Michel: Thank you. The slide that you see there is basically an overview of what we cover. As you will see, I am not sure you can read it but the green things are the deep changes that we are going through today. You will see that there are changes in ways of knowing, there are the changes in the way you are feeling. I just read a book about young generations in Dutch which says that said sharing is a default mentality amongst the digital natives [the book is called the 'Einstein Generation']. This is one example of how the value systems are changing. Actually, what I want to talk about today is really the changes that are taking place when there is a new mode of production emerging in our society. Basically, what I am saying is that there is a new way of producing value which I call peer production. It is basically the self-aggregation of people through social relationships. If you are familiar with Benkler's book, The Wealth of Networks, you will know what I am talking about.
I was just talking about a friend I met in the Amsterdam called James Burke. He is with a project called Roomware. This is just a bunch of young people. When they go to a party, they basically want to point their mobile phone and share music and pictures during the party using a randomizer so that everybody can share in the fun and share in constructing the party. There are thousands of projects of young people doing things, inventing things, having social innovation that is happening outside of the boundaries of the corporations. I can guarantee you that this group of young people will be faster with their innovation than 200 paid engineers in Philips. This kind of dynamic is something that we are seeing more and more.
Basically, we are inventing new ways of doing things. What I want to focus on really is on the business models that are involved. I talked for about five minutes briefly yesterday, I think. I said I believe in something called the law of asymmetrical competition. Basically, what it says is that when a company producing a closed proprietary knowledge refuses any participation from its users and does not create any common value, when it is facing a for-benefit institution like the Mozilla Foundation or the Wikimedia Foundation which is linked to a community producing common value like the Wikipedia or the Linux, that eventually, there will always be a point where that community will make a better product than the corporation.
If you derive from that the second law which is, two for-profit companies competing with each other with one opening up to participation using open licenses and producing some form of common value, it will be more competitive than the company not doing it. If you believe that is true, then what you get is a little bit of what you see on this slide which is that basically we are moving to an economy where I think, in the United States, only 23% of the people are involved in material production and producing material stuff, so we are clearly the dominant on the immaterial field. If in this immaterial field the place of for benefit production is augmenting, then we can see a good case for growth of peer production.
Most people think that peer production will be limited to knowledge production to content to free software. But, basically, I think that is a mistake because everything that needs to be produced physically needs to be designed first. Designing a car is essentially not so different from collaborating on free software. One of the pages, if you go to P2PFoundation.net, is called P2P design. It is basically about open design for physical production.
For example, let us talk about the car. Most people probably know the Oscar Project which, I think is not going well. Last year in Amsterdam, there was an open-sourced car concept model shown at the automobile exhibition, called the Common. One of my associates talked with those people and they said they were very close to negotiating a deal for the production of their design and that they expected production to take place in 2011.
The thing about peer production is that, as a company, and I can say that as I've have been an entrepreneur for 20 years and I was a strategy director in a large telco, you always innovate relatively, to be better as the competition but, if you do that as a community, let us say the Firefox community, you are always innovating for absolute quality. You want to make the best possible browser. Instead of a product which you freeze at some point, especially if you have no competition, you have a permanent process of innovation. That means that whenever you have an open design community starting a process, and it can take 5,10, or maybe 15 years but, there will always be a point where the open source fridge that they produce will be better, more environmental friendly, more modular, more longer lasting than any design that can be produced by a private company.
This is a slide that tries to explain the business model. We can do two things. We can define open and closed as a proprietary format, and we can define free and paid. That gives you four quadrants which you can see there. Basically, what everybody knows here is the paid and closed, right? You make something, you have a patent or copyright on it, and then you sell it. This is the classic business model. This is the one that is most on the mind by contemporary developments. In the age where information, knowledge can be copied infinitely at a very low marginal cost, it will be increasingly difficult to protect that information, to protect your designs, to protect your patents. We can see that with free software. We can see that with music, whether they use the law or technology as the DRM, it will be increasingly difficult to stop the undermining of proprietary knowledge.
Think about the middle ages. Some of the first inventors of the textile machine were killed. But, it was inevitable. Eventually, the textile machinery became an important model because it was more efficient and more productive. Basically, this model is facing two main competitors. The one is closed and free. That is what the book of Chris Anderson is about. It just came out. I have not read it yet. But basically, whenever you are dealing with knowledge, you are competing with somebody. If that other party decides to give its primary commodity to knowledge for free, they will undermine your proprietary business model. What you do then is you are forced to free up your primary commodity and build a portfolio of secondary services around it. That is something very familiar in the publishing field and in the media field.
