October 2008

As TLF readers may know, I took over in July as Chairman of the Board of the Space Frontier Foundation.  As I explained in my recent interview on The Space Show, SFF has been the leading citizens’ advocacy group for space commercialization since 1988.  Dedicated to promoting Princeton physicist Gerard O’Neill‘s vision of space settlement, as described in his 1976 masterpiece The High Frontier, the Foundation has always argued that “space is a place, not a program.”

We sent out the following press release on October 28, calling for a major transformation of the U.S. government’s space program by which the U.S. government would buy commercial transportation to the International Space Station.  We’ll have more to say about this in the coming weeks.

Space Frontier Foundation Finds Funding Source for COTS-D

The Space Frontier Foundation today called upon Presidential candidates Barack Obama and John McCain to invest the $2 billion in new funds they have promised to NASA for reducing the “Gap” in U.S. human spaceflight (after the Space Shuttle is retired in 2010) to spur innovation and competition in America.

Foundation Chairman Berin Szoka said “It’s time that our national leaders give American entrepreneurs a shot at closing this gap. Let’s take the two billion dollars in the candidates’ plans and fund up to five winners of COTS-D.”

The NASA Authorization Act of 2008, recently signed into law by the President, directs NASA to “issue a notice of intent [by mid-April 2009] … to enter into a funded, competitively awarded Space Act Agreement with two or more commercial entities’ for transporting humans to the ISS”-the “Capability D” of NASA’s Commercial Orbital Transportation Services program (or COTS-D for short). But that directive is not yet funded.

Szoka continued, “Let’s have an American competition in space – to create good jobs, fuel innovation, and close the gap more quickly. With private funds matching government’s investment, we can dramatically leverage the $2 billion to produce breakthroughs in a new American industry – commercial orbital human spaceflight.” Continue reading →

Somewhere between Nick Carr’s “Typology of Network Strategies” and Chris Anderson’s “Four Kinds of Free” is the secret to understanding our new economy:

Carr’s “Typology of Network Strategies”:

  1. Network effect
  2. Data mining
  3. Digital sharecropping, or “user-generated content”
  4. Complements
  5. Two-sided markets
  6. Economies of scale, economies of scope, and experience

Anderson’s “Four Kinds of Free”:

  1. Direct cross-subsidy (get one thing free, pay for another)
  2. Ad-supported (third-party subsidizes second party)
  3. “Freemium” (a few people subsidize everyone else)
  4. “Gift economy” (people give away things for non-monetary rewards)

Of course, both Carr and Anderson are building on theories and business models previously articulated by many others. A few that come to mind:

The Federal Circuit significantly limited the patentability of software and business methods today.  Mike Masnick at TechDirt summarizes the holding of the case as follows:

the court has said that there’s a two-pronged test to determine whether a software of business method process patent is valid: (1) it is tied to a particular machine or apparatus, or (2) it transforms a particular article into a different state or thing. In other words, pure software or business method patents that are neither tied to a specific machine nor change something into a different state are not patentable.

I’m sure several of my TLF colleagues will have a great deal to say about this.   Tim Lee has already written about this on Ars Technica:

The Bilski decision, then, is a clear signal that the pendulum has begun to swing back toward tighter limits on software and business patents. However, it remains to be seen how far the court will go in this direction. Bilski was a relatively easy case. The applicant made little effort to hide the fact that he was seeking to patent a mental process, something the Supreme Court has clearly said is not allowed. Therefore, the Federal Circuit’s rejection of this patent doesn’t tell us how it will rule when confronted with software or business method patents that are tied more directly to a physical machine or a transformation of matter. And indeed, the Federal Circuit reiterated that some software and business method patents are valid, so we are unlikely to return to the near-prohibition on such patents that prevailed until the early 1980s.


The Federal Communications Commission began a broad inquiry of intercarrier compensation in 2001 and now it may finally be getting around to acting on it on Nov. 4 while everyone’s thoughts are on something else.

This is about 12 years overdue. Congress in 1996 foresaw that implicit phone subsidies were unsustainable and ordered the FCC to replace them with a competitively-neutral subsidy mechanism. Due to political pressure, regulators have failed to complete the job.

