Amos Satterlee is fighting through the same blocked thinking that most of us trying to understand the implication of networked technologies and he raises a couple of really interesting issues.
His concerns about the transition phase between physical and digital distribution of knowledge artefacts are right on the money, even if, like me, he can't figure out what it all means. The pure techie in me gets a real zing from his introduction of the role that the 3D printer may be about to play in the revolution of the business model.
To deal with the second, first; the 3D printer does two things that will make things ever harder for those whose business is tied up with their ability to move atoms and, more importantly, to know where they are and control who has them.
The Kodak photo printer dock and the 3 Billion books project are the fulfillment of something that Hawken and Lovins x2 talked about in Natural Capitalism which is to distribute manufacturing capabilities to the last possible point before the objects they make are needed. The 3D printer bids fair to do the same for at least some objects, associated, naturally, with the 3D scanner. If you think the music business has a problem, wait till you hear the screams from those who make physical objects that get scanned into a computer, squirted down a wire and reconstituted in wax, plastic or ceramic in ten million other places without a by-your-leave, and certainly without royalty payments to the original creator.
The benefits of doing that are enormous in reducing the energy and material wastage costs; the problem has been that, for many objects, the industrial production facilities needed to create them are huge, very expensive and rely on aggregating a very large number of demands to produce the necessary economies of scale that make the production of even the first item economically feasible. But the whole business model vanishes when the barrier to production falls to trivial levels and the information component can be derived and rapidly sent to a distributed production facility for almost no cost.
Its already been happening in Tokyo fashion shops where young women arrive with their new camera-cellphones, try on a garment, take a photo or two in the changing room and email it home so they can make it themselves for one tenth the cost.
On the one hand, digitising everything and keeping the virtual item ready for almost instant production to meet demand exactly (and customise it in the process) makes economic, enviromental and marketing sense. On the other hand, being able to create an acceptable facsimile in a heartbeat at almost no cost will scare the hell out of the business sector until it figures out a whole different way of adding value to the chain. We haven't heard a whole lot about disintermediation lately, but its alive and well and crawling through the whole business cycle.
BTW, here's a project from this year's Stockholm Challenge finalists that does exactly what I said at the top of the last paragraph. Writing Workshop
Now, back to the music. I know what Amos is trying to get at by drawing a distinction between CD's and downloads so that we can get a grip on what is happening. But CD's are essentially the same as downloads, they just have a couple of really nasty parasites hanging on them that make them look and act badly in comparison.
The marginal production cost of a CD is under $1, assuming it has, on average 10 tracks, the marginal production cost of each track in my player is 10c. That is near enough to the marginal production cost of a download for this turkey.
One of the nasty accretions on a CD is that, to deliver that 10c worth of production, I am saddled with paying for an enormous distribution system. The disc has to be packed in a case, wrapped in a wrapper, shrink wrapped in bundles, carted by road and rail, the CD store has to be paid for, and its staff and so it goes on.
All these costs are hanging on my 10c worth of product and creating what Taiichi Ohno defined as Muda; the consumption of energy and resources to no purpose. The download disintermediates all that muda and delivers the product with a trivial overhead in material flows.
The second barnacle on the CD's butt is that, in order to get the 10c worth of product that I actually want, I am leveraged into buying a whole lot of product that I don't want; all the other tracks on the CD. Until recently we had no choice but to succumb to the blackmail of buying stuff we didn't want just to get the stuff we did want. The CD single didn't help because every disc carries almost all of the overhead, regardless of the number of tracks on it.
I'm not sure what the current proportion of a disc's price that is royalty to the copyright owner, but lets say 20c a track, in other words, a tiny share of the total cost of the production and distribution. (Please disabuse asap)
Downloads offered a way round the blackmail, music buyers, who also happen to be tech savvy people, took one look at the solution and went for it in droves. The music industry balked and so the network solved the problem through websites, Napster, Kazaa, grokster etc.
One of the problems with the information business is that its owners have had a very good deal for a very long time. Not only have the barriers to entry been very high, but the clever people in accounting have also figured out ways to improve the value of the business by making use of the large cashlows generated by an inefficient distribution mechanism. Newspapers, for example, are not in the information business at all, they are in forestry, production facility asset management, paper manufacturing and transport. The cost of producing the actual stories in a newspaper is a trivial percentage of the price you and I pay the newsagent, all the rest is a cost of building the network from scratch every day.
The Internet has, for many of us, made that whole material flow redundant in a stroke. But newspapers have huge investments in their production and distribution facilities, and they extract more value from managing the cashflow. Take that away and you have a very small business that doesn't pay for Rupert Murdoch's private jet, it barely buys him an Armani suit. There's no wonder the resitance is so high.
Wnhere does it end? It doesn't end, but new technology always beats old technology, sooner or later, and that's how I'm betting.
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