April 24, 2014

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Sharecropping 2.0? Not Likely

Nick Carr has an interesting post arguing that sites like MySpace and Facebook are essentially high-tech sharecropping, exploiting the labor of the many to enrich the few. He’s wrong, I think, but in an instructive way.

Here’s the core of his argument:

What’s being concentrated, in other words, is not content but the economic value of content. MySpace, Facebook, and many other businesses have realized that they can give away the tools of production but maintain ownership over the resulting products. One of the fundamental economic characteristics of Web 2.0 is the distribution of production into the hands of the many and the concentration of the economic rewards into the hands of the few. It’s a sharecropping system, but the sharecroppers are generally happy because their interest lies in self-expression or socializing, not in making money, and, besides, the economic value of each of their individual contributions is trivial. It’s only by aggregating those contributions on a massive scale – on a web scale – that the business becomes lucrative. To put it a different way, the sharecroppers operate happily in an attention economy while their overseers operate happily in a cash economy. In this view, the attention economy does not operate separately from the cash economy; it’s simply a means of creating cheap inputs for the cash economy.

As Mike at Techdirt observes, it’s a mistake to think of the attention economy and the cash economy as separate. Attention can be converted into cash – that’s what advertising does – and vice versa. Often it’s hard to distinguish attention-seekers from cash-seekers: is that guy eating bugs on Survivor doing it for attention or money?

It’s a mistake, too, to think that MySpace provides nothing of real value to its users. I think of MySpace as a low-end Web hosting service. Most sites, including this blog, pay a hosting company to manage servers, store content, serve out pages, and so on. If all you want is to put up a few pages, full-on hosting service is overkill. What you want instead is a simple system optimized for ease of use, and that’s basically what MySpace provides. Because it provides less than a real hosting service, MySpace can offer a more attractive price point – zero – which has the additional advantage of lowering transaction costs.

The most interesting assumption Carr makes is that MySpace is capturing most of the value created by its users’ contributions. Isn’t it possible that MySpace’s profit is small, compared to the value that its users get from using the site?

Underlying all of this, perhaps, is a common but irrational discomfort with transactions where no cash changes hands. It’s the same discomfort we see in some weak critiques of open-source, which look at a free-market transaction involving copyright licenses and somehow see a telltale tinge of socialism, just because no cash changes hands in the transaction. MySpace makes a deal with its users. Based on the users’ behavior, they seem to like the deal.

Comments

  1. Kevin Guidry says:

    Applied to some “community efforts,” the points made by Mike are valid. The CDDB/Gracenote fiasco are a great example of exactly the kind of “take the community’s efforts and run” situation that Mike is discussing. However, that this seems to happen so rarely and the CDDB/Gracenote incident is is so atypical seems to provide some evidence that your assertions may be correct.

    I would also offer that for most users the “deal” they seem to be making is not with the service (MySpace, Facebook, etc.) but with those who use and frequent the service. That’s obviously not true in a legal sense but for many people it’s the size of the community and the momentum of the service that seems to draw them, not any agreement with or fascination with the service itself.

  2. Matt Norwood says:

    Ed,

    While I agree more with you than with Carr, I think that both your closing sentiment (“MySpace makes a deal with its users. Based on the users’ behavior, they seem to like the deal.”) and your assumption that the attention and cash economies are easily translated (“Attention can be converted into cash — that’s what advertising does — and vice versa”) are both overstated.

    Users whose “behavior” indicates that they “seem to like” a given deal are often, in fact, being unfairly exploited. Look at the usury of credit card companies or the privacy violations of, well, practically every company to see this principle in action. I think you’ll agree that your statement was a bit of a simplistic, libertarian tautology of hte sort that has turned economics into such an embarrassment to the academy: “people act on their preferences, therefore everything someone does must be what he prefers.” Such a sentiment renders the idea of exploitation meaningless.

    That being said, however, I agree with you that in this case, the users aren’t really being exploited. Many of these Web2.0 apps are, as you say, free, ad-based hosting, much like the GeoCities ghettoes of yesteryear. I _do_ think that Web2.0 users are in for a rude awakening when they realize that they’re locked into these networks, and that the resources they’ve invested in building their MySpace or Flickr network will disappear if those companies go under. I think there will be a Web2.0 bubble that will burst as sites shut down or change their terms of service to alienate their users; after this, users will finally realize that networks and hosts should be separable, and will demand services like Flickr that can be run by anyone to avoid lock-in by a particular company. (LiveJournal is one of the few organizations that has used this approach, with free server software and a separate hosting service for those who don’t want to set up their own server.)