The other competition that you will face is people using open proprietary codes. The same effect is actually free if you like. Free as in free speech and also free as in free beer. These people, of course as the Linux model, will build secondary practices around the free open content. The third one, but it is also competing with you, is the totally open and free alternatives. Think about couchsurfing.com. Some people call it the adventure economy. Couch surfing, I do not know if you have kids who use it, is basically a way to find lodging in the whole world. You want to go to Chiang Mai, if you type it in, you will find about 20 people offering free lodging. You can read their reputation. You can write to them and ask them if you can have lodging and they will look at your reputation. All of this process is entirely without money. It is an exchange. It is a civil exchange of value by civil society which is of course also, in some sectors, counting as a competing modality.
Basically, if you look at this model, what I am saying is the upper right quadrant is what we have now the most precarious in the future. We will have to look this as a business, the two on the upper left and down right, if you want to make a business. I also make a difference, which I explained very shortly yesterday, and I want to explain it again in a little more detail now. There are three major economic streams that are coming out of peer production and the first is a sharing economy. Look at YouTube. Look at Google. Those companies are no longer producing value by themselves. What they are doing is enabling and empowering sharing to occur, sharing documents in case of Google, and sharing videos in case of YouTube. The motivational people writing documents that you can find in Google, 98% of the documents on Google are not institutional documents. They are written by civil society,a very large percentage of users generate the content. Most of these people are not doing it for sale. They are producing not for the exchange value. They are producing use value. The model of the sharing economy is that of third party propriety platforms enabling the sharing and lifting of the tension.
Second example of a business model is a commons model, whereby a community-driven process is creating value, the common value. Think about Wikipedia and Linux as the main examples. Around that, is created an ecology of businesses adding value. The reason behind that is you cannot sell abundance. The market is about tension between supply and demand. Therefore, if you have something which you can copy for free, it is not going to create the market. But, it is creating a vast opportunity to create added value around the commons. The model we have in the commons economy is not a double model between community and company. It is a triple model. We have on the one hand the community mostly self-managing it's production of value. We have a new set of institutions which I call for-benefit institutions. Think about the WikiMedia Foundation, the Apache Foundation, Etc., the Mozilla Foundation. These are not for-profit companies. As you see, for example, Wikipedia could make billions of dollars selling advertisements. They are not going to do it. It is not in their interest. Craig's List refuses advertising. The Mozilla Foundation is the same but it is a little different. The Mozilla Foundation makes money by selling the space to Google search, which funds their for benefit infrastructure. Basically, the community of producers at large is not in there for profit. So, we have three players. We have the community. We have the for-benefit institution managing the infrastructure. And, we have ecology of businesses around it.
I think the key problem for business is how we manage openness and closedness. The basic idea here is that openness creates value but it does not capture it. In order to have market value, you need to capture some form of added value of scarce value. That is the whole thing. You can see that in the competition between MySpace and FaceBook. When MySpace got taken over by Murdoch, whole new kind of measures were introduced to stop the sharing on MySpace and you saw that the growth curve was diminishing. When FaceBook opened up, you saw the fantastic growth of FaceBook happening. Apple, the epitome of the closed company, under pressure of the hacking community, is opening up partially its development to API's. That is the kind of tension that every company is going to face.
Another problem is what do you do with the dynamic of the community? Profit sharing usually does not work. If the community is there, from a wide variety of motivations and not primarily for profit motivation, paying some people and not others, usually creates what we call crowding out. In other words, if I see that you are getting money for voluntary effort and I am not getting money, then I stop volunteering. Most companies, and I think I mentioned that, like IBM when I spoke with somebody at the company they told me they saved 90% of the software infrastructure costs using Linux. 10% of that savings are sent back to the Linux community but not as profit sharing, as benefit sharing. In other words, it is a general support for the infrastructure of sharing in the commons rather than sharing money with individuals. That preserves the voluntary dynamic in the community.
This is happening more and more. For example, when I say that peer production is also very important for physical production, I would say two things. One thing is that, typically, you would say capitalism is about entrepreneurship. But, capitalism and entrepreneurship are diverging more and more. The example you could use is the BitTorrent. Bram Cohen had no money. He used a series of credit cards and he produced the most important, most valuable software that we use today for multimedia distribution on the Internet. So what happens, and we can see that in the Web 2.0, is that you do not need capital to start because that is a design process. It is just brains working together with other brains. Capital only comes in, not in the beginning but, at the end. It is when you have success. It is when the users are breaking down your servers, that you need capital. More and more we see entrepreneurs that are creating value by self-aggregating capital.
