Tuesday, January 31, 2006

It's a Bird! It's a Plane! It's Superdistribution! (according to IDC)

Reading old analyst predictions is written proof of the proverbial adage, "hindsight is 20-20". Many times the world's technology sages are dead wrong, sometimes they are close to being right, and then other times they are mostly right. Their ability to be right some of the time keeps them in business, much the same way supermarket tabloids operate. (although tabloids are frequently sued for being wrong...not a problem analyst have to worry about.)

Looking around for successful predictions regarding Superdistribution, I found the writings of various academics, (Brad Cox most notibly), a few sage bloggers, and yes, an analyst firm, IDC, who saw the vision fairly early on. Below are some highlights from a report they filed in November 2000, written by a swami named Geoffrey Dutton.

Lockbox to Cashbox (according to IDC)

"The absence of solutions for safeguarding proprietary content on the Internet from misappropriation has tended to limit electronic distribution and inhibit ecommerce. Vendors tend to withhold content rather than risk that some portion of it will escape their control."

"What if this were to change, enticing consumers to become channel partners rather than potential thieves?"

"Most people - if they've heard of it at all - think of digital rights management (DRM) as a way to prevent piracy or unauthorized use of digital media content (such as ebooks or MP3 music selections). That's a major motivation, but copyright protection is just the beginning of what DRM can do, not the end."

"To be successful, a DRM scheme must persistently protect content and not allow decrypted versions to be saved as files that could be given away. Password protection isn't good enough, because passwords can be passed along. Likewise, content should be traceable from one recipient to another."

"Content publishers craving absolute security will be disappointed: Virtually any encryption scheme can be cracked if motivation is sufficiently high or widespread. In any case, adding more locks to a box will frustrate users and drive them away. Making shopping convenient enough to encourage customers to return often entails some risk of pilferage."

"It's a Bird! It's a Plane! It's Superdistribution!"

"DRM developers and users hope to find winning combinations of enticements, pricing, and convenience that - rather than discouraging users from transmitting content to one another - will motivate as many users as possible to share content that circulates under audit. This model of retailing has been called superdistribution."

"While enticing repeat business is important, a network economy's unique strength comes from contagion. Satisfied customers can propel a buzz, quickly multiplying a product's exposure. All vendors appreciate such marketing cascades, but media and software publishers are most likely to experience them and stand to benefit the most."

"Well-orchestrated DRM can turn buzz into bucks. When a consumer sends digital content to a friend for which the friend must register and pay to play, a new channel opens. No matter how few recipients actually opt to purchase, each one that does so constitutes a virtually effortless sale, and those that do not may still eventually become customers."

"Expect publishers to offer new models of DRM-backed digital content soon. Issues and merchandising parameters they'll need to test include:

* Does content expire?
* Can content be printed?
* Are free samples available?
* Are files locked to machines?
* Are superdistributors identified?
* Are superdistributors compensated?
* How are traditional channels affected?"

"Super Possibilities"

"Content providers should watch the DRM space closely and experiment with bold new marketing, sales, and licensing schemes. Here are two scenarios that illustrate possible arrangements:"

"Example 1: A college professor downloads articles from an academic journal publisher's Web site, agreeing to pay $3 per copy, then passes them to students in his class, who are each charged $2 per copy by the publisher for decryption keys to the files. The professor doesn't make the extra dollar - rather, it is applied as a discount for the students."

"Example 2: Lars buys a music download posted by The Alkaloyds on their Web site. Enjoying it, Lars immediately informs 25 friends by sending them a URL furnished by alkaloyds.com, which also includes a field identifying Lars. Every time someone uses the URL to register and download the same selection at the artists' site, Lars is credited with a commission, which he can redeem either for more music or for cash."

"Software for managing superdistribution already exists. The trick is to make transactions easy to administer and as transparent as possible. A number of vendors are vying for attention in this space."

MetaGroup, (now Gartner) also showed prescience ...I'll show you some of their predictions about Superdistribution in a future post.

Thursday, January 26, 2006

Please copy me!

Digital Rights Management (DRM) applications have a horrible but deserved reputation as being designed to STOP you from doing things...usually preventing you from copying digital content and giving it away. It tempts only the finest hackers, (and sometimes just the mediocre ones) to break the copy protection for fun and fame. The average user could care less.

Rights management applications that treat ease-of-replication as an asset rather than a liability, now there's an idea. This philosophy enables Superdistribution, which actively encourages free distribution of information-age goods via any distribution mechanism imaginable.

The definition of Superdistribution: superdistribution n. An online retailing scheme that encourages the free and widespread distribution of digital files (e.g., music files) that can only be opened under a restricted set of circumstances. These restrictions include opening the file only on a single computer; opening the file a limited number of times; or allowing the file to be opened only after a payment has been processed.

Nova Spivack writes in his "Minding the Planet" blog: "Superdistribution harnesses basic human drives to save money and make money. It's more powerful than copy protection, more powerful than ethical arguments, and more powerful even than fear of legal prosecution.