    As for attention vs. cash: Goldhaber and others have tried to figure out how one “pays attention” and how transactions in attention economies differ from those in cash economies. While it is sometimes possible to leverage capital in one economy to generate capital in another, this is not as straightforward a process as your statement implies. One of the interesting things about attention economies is the way you lose attention as soon as you try to monetize it: as people gain more and more control to filter content, commercials and product placement become harder and harder to push. Attention is only paid to people who provide compelling information. It is very difficult to coerce someone into paying attention. The advertising industry is, of course, working overtime to downplay this fact, but you and I know better. And ignorance of this fact was exactly what has led to both of the Web bubbles: someone comes up with a compelling web service, she attracts investors, and they sit down and figure out how to sucker their users into taking the bad stuff along with the good in order to move ad inventory. Craigslist is one of the few entities that avoided killing the goose that lays the golden eggs, and it is due entirely to the fact that Newmark understands the attention economy. (See this excellent article for an illustration of the disconnect between Craig, who gets it, and the old-school capitalists, who really, really don’t: http://dealbook.blogs.nytimes.com/2006/12/08/craigslist-meets-the-capitalists/ )

  3. V says:

    Interesting, but the users still own their content. They can put it up, take it down, or post it somewhere else solely at their discretion. There’s no exploitation at all. MySpace offers a service for free, and then sells ads to support it. The creators aren’t exploited because they’re getting exactly what they wanted: hosting and services.

    This isn’t anything new, for that matter. I don’t believe Web 2.0 is anything more than the old web with AJAX, video, and glossy graphics, because there were plenty of services that provided hosting for free websites with ads during Web 1.0. Tripod. Homestead. AOL ran something. Geocities. Sure, there wasn’t nearly the space or the bandwidth, but the business concept is the same. The only difference now is that this is about social networking with much vaster popularity, instead of a lot of random sites on everyone and anyone’s quirky interests.

  4. Matt Otto says:

    I think that a lot of the users especially on myspace, do not know other alternatives and if they do they are not actually seeking a low end web hosting service.

    A lot of people, myself included are not on myspace, facebook, etc due to the ability to create your own page, but instead are there because everyone else is there sharing pictures, and personal information others want to keep up on. If they can create their own content that way great, but I’m not sure the majority of users actually truly care about that.

    Now if they do care about creating content then I do not think they are aware of other options. I know I hosted my pictures on Flickr a lot longer before I had my own service, and thats because it was very easy to share them and get lots of traffic, especially in the early days of Flickr. I always wanted my own hosting service but I always thought it would be tons of work. I too remember the days of, as another commenter put, the ghettos of geocities, angelfire, and homestead. I did not realize how far they’ve come in ease of use and technology and I keep up with this kind of stuff. Therefore if I, someone relatively tech savvy, does not know the ease of use hosting services provide today then I can safely assume that many myspace users do not know other options exist, based on he generalization that a lot of myspace users are not necessarily tech savvy.

  5. Avi Flamholz says:

    Ed,

    Insofar as sites like MySpace, Facebook, Flickr, Google, and Yahoo are acting as web hosting services, I agree with your argument. However, I think Nick is looking at the web statistics he cites from the wrong angle. Nick, as well as the Compete.com people, argue that social networks are the reason the top 10 sites have grown from 31 to 40 percent of total page views. This is obviously part of the reason, but I think it is a bit disingenuous to claim that it is the whole truth.

    Along with the coming of so-called “Web 2.0″ sites, many of the big sites on the web are acting as aggregators of outside information. RSS readers are exactly this. Google news does something of the sort. So does Yahoo news. Digg, Reddit, and Slashdot aggregate news stories and summarize them. Social linking services like Del.icio.us also provide a form of aggregation. Facebook “shares” are a new feature that allows people to post YouTube videos, links to news articles, photos, etc.

    In other words, people no longer need to go to sites in the “long tail” to see the content they provide. If I can get a summary of someones blog post on Digg, Reddit, or Facebook, I won’t read the whole thing unless it really piques my interest. If I see the headlines from every major newspaper on Google News or in my RSS reader, then why should I go to each site? I only came to freedom-to-tinker.com today because I wanted to post a comment. Otherwise I would have stayed inside the confines of my RSS reader. The fact that sites are increasingly aggregating outside information should also be factored into our analysis. I imagine that it accounts, at least in part, for the increase in the number of page views per visit statistic reported on the compete blog.

    In my mind, social networking is best described as the art of ego-casting – forcing your friends to look at stuff that you like. These sharing/aggregation features flow from the very core of what social networking is. It rings a bit false to me to say that the new web isn’t abusing content providers a bit just because there is some social contract between users and sites where the sites agree to provide space for user content. The web hosting argument should be part of our calculus, but isn’t aggregation a bit abusive?

    Do bloggers and newspapers get ad revenue when I skim a summary of their story on Facebook or Google News? Do you get ad revenue when I read your posts in an RSS reader? I’m not saying this is a terrible abuse – bloggers like yourself wouldn’t provide RSS feeds unless they thought there was some advantage to it. Nonetheless, I think the nature of the new web is a bit different than it has been characterized in the stream of blog posts on this sharecropping/long-tail issue.

    Avi

  6. Neo says:

    Hosting services also cost $$$, and too much of it for the average Joe. As long as self-hosting costs $100/mo for bandwidth, another $100/yr to keep a “.com” domain, and so on and so forth, on top of the roughly $50/mo people already pay for simple access, most people with “a page or two” or some photos will use free services.

    All of this is moot anyway. Web 3.0 will be dominated by distributed hosting. Most of the technical details of how to make a distributed-hosted Web have been hammered out already, by Ian Clarke and his Freenet team.

    It’s a distributed-costed Web as well. To access a site on it you’ll have to run the node software that makes you part of the distributed hosting. Moreover, when you pull the site you become able to source it for at least a short time, p2p-style. It’s like mirroring, but automatic. You help to host the sites you visit; the resources hosting a given site automatically scale to meet demand. For your own sites, you just do something that makes your node source the files and not expire them like it would downloaded stuff from others. It’d be similar to seeding a torrent.

    Once easy-to-use software to deploy and access sites this way becomes widespread, it will spread like earlier p2p apps, but it will also undermine all the existing Web business models and sound the death knell for traditional hosting in the process. And, of course, for a while, all hell will break loose, making the current p2p “copyfight” look like a tempest in a teapot by comparison. :) The outcome is clear though; once the technology is mature, its widespread and nearly-exclusive use for these purposes is the lowest-energy, stablest solution to the system.

  7. Seth Finkelstein says:

    Regarding: “Isn’t it possible that MySpace’s profit is small, compared to the value that its users get from using the site?”

    And isn’t it possible that a carnival grifter’s profit is small, compared to the value that its users get from trying the “skill contests”?

    And isn’t it possible that a brokerage firm’s profit is small, compared to the value that its users get from day trading?

    And isn’t it possible that a casino’s profit is small, compared to the value that its users get from playing the games?

    And isn’t it is possible that a lottery’s profit is small, compare to the value that its users get from the dreams of riches?

    “Based on the users’ behavior, they seem to like the deal.” – applies to all the above.

  8. Mikkel says:

    “Hosting services also cost $$$, and too much of it for the average Joe. As long as self-hosting costs $100/mo for bandwidth, another $100/yr to keep a “.com” domain, and so on and so forth, on top of the roughly $50/mo people already pay for simple access, most people with “a page or two” or some photos will use free services.”

    If you shop around, you can get hosting for less then $15/year. Add another $8 to $10 for domain regestration. You can put up a personal site for less the $25/year as long as you are not going to have more then about 5GB/month of trafic. (When you add video, that may not be enough…)

  9. Xcott Craver says:

    I guess we can make similar arguments about search engines. People have a big social network, and someone has the technological ability to aggregate and index it, and provide an interface into it, and make money off ads.

    Of course, in that case there is no hosting at all, just the part that is worth money: the interface that brings in millions of eyeballs. Now, why would we eye MySpace with suspicion, they providing actual space in exchange for the value of aggregation, while a search engine seems less exploitative?

    I think a big part of our suspicion comes from the actual residence on their space, which leads us to wonder about control over our online presence. Suspicion of Google has also increased with the introduction of Web applications, because by using them we have partially “moved in,” and aren’t entirely sure if the landlord is a reasonable person.

