Sunday, March 18, 2012

The Tragedy of Bits

The content/hardware markets are a crazy inversion. Hardware has marginal costs; bits don't. Yet hardware is now being subsidized by the high "margins" on selling bits. The price you pay to flip bits in your device pays for the cost of the device itself. There's a war raging for who gets to be the one with the 30% cut of every bit sold. It's being fought with device subsidies and a combination of habits, defaults, and lock-in. Amazon doesn't pretend to accommodate competing bit sellers on their devices. Apple is happy to let them sharecrop for the same 30% cut. Console gaming is becoming the model for everything, exploiting the inability of humans to sum small numbers over a long period of time.

The best allocation of resources would be for every one of us to consume as many bits as we want on a small number of devices; That's what our economy can produce. Instead the incentives are for us to consume a small number of bits on a large number of resource-intensive devices. The bit-sellers are hoping that they can commoditize the bit-makers by abstracting them away behind the veneer of their device and payment system, like we'll forget that beef comes from cows and not the grocery. All this for the minimal service of flipping some bits and processing a credit card. The net effect of this will be less content produced (with lower budgets,) less content consumed (at higher cost) and an endless stream of slightly shinier devices that contribute more in social status and momentary dopamine than actual marginal improvement.

Absent from all of this is any sort of coherent strategy on the part of the bit-makers. Their only apparent objective is to keep customers from getting used to buying cheap bits, oblivious to the fact that they are no longer even the ones selling the bits. The makers haven't yet realized that they have the power.

Imagine if the bit makers sold the bits themselves, or offered them DRM free through multiple sellers. The sellers would have to compete on convenience and price out of their diminishing margins. The maker would have a direct relationship with the customer, and might even end up with a respectable brand. With a diversity of sources, single-seller devices would become obviously broken by design and fail in the market. Bit-sellers would be revealed as nearly redundant, with makers at the center of the transaction. Instead they seem intent on squeezing blood from the stone of their existing customer relationships while letting their biggest threats move into comfortable positions.

The net effect for me is that buying media is uncomfortable. Even when it works, I feel like I'm participating in someone's machiavellian scheme. Amazon, I love your devices, but they don't read any of the bits I'm willing to buy. Please BBC, I would love to pay you for Planet Earth, but I have no intention of buying a bunch of redundant bit readers to do so. Useless hardware offends my aesthetics more than owning your bits can compensate for, and I'm not paying money for hardware that is defective by design.

The goal of copyright is to get people to pay for bits, and to pay people for making those bits. Its approach is to shoehorn it into the rest of the economy with a series of bizarre compromises that try to make bits become less bit-like. The associated notions of information "owning" are a tool, not an end. As bits have regained their natural state over the last few decades, we've done a horrible job of fulfilling the original goal. Most of the remaining money spent on bits is not getting spent on making those bits. Instead we're trying to come up with a new set of packages in which to put them, and all the strategy revolves around those packages instead of the bits themselves.

Meanwhile, we now have the technology and infrastructure to give all bits to all people. It's a tragedy that we don't.