"Piracy comes about because people like to get things as cheaply as possible. When calculating the "cost" of getting something, we need to consider not just the pricetag but also the rest of the transaction-cost -- for example the cost in time to locate something, download it, potentially pirate and crack it, etc. To combat piracy, we need to bring the total cost (including all transaction costs) of paying for digital products down to roughly equal or less than than the total cost of pirating those same items. One way to accomplish this is too keep lowering prices of goods. But there are price-points below which sellers lose their margins and thus cannot pass. The problem arises when the total transaction cost of piracy is still less than the lowest commercially-viable total transaction cost to purchase a digital product legitimately. In such a situation piracy flourishes because sellers simply cannot compete by lowering prices any further. So what is a seller to do in that case?"

"Fortunately there is a solution: Sellers can effectively lower the total transaction cost of purchasing versus pirating by using superdistribution. Superdistribution enables "peer-to-peer" marketing and selling. The concept is simple. I buy a product from Seller X and pay price Y for it. But I can then promote it to my friends and if one of them buys it, I get a commission that reduces my price Y for my copy. If they then further distribute the product to their friends and so on down the line to some number of levels, I get further comissions (fractional by social distance of each purchaser from me). This is sometimes called "network marketing" and is fully legal in the USA so long as no up-front fees are charged to parties before they can become resellers and start earning commissions (at least this was the law last time I checked -- but do your own research to be safe if you are planning to go into business doing this!). In other words, you don't have to buy a product before you can resell it to others and earn commissions -- you can resell it and earn commissions even if you yourself don't own it."

Spivack continues: "In any case, legal subtleties aside, the concept is what matters here. Superdistribution reduces the buyer's total transaction cost, and even enables them to potentially get their product for free or even make a profit if enough downline sales result from their referrals. The catch is that it only works in cases where the product is easily superdistributable, and the customer has good enough connections to easily find downline buyers. Finally, it only makes sense in cases where the market is not already saturated -- where there are still lots of potential buyers who haven't bought the product yet."

"Superdistribution, if done properly, will virtually eliminate piracy. The reason is simple. If you buy a product wouldn't you rather get a lower price or get it free or even make money, if you could? Because superdistributing a product has this potential, but giving it away for free does not, parties who buy products are more likely to then superdistribute them than they are to simply give them away for free to their friends. Now what about the case where a party does not buy a product? Superdistribution wins there too because even non-buyers can act as resellers -- in other words, they can make even greater profits than buyers because they didn't even spend anything. So in short, if a suitable superdistribution mechanism is provided, people will use it to resell digital products they download and/or buy rather than giving them away to others for free. This is really the solution to the music industry's woes -- it is far more effective than any form of digital rights management or legal action. By enabling non-pirates to benefit financially compared to pirates, non-piracy can naturally be brought about for the majority of cases."

Is Spivack's vision too broad and grandiose? We don't think so....

I'll show you how to put his vision into action in future installments.

Wednesday, January 25, 2006


A recent nationwide survey found almost 90% of adult Internet users share content with others. Jokes, cartoons, and news are most popular, according to Sharpe Partners, a New York-based firm which manages online e-mail and marketing campaigns for companies. Three out of five respondents said they shared content at least once a week, 25% do so more frequently. Only 7% of adults surveyed said they had a negative impression when they received content which included a company's brand.This folks is hard evidence that Superdistribution has finally arrived. (Source: Frank Barnako's Internet Daily)

Superdistribution makes it more likely that products will "find" the people who desire them. This is in contrast to someone knowing they want something, and then going to look for it, which is the key to centralized distribution. This usually requires that marketing costs be part of the equation, on top of the infrastructure costs.

With Superdistribution, it is more likely that you might have someone push a recommendation and content to you. Superdistribution lowers marketing costs by taking advantage of natural human behavior. It fosters free and unfettered exchange of information and collaboration.

Having been involved with Superdistribution technologies since 1997, I can tell you its taken a long time for this type of distribution to be taken seriously. And since new research shows that it is in full swing, I'll be sharing all of the thinking that we are aware of that has been going into Superdistribution for almost 10 years.

I will attempt to be neutral as to the technologies, marketing concepts and companies that are poised to power the future of Superdistribution. So I will try to get the shameless promotion of our company out of the way in this first posting.

DigitalContainers has patent protected technologies for containerizing digitized content as e-commerce media objects that can be encrypted, shared, advertised, tracked, monetized and securely stored on any device. Digital “containers” are utilized to dramatically reduce the fixed and variable costs in aggregating, securing, packaging, marketing, distributing and monetizing media objects over the Internet.

Our technology and services allow creators and publishers of digital media – music, videos, documents, software, games and other intellectual property – to quickly and easily monetize their digital goods by creating, packaging, registering and releasing them into the global market using a wizard-based packager.

DCI’s technology does not require proprietary software to be pre-installed on playback devices, allowing our containers to be distributed across any digital channel including web storefronts, peer-to-peer networks, community sites and corporate networks.

The system persistently tracks and monetizes the content, generating transaction revenue in extended networks across the entire Internet and enables Superdistribution of digital goods, where content is passed from person to person.