Sunday, 20 April 2008

Yet Another Business Model

A couple of weeks ago, Prokofy Neva wrote a blog post about the relationship between IBM and Second Life, entitled I Be Am. This fascinating post was followed by a series of equaling interesting comments, including notably a few statements by Adam "Frisbee" Zaius about the OpenSim project. The ensuing debate between Prokofy Neva and Adam Zaius focused on the general subject of the role of capitalism in virtual worlds, and on the particular subject of why OpenSim is being implemented without data encryption to protect intellectual property, and without payment protocols to support an in-world currency.

Reflecting on this debate led me to formulate a mixed-economy business model for a new virtual world. I described this business model in a late comment on Prokofy's post. The short exchange of comments between myself and Prokofy on this subject is reproduced below. (A few irrelevant sentences about the configuration of Prokofy's blog have been deleted from this otherwise verbatim transcript.)

Danton Sideways:

I finally read "The California Ideology" as you suggested, and probably agree with it even more than you do. Because the solution proposed by the authors is a *mixed economy* for digital development, with state funding to help the disadvantaged participate in the internet revolution. For example, that the state should help provide every citizen with a computer and cheap broadband access - which is of course socialistic.

As an advocate of mixed solutions, I see interesting possibilities for combining open source with protection of intellectual property. I may write a post on my blog about this, but to sum up, one possibility would be to organize a virtual world as a consumer cooperative. All residents would pay a fee to be members of the cooperative, and the cooperative then hires a management team to run the hardware and software, including data encryption to protect IP. And the software could be developed on the basis of the OpenSim platform, but as a forked private system incorporating Paypal and other modules. Structuring the company as a consumer coop would permit running it as a representative democracy both in-world AND in real life.

Prokofy Neva:

Whenever I hear the words "co-op" I think of my many years in Toronto or Rochester joining various food co-ops or living in communes or whatever, and eating millet loaves and all that kind of organic stuff. Co-ops are good for certain small things among like-minded people. They are terrible ideas for how to organize entire societies.

That's what's wrong with all this opensim stuff -- it's constantly predicating its model on an assumed and often unconscious belief that a sturdy foundation of capitalism will underpin its notions, ready to pay lots of money that it has gained from proprietary code lol. I find it hilarious at how unconscious all
this is.

Capitalist free markets are more efficient and serve more people.

Socialism doesn't work.

Danton Sideways:

I agree with you that a society that leans too far towards socialism will fail, as did soviet communism. But so will a society that leans too far towards unregulated capitalism, which is why Keynes introduced national economic regulation and the welfare state. All really-existing national economies are mixed systems.

As for cooperatives, either of producers or consumers, they *do* work on a large scale. Large examples of the former are farmer's cooperatives, and an example of the latter is my bank, the Credit Mutuel, which is one of the largest banks in France. Any cooperative must however be managed in a sufficiently professional way.

In the virtual world business model that I propose, the "nation" would be set up as a a democracy of paying citizens (consider the payments to be the equivalent of taxes), and the "government" would be the corporate structure to which implementation is delegated. Note that some or even the major part of the implementation could be outsourced, such as in the form of a management contract, to a separate company which would be required to meet specific performance criteria. The outsourcing could even be done with an open competitive bidding process.

This model could provide a way to mix together social cooperation and market capitalism for successful implementation of a virtual world.

Prokofy Neva:

[At the time of first posting of this article, the above dialogue is still on-going on Prokofy's blog. Prokofy's expected reply will therefore be inserted here.]

[Note added on July 3rd 2008: the dialogue on Prokofy's blog in fact ended there. And this post went pretty much unnoticed until today, when RightasRain made the comment shown below.]


RaR said...

"Capitalist free markets are more efficient and serve more people.

Socialism doesn't work." from Prok

Is the brillance of Reagonomics...

There is no such thing as a free market--is a fantasy for the school room. All markets are regulated (and many manipulated).

Is is buyer beware in a tightly controlled market filled with inexperienced people? Is that a process for growing value or maximizing rip-offs! Is the virtual world just another chiahana?

Danton Sideways said...

Hi RightasRain, if that is you. The "rar" signature on your comment goes to the OpenID page of RightasRain Rimbaud, also known as Jonathan Himoff, the founder of Rezzable, a company which runs some 30 sims. Hence someone who speaks with at least as much authority as Prokofy on the subject of inworld business.

Which is why I wonder if that is really you: the comment seems to express a pretty radical point of view. One which I am pretty much in agreement with, by the way. The Second Life market seems to me to be tightly controlled and manipulated by Linden Lab, because they exercise a monopoly over the servers. Of course they developed the whole thing, so I recognize their right to profit from it. But I think virtual worlds are going to evolve into more decentralized systems, with more free competition. Because I do believe in free markets, if only as an ideal to be striven for.

And what is "chiahana"? When I Google that I get a total of four links, to sites entirely in Chinese, except for that one word.

RaR said...

yeah, was tryin my openid thing...guess it works!

chiahana is some word prok taught me = Chaihanas were all over Central Asia, the Caucasus, the Far East, etc. I could just say "thruway rest stop" or "truck stop" if you'd rather.

There are no free markets, just like there is no democracy in practice irl. These are principles perhaps (or at least hope...) but not functioning things irl.

Issue for me really--is what are you willing to do to make money? Hide behind "technology" and promote porno? allow land speculators to take advantage of people? manipulate your own following?