  10. Peter Clay says:

    Dammit, I already coined the term “information sharecropping” to mean “keeping your vital data on a system you don’t own and have no contractual safeguards over” (e.g. using GMail)

  11. Bryan Feir says:

    In addition to some of these comments, especially Matt Otto’s, I’m reminded of what my old friend used to call the ‘Social Black Hole’ effect. It’s a form of networking effect: once enough people have started hanging out at a particular place, that place takes on a life of its own based on the combined social inertia of all the people who show up to hang out with all the other people who show up.

    This sort of thing means that once a site like LiveJournal has become very well known, it becomes very difficult for a competing site to start up unless there’s widespread disaffection with the original, the new site has some specific extra feature that enough people want, or it focuses entirely on one specific niche.

  12. Richard Keeney says:

    A person can make a choice based on what looks like preference and it could still be exploitation. Sharecroppers make a choice to work the landlords land because they have a “preferene” not to starve. Not every transaction is fair to both parties when viewed from a distance.

  13. QrazyQat says:

    Somebody owns the flea market. You get a site, you sell, the person running the show has a piece of ground and a fence, you do almost all the work. That can’t work, can it? I mean, flea markets don’t really exist, do they?

    Why are these people so surprised that a flea market works?

  14. enigma_foundry says:

    Well, Nick is just regurgitating some Micro-Soft propaganda about open source exploiting thirld world labor, which some shill was peddling

  15. Seth Finkelstein says:

    enigma_foundry: I disagree. In fact, I think it’s the inverse. The people pushing digital sharecropping are trying to associate themselves with the good feeling around Open Source, particularly as a marketing tool against critics (“Did you say that’s a rip-off? Well, that’s just like EVIL MICROSOFT against GOOD OPEN-SOURCE – and you wouldn’t want to be like that now, would you? Now get back to work, I have a start-up to flip!”)

    Technically, the difference is that Open-Source doesn’t have nearly as much of the deceptive marketing aimed at inducing people to donate free labor for the very direct enrichment of the evangelists. To be sure, there were some aspects of this at the height of the bubble. But the relatively high barrier of entry, and specialized topics, generally prevent it from being a large-scale exploitation system. The key difference is that working on a open-source program is often a credential, while MySpace/Facebook/etc. are not.

  16. sacamano says:

    Alas, an example of the contrary to the statement of dr. Felten has already occurred in the real world. As I recall, the Dutch owner of the “startpagina” domain gave out free pages to anyone who was willing to gather interesting links on a self-chosen subject since 1998.

    People took to this entusiastically, and the startpagina domain flourished on the efforts of unpaid hunting-gathering-editing efforts of people, who accepted nothing more than “editor” status on a daughter page of the domain as their reward. The domain owner maintained a “homegrown” image about the whole thing, and repeatedly stated in public that he did not want to ruin the collective effort by selling the (obviously very succesful) site. We’re talking pre-dotcom-bubble-burst here, enormous amounts of money were paid for crazy ventures in those days.

    However, some two years after the startup, the domain was sold by the owner to a big publishing house for an approximate €13 million. This value was entirely created by volunteers, and almost completely cashed in by the owner of the domain: the volunteers (some 2000 as I recall) got €450 each. There was an outcry of rage about this move, and other similar initiatives are now “bigger” than the original initiative, although profitability of the original enterprise was never equalled.

    The example is of course more blatantly commercially interesting than “Myspace”, and times have changed since the bubble burst. However, the mechanisms are not essentially different. A site like Myspace can somehouw set up a scheme to make a large number of small profits off the member pages, and then sell the whole system to someone who takes long term consideration of potential profits.. So Myspace can be sold for an enormous amount too, due to value that volunteers have created. That Myspace users create this value does not imply that they like it if someone else cashes it. They are just not aware of this possibility everytime they create more value for Myspace.

  17. enigma_foundry says:

    enigma_foundry: I disagree. In fact, I think it’s the inverse. The people pushing digital sharecropping are trying to associate themselves with the good feeling around Open Source, particularly as a marketing tool against critics (”Did you say that’s a rip-of…

    Seth, you’re not really disagreeing with me, as I had said that the concept that open source is a version of sharecropping is a Micro-soft meme, and you say you disagree, but then repeat it?