) by explicitly defining the rules so that complete strangers can collaborate. Confidence and scalability allow a group of friends who agree between themselves to grow to a community of thousands or millions who can work together in confidence.</p>
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<p>In software, the GPL spawned a massive new remix, called “free software,” commonly yet wrongly lumped together as “Linux.” Free software is so abundant and of such high quality that the software crisis can be considered definitively solved. Noting that that 90% of everything is crud, <a href="https://en.wikipedia.org/wiki/Sturgeons_Law">Theodore Sturgeon pointed out</a> that this did not detract from the quality of the other 10%. It is only firms that refuse to use this technique — like Microsoft, SAP, and Oracle — that still suffer the traditional high costs and delays of old-fashioned software development.</p>
<p>For a large-scale remix to be successful it must be one hundred percent <em>self-hosting</em>; that is, it cannot depend on any proprietary — legally unremixable — material at all. When a DJ makes the error of remixing in a little commercial pop music, their work cannot be legally distributed at all.</p>
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<p>The remix definitely threatens established interests. More broadly, conflict between old and new is a constant, defining part of the history of digital society. Sometimes this conflict affects hundreds of millions of people. Nowhere is this more dramatic than in Africa, a continent that the Internet almost totally bypassed.</p>
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<h2>The Lost Continent Gets On Line</h2>
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<h3>Poverty on Purpose</h3>
<p>Let’s start by asking a painful question often asked, and yet in my experience rarely usefully answered: <em>Why is sub-Saharan Africa so persistently and so stubbornly poor?</em> The conventional story is of Africa the Victim, a proud continent swindled by slavers and colonialists. And, simultaneously, at blame for its own situation, overpopulated and warlike, corrupt and tribal. These stories seem racist, bogus, and worst of all, useless.</p>
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<p>I was born and raised in Africa, and have lived in, worked in, or visited both Congos, Kenya, Tanzania, Rwanda, Angola, Togo, Ghana, Nigeria, Burundi, and Uganda. My wife is Congolese, my father was a diplomat mostly working in Africa, and my sister is a professor of political science specializing in Africa. Yet in my whole life, I’ve never heard a satisfactory answer for this question. And its an important question because Africa’s poverty is the world’s poverty. Africa’s poverty shames us and also cripples us. Poverty can be profitable for a few. It cannot be profitable for the entire species.</p>
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<p>The economist Jeffrey Sachs <a href="http://www.earthinstitute.columbia.edu/endofpoverty/">has argued</a> that Africa’s geography — it is a huge landmass with few waterways and many barriers to transport — is one of the underlying reasons that this continent missed the Industrial Revolution. Sub-Saharan Africa (which I’ll just call “Africa”) is geographically challenged beyond most people’s comprehension.</p>
<p>The <a href="http://www.worldportsource.com/countries.php">World Port Source</a> shows the harbors and ports of every country in the world. No matter which figures you look at, you will discover bizarre comparisons. In 2013, the United Kingdom has 389 ports, while the US has 532. Japan has 292; China, 172. And then, let’s look at the largest African countries and economies: Nigeria has 12, South Africa has 10, Ghana has 4, Kenya has 3, and Congo-Kinshasa also has 3.</p>
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<p>The sheer lack of ports is easy to understand when you look at the map: the coastlines of Europe and North America, carved by rivers and glaciers, are very crinkly with hundreds of natural harbors. The coastline of Africa, old and continental, is mostly smooth. In “Faceless Societies”, I will develop the hypothesis that as geography drove Europe towards prosperity, it drove Africa towards poverty.</p>
<p>It’s not just bad geographic luck, however. When I checked these figures in 2008, here was the tally: UK had 279 ports, the US had 371, Japan 144, and China had 157. Meanwhile Nigeria had 12, South Africa had 10, Ghana had 4, Kenya had 3, and Congo-Kinshasa had 3. Nothing had changed for Africa, while the more developed countries nearly doubled their port numbers in some cases.</p>
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<p>Let’s look more closely at the figures. Nigeria, a country of 165 million people, has 12 ports. This breaks down into four “medium-sized” harbors, at Lagos and Port Harcourt, and eight small or very small ports. Belgium, where I live, has four “medium-sized” harbors, and also two “large” ones and a “very large” one at Antwerp.</p>
<p>A current expansion of the main Lagos Appa port, <a href="http://www.thisdaylive.com/articles/expansion-boost-for-nigerian-ports/140227/">will bring it to 1.2 million twenty-foot equivalent units (TEU) per year</a>. A TEU is half a container. So, 600,000 containers a year, or 2,000 per day. It sounds like a lot. Antwerp, by comparison, has a capacity of 15m TEU per year, more than 10 times the amount.</p>
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<p>The lack of import/export capacity in Africa is very profitable for those in power. There is little or no competition. If you want to use those ports, you have to pay the price. Most countries are literally captive markets. If I want to ship a container out of Brussels, I have the choice of dozens of ports fighting for my business; if I want to ship a container out of any city in Africa, I have the choice of paying through the teeth to the local rulers or trying to ship my container thousands of miles across poor roads to another crime outfit.</p>
<p>If we look more widely, we see that most of Africa’s infrastructure — electricity, water, highways, schools, and communications — are mainly built by a local political and foreign corporate elite with borrowed money to serve their own interests.</p>
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<p>Sachs says that geography is a major cause of poverty in Africa, and he’s right. That’s only the start of the story. Geography enabled the foreign corporate and local urban political elites to maintain a choke hold over the essentials of life. There was no other way to connect to the world except through a tiny handful of ports and the cities that grew around them. Control those precious gateways to the outside world, and a life of luxury is guaranteed.</p>
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<p>Entire clans have made it their business, for generations, to control these gateways together with their foreign partners, and keep the choke tightly applied. Wars have been fought over and over for control of the port cities, because that was always where the money was. Enabled by geography, Africa’s enduring poverty resulted from this easy choke hold, which has survived for a hundred and fifty years. In some places, it was much longer; the Portuguese started extracting resources from Angola in the sixteenth century.</p>
<p>It is bitterly ironic and probably not accidental that much of the West’s so-called “foreign aid” actually goes to cementing this choke hold. Every project that is funded by the World Bank in collaboration with local partners ends up as another point of control over local economies.</p>
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<p>Don’t feel complacent as you read this: Africa is just an extreme example of a general global problem. The economics of elitism that have kept Africa destitute for six generations also apply to the US and Europe. We could all be a lot wealthier, happier, and freer if governments kept to their role as arbitrator and regulator, and spent less time trying to interfere in markets to benefit their friends.</p>
<p>The wired Internet was, until recently, not very different.</p>
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<p>As late as 2010, all of sub-Saharan Africa had only four lines to the outside world: the high-capacity fiber-optic cables that criss-cross the world’s waters. The first of these was the SAT-3, which ran from Portugal around the West African coast, down to South Africa, then across the Indian Ocean to India. The others — TEAMs, Seacom, and EASSy — linked the East African coast to Sudan. EASSy was launched in 2003, and finally came on line in 2008. SAT-3 connects to nine African cities: Dakar, Abidjan, Accra, Cotonou, Lagos, Douala, Libreville, Cacuaco, and Melkbosstrand.</p>
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<p>SAT-3 missed about twelve countries on the way, including both Congos. Still, it worked and in theory, the lucky citizens of those cities should have been able to get cheap access to that vast fiber-optic bandwidth ... except that these links to the outside world were built and owned by the same cartels of crooks that ran the ports: the ruling elites of African nations who had no interest in wealth generation unless it was for themselves and their families. The cost of wired Internet when EASSy came on line in 2010 with its 4,720 gigabit capacity was about $5,000 to 10,000 for a 256 kilobit (not kilobyte) link.</p>
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<p>That was about 50 times the price of a similar link in the US, which is not known for its competitive market. In relative terms, if you compare the per-capita gross domestic product (GDP) of Nigeria (one of the SAT-3 countries) against the US, there is a difference of 30 times, so that Internet price ticket is almost <em>1,500 times higher</em>.</p>
<p>Think about this for a minute as you surf the Web. Imagine being asked to pay $30,000 per month for an ADSL link that costs you $20 today, and you start to understand what kinds of hurdles ordinary Africans — who are very aware of what the Internet offers — have faced as they tried to get hooked into the modern world over the last decade.</p>
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<p>Keep this in mind when you see a young black man who has walked and hitched in constant danger from West Africa across the Sahara, and has managed to cross the Mediterranean and make it to safety in Spain or Italy. Before sneering at one more unwanted economic refugee, ask yourself, “<em>What drives these young men to cross deserts and seas at terrible risk in pursuit of a life of inevitable marginalization in a hostile West?</em>” Perhaps part of it is simply the desperate need to get on line and become a citizen of the new world.</p>
<p>Lacking data, it’s impossible to know how important getting on line is to young Africans. Speaking from personal experience, I’d place it about as high as getting an education, spouse, house, and family.</p>
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<p>The only competition to expensive fixed Internet used to be the “very small aperture terminal” (VSAT) satellite system. In 2010, the cost of a VSAT package was about $8,500 for setup and equipment, and $5,000 for a 128KB (combined up and down bandwidth) link per month, surprisingly close to the SAT-3 costs. You could get VSAT if you were a government official or wealthy businessman. The common people had cybercafé clusters where several hundred people shared one VSAT link. And these were the lucky ones.</p>
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<p>The elite was as possessive of its Internet privileges as of its Mercedes-Benzes and SUVs. It’s not just that the state-owned telecom firms are monopolies that want to extort the market. It is that they are not even designed as profit-making entities. Rather, it’s about patronage and selling favors. So whereas across the globe, the Internet brought freedom and enlightenment (as well as porn, identity theft, and viruses), in Africa it was poised to become one more tool to keep the power in the hands of the few. I use the past tense because magically (or naturally, if you are an optimistic believer in the human ability to solve even the hardest problems), the problem pretty much went away.</p>
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