Hey, we not perfect, but we trying to add to the real and virtual world a little...

Prokofy said...

Socialism doesn't work; socialism leads to crime.

Capitalism doesn't presuppose absolutist anarcho-capitalism, as RightAsRain pretends to try to beat this argument; capitalism in a free market is also by necessity going to include corporate responsibility and even various social justice programs precisely because no capitalist wants to kill off all his customers, if he is prudent, he wants them to prosper and remain as customers.

You're going to cite a French bank as an example of something that works?!

A large food co-op isn't anything large; it is not an entire complex society. Planning things like food distribution or other necessities never works. Hope always springs eternal that it might; enough lives have been lost proving that this is impossible, you would think people would learn.

RightAsRain's scorn and misportrayal of normal free enterprise as "Reagonomics" is pretty transparently hypocritcal, given that he has bought and sold companies all his life and been a capitalst. What, he got the socialist religion in middle age?!

I don't have fantasies about capitalism; it keeps you pretty tethered. You all do have fantasies about socialism, which is always something you hope to practice on other people before you apply it to yourself.

I don't think SL is filled with inexperienced people; I see them as new and eager and learning fast in a fantastic environment. RaR's oligarchic model infantalizing people and making them come in droves to gawk at Disney stuff while he and his select crew of content makers try to force them to eyeball ads is the tightly=controlled model, and the old-fashioned business model.

Chaihana is just a tea house by the roadside, a truck stop for camel caravans.

People who say there are no free markets and no democracy are usually the same people who are busy taking it away so they can prove their point lol. Unimpressed.

I've already wiped the floor with RaR and his silly arguments against "land speculators" -- the land business is by and large the most democratic and socially just invention there is in SL; his model of FIC builders and RL corporate ads is undemocratic and unjust.

RaR has a curious fastidiousness and insistence on PG and hatred of "porno". I don't get where this Calvinistic attitude is coming from. It's a good thing to shed in SL, however, because people really do not care what prudes think about their sex lives on SL.

And ultimately, Danton, your model where people have to be hog-tied to a collective they even have to pay to be in, and give up their work product or suffer some other diminishment of freedom or IP -- what's the point? Collaboration is a good thing, in moderation. Collectivization is a bad thing. The peculiar persistence in which people cling to this ideal is disturbing.

Danton Sideways said...

We've got several different debates crossing here.

The discussion between RightAsRain and Prokofy concerns capitalism as it functions in Second Life, and by extension capitalism as it functions in the real world. The most amazing feature of Second Life is the way it has created a virtual economy, operating on a free-market basis. But this is in fact a pseudo-economy, since there is no true exchangeability between Lindens and US dollars, as Harrison Randolph showed some time ago. While a number of "power users" do manage to extract medium-sized chunks of real money from SL, the in-world economy is an artificial system manipulated by Linden Lab in their own interests. The Lindens exercise MORE than a monopoly: they are the system's "Gods," to use the accepted gaming term. I'm even starting to be swayed by one of the arguments of the "platformers," who hold that "land" in Second Life is in reality server capacity. So while there are many similarities between Second Life and a real capitalist economy, it is important to remember the enormous real differences between these two types of systems.

The argument between Prokofy and RaR about the in-world economy boils down to differences between the way they each do business. Prokofy buys land and rents it to individuals, while RaR develops sims with content that draw visitors (Rezzable recently got in the news because they have started to charge for entry to some of their sims). This dispute between in-world business models gets mixed up with various "moral" issues, but as long as both models make money they should just live and let live.

Prokofy and RaR also differ in their views concerning real-world capitalism. I tend to agree with RaR here, in that real-world capitalism is far from being the sort of "free market" that Prokofy idealizes, despite his assertions to the contrary. For example, Vint Cerf, who is considered the "father of Internet," recently criticised the monopoly exercised by broadband service providers. Most broadband users have a choice between their local telephone company or their local cable company, but two competitors is not enough to forestall monopolistic practices. And Microsoft continues to exercise flagrant monopolistic control over both pc operating systems and office software suites, which Prokofy seems to find entirely acceptable.

Now to the debate between Prokofy and myself concerning socialism. I will once again point out that all real-world capitalist economies have long incorporated elements of socialism. The Keynesian welfare state continues to be the dominant model, despite cut-backs, and all national economies heavily subsidize social services such as education, medicine, public transport and so on. Rather than a black-and-while choice between capitalism OR socialism, society is faced with choices concerning the extent to which these two components are deployed within the grey mixture of the real economy. I am a socialist because I favour increasing the extent to which the socialist component is deployed, but at the same time I favour trying to move towards real free-market capitalism by regulating monopolies. Far from being opposed, these two policies logically fit together, in that both aim to distribute wealth and power more equitably within society.

Prokofy and I also disagree about the viability of cooperatives. I see this issue as separate from the debate about the role of socialism in the macro-economic system, since a cooperative is a micro-economic structure. Having participated in a fair number of cooperative schemes, I am keenly aware of the drawbacks of such systems. But I gave examples to show that there do exist a great many cooperatives that work at least well enough to avoid bankruptcy. It's as if someone stated that flying birds are an impossible form of animal life, when it suffices to point out a few birds in the sky to show that flying animals are in fact "possible."

As for chaihana, there was just a spelling mistake. It is a place where one drinks "chai," which is tea. Correctly spelled, chaihana gives 5,300 links in my Google search.