I actually already said that. This is a business model. This is another important element. This is the kind of modeling that is done by a man called Xavier Comtesse. He is Swiss. He shows that the evolution is from a corporation towards increased participation. You have passive consumption and you go self-service or do-it-yourself. Co-design up to co-creation. Something is missing there. Basically, what I think is missing is the power of the community. So what I am proposing is to enrich his model by a model of community involvement. What you see there, and I will not have time to go into it but, there is a whole variety of new business models that are emerging not on the side of the polarity of the institution, but on the polarity of the community. It is very important because I think that this is what the new business models are about.
Classic business is about, I am an institution or corporation, I see atomized individuals organized as a 'mass', and I would practice mass marketing to sell to those consumers. I think the new model is recognizing that the users and consumers are always already connected in various peer groups that they are doing all kinds of self-aggregated activities and value production amongst themselves. Therefore, I will position myself on the side of these communities and see what they need.
For example, in China, we have these group-buying companies that are very powerful there. As far as I understand it, they are not going to a company and ask what they are selling and then looking for consumers. But, what they are doing is they change the polarity around. They are talking to the consumers and saying "what do you need?" then, with that knowledge, they go negotiate with companies and asking them for discounts for the community. Basically, the model I think will be a model whereby a tribal economy is emerging, whereby businesses are emerging that know from inside-out the needs of a particular community and that creates services around that. I just want to say a little about the relation between peer-to-peer and the market. It is a pretty clear that peer production can only exist when there is a surplus and abundance in the existing world. In other words, peer-to-peer is depending on the market. There is no doubt about it. But on the other hand, the market is increasingly depending on peer-to-peer or on peer production. Remember, you are all in this business. I had a web company in 2000. The crisis happened. Everybody was saying it is the end of the Internet. There will be no more innovation for a few years. What happened? The opposite, the innovation did not stop without the companies but it increased and it accelerated. That shows that, actually, the results are reversed.
In other words, innovation is more and more social. It is an emerging property of the network. This is a form of innovation which is more and more prevalent that it is the communites, the exchanges and the sharing within communities that lead to innovation, which are then captured. In the book from Eric Von Hippel, The Democratization of Innovation, he mentions Gatorade, the sports bra, the mountain bike. He describes the sports industry, kite surfing, as all industries where the community lead user innovation is primary and captured by commercial companies after the fact.
We have dialectic between both. I think there is a problem, which I call the crisis of value which is a following. We are producing more and more use value as communities and as citizens. But, only a marginal part of that use value is captured by monetization. If I had a slide for that, I wouldshow the following. The growth of use value on YouTube is 100 million per day, growing exponentially. But, the growth of the advertising is like this, growing only linearly, and the gap between the creation of use value and the monetization of it is increasing every day. More and more young people choose for passionate production. If you talk to young people, which I regularly do when I go to Amsterdam, "yes, they work." They work for Microsoft, they work for different companies. But, what they really want to do is have a meaningful activity.
They usually work around projects. In between projects, they want to do their passionate production. This is increasingly so. They define their identity through their engagements in their common projects. They do not say "I work for Microsoft." They say "I work on RoomWare" which is the free software project they are working on. I think this creates a precarity in our society. A precariousness because we do not have a mechanism for funding this common value production even though the market increasingly profits from it. This creates a serious problem.
In Europe, we have a partial answer for that which is what we call transitional labor market theory. Basically, what we are doing in Europe is creating all kinds of mechanisms that make it easier for people to transit from job to job. Because now, by the time you are 35, you have I think 13 jobs in average. They are trying to smooth out the transitions. What I am saying is that it is actually between the transitions that we are most productive. It is in between the jobs that we actually do the most innovative work.
I said we are talking about conflicts. So this is a slide I did not produce it. I have the source of it on my slide show. Basically, this shows a new dynamic which is exists between communities and institutions. Again, they are different in YouTube, for example, in the sharing communities where the people who share on YouTube are individual-oriented. They want to share their creative expression. They do not have strong links with each other and, therefore, they are depending on a third party. That does not mean they have no power because the power eventually is the power to leave. And the companies are struggling between the openness that creates value and the closing down that captures the value. But if they close down too much, the user community will be tempted to change and to opt out. We either have a user revolt, which we had in Digg, FaceBook, or we have what we call a forking which is a departure of the user population from that particular site to another one.
There is a price to pay, however, since people invest in this social network, they put their pictures there and their friends. So, if you are really invested in YouTube or any other social network site, you have a price to pay. This creates a particular social tension between community and corporation. We could call the class struggle of the knowledge society. There are differential interests there. The community wants total openness. We want the social graph. We want to be able to own our identity, to control it, to control our privacy, to move from one network to another. The problem for a company is that if they allow total openness, they are afraid that they lose the control over the scarcity and cannot have a business model because, of course, if you open up totally, then any other competitor can take that value and market it as well. This is a difficult tension that we have in this sharing economy.
An answer, and this is something that we are working on with the P2P Foundation, is that some people within the sharing community will take a commons-oriented approach and actually produce their own infrastructures. One of the things we do is we monitor all of the communities which decide, for example, "Why do we not make our own video sharing communities and why instead of a centralized server part, why do we not use a distributed even server-less system?" because, basically, what creates the need for proprietary platforms and the need for capital is the fact that you need a centralized service.
Can we design around that and actually create true peer-to-peer infrastructures that do not need propriety or platforms? It really depends on each case that we are working on. Most people, if they are happy with a proprietary platform, will not want to make the effort to create an alternative. Basically, this new situation, this new dynamic, creates all kinds of social tensions around different things like who owns the platform, how open and free is it, how much sharing is possible? This is an important issue. Where is the power in a distributed network? In other words, you cannot see it. But, it is usually in the invisible architectures. Why can we not remix in YouTube? It is in the design. Therefore, it is very important to have value-conscious design where the value's diversity and autonomy are actually included in the design itself.
Another example is ownership of the content. I am not sure it is still that way, but it used to be when you entered your video on YouTube you basically signed away all your rights. I think they have changed it somehow, but I am not sure about the details. This is a kind of recurring problem that when you enter a proprietary site, you lose your rights to your content. Revenue sharing is another issue. How do you solve that? It is not easy. For example, YouTube made 2 billion dollars. It did not give any money back to the millions of people who have created the value. As I said, profit sharing is, obviously, not the good solution because that might actually harm the sharing that takes place. So, how do that?
I am not sure how much time I still have, but I will conclude with a more political statement which is the following: there is undoubtedly, not just the business aspect of peer-to-peer, but also a political aspect. Here is my five cents worth of analysis of what is wrong with the world, it is very simple. We have a world today which combines the worst of both worlds. We live in pseudo-abundance, false abundance. We think that we have infinite nature. Therefore, we have an infinite growth machine functioning within a finite environment. I personally do not think that will last very long.
The second thing we do is we think we need to create artificial scarcities in the immaterial world so that we can create a market in it. Basically, the proposition, of course is just to turn that around. Let us have an economy which recognizes natural limits and let us have an immaterial field of sharing in culture and knowledge where the natural flow, the infinite flow, and the infinite replicability of information and culture are recognized. This political aspect is not my invention.
If you would look at P2PFoundation.net, we basically recognize three emerging paradigms, three emerging social movements in the world. They are growing everywhere, from spirituality to business to politics and to the following: open and free. It is easy to explain because if you want to peer-produce, if you want to create value through self-aggregation, through sharing and cooperation, what do you need? You need raw material. If that raw material is not open and free, you cannot work together. This creates, in almost every field, free software, open source, open access publishing, open education text books, open reiki, open yoga, open [inaudible]. It creates a wide variety of social initiatives in every field, stressing the need for open and free raw material. The second aspect is participation, which is basically "how can we design social systems?" And the third one would have been commons-oriented output. That is it.
Chair: I really want to ask you some questions. I will probably need to limit myself to one because that is just so incredibly important and needs so much reflection. Can you relate what you said to the telecom's industry? I know it is an exceptionally hard question. I believe you can do it.
Michel: Actually, Lee asked me some questions about the telecom. I used to be the e-business strategy manager or Belgacom five years ago. I told him that I was no longer the expert he thought I was. But, my answer would be the following: the basic problem is about abundance and scarcity. You cannot have a market when you have abundance, therefore, the telcos will never build fiber because they can make money only once while they are building it. Once you have it, there is such an overflow and such an abundance that you cannot market it after that. I think one of the answers I gave you is you cannot absolutely expect the telcos to ever build a fiber infrastructure. They will never do it. It is just totally counter the institutional and commercial interest that they have.
So how do you do that? I think Brough Turner, I am not sure I pronounced the name right, gave kind of an answer to that. We have three models of production now. It is very important to know that. We have the private way, companies building and selling. We have the public way, centralized planning, public provisioning. But, we also have the direct social aggregation, the peer production, way. The wireless commons is an example of civil society taking up itself the task of building bottom-up through distributed capital this kind of task.
Chair: We need to do lunch tomorrow. Please thank Michael Bauwens.