Intercarrier compensation refers to “access charges” for long-distance calls and “reciprocal compensation” for local calls. A long-distance carrier may be forced to pay a local carrier more than 30 cents per minute to deliver a long-distance call, but local carriers receive as little as .0007 cents per minute to deliver calls they receive from other local carriers.

Once upon a time, before fiber optics, there were significant distance related costs. Now distance isn’t a major factor.

The high access charges remain only because the recipients, typically small and mid-size phone companies serving sparsely populated areas, have successfully lobbied regulators and legislators to keep them.

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Debates about online privacy often seem to assume relatively homogeneous privacy preferences among Internet users.  But the reality is that users vary widely, with many people demonstrating that they just don’t care who sees what they do, post or say online.   Attitudes vary from application to application, of course, but that’s precisely the point:  While many reflexively talk about the “importance of privacy” as if a monolith of users held a single opinion, no clear consensus exists for all users, all applications and all situations.  

If a picture is worth a thousand words, this picture makes the point brilliantly—showing:

locations where [Flickr] users are more likely to post their photos as “public,” which is the default setting, in green. Places where Flickr users are more likely to put privacy controls on their photos show up in red.

Of course, geography is just one dimension across which users may vary in their attitudes about privacy, but the map makes the basic point about variation very well.  Seeing what users actually do in real life says a lot more about their preferences than merely polling them about what they think they care about in the abstract—as my colleagues Solveig Singleton and Jim Harper argued brilliantly in their 2001 paper With A Grain of Salt: What Consumer Privacy Surveys Don’t Tell Us (SSRN).

Carr Big Switch book coverI just finished reading through The Economist’s new 14-page special report on cloud computing, “Let It Rise” in which Ludwig Siegele provides an outstanding overview of cloud computing and why it is so important:

The rise of the cloud is more than just another platform shift that gets geeks excited. It will undoubtedly transform the information technology (IT) industry, but it will also profoundly change the way people work and companies operate. It will allow digital technology to penetrate every nook and cranny of the economy and of society, creating some tricky political problems along the way.

Even if you are very familiar with cloud computing, I recommend you take a look at the article. Anyway, while I was reading it, I was unsurprised to come across some comments from Nicholas Carr, whose new book The Big Switch: Rewiring the World, from Edison to Google, is essentially an early history of cloud computing and an investigation into its effects on our economy, culture, and society. And that also reminded me that, even though I have mentioned Carr’s book here several times since it was released earlier this year, I have failed to give it a dedicated review. And it certain deserves one because “The Big Switch” is easily one of the most important technology policy books of 2008.

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It is commonly believed that intellectual property law in the form of copyright and patent is necessary for innovation and the creation of ideas and inventions such as machines, drugs, computer software, books, music, literature and movies.

But Michele Boldrin and his coauthor David K. Levine argue that intellectual property laws are costly and dangerous government grants of private monopoly over ideas. Their book “Against Intellectual Monopoly” seeks to show through theory and example that these legal regimes are not necessary for innovation and are damaging to growth, prosperity, and liberty.

The argument that intellectual property laws actually retard progress is a fascinating challenge to conventional beliefs about their foundations and utility. At the onset of the Information Age, the role of copyright, patent, and other legal regimes in the progress of science and arts is centrally important.

The Cato Institute will be hosting a forum on Monday, November 10th that will surely be an interesting discussion of the book with coauthor Michele Boldrin, featuring commentary from Robert Atkinson, founder and president of the Information Technology and Innovation Foundation.

Register here.

The Commerce Department released an interesting paper yesterday on competitiveness and legal costs. It’s conclusion: support U.S. competitiveness by reducing legal costs and uncertainty. At a time when small IT firms are finding it harder to access capital from here at home, they need look far, wide, and global. (earlier this year ACT released a report on the importance of foreign direct investment to innovative technology startups).

And it appears that our litigiousness will end up hurting investment from overseas.

The paper, The U.S. Litigation Environment and Foreign Direct Investment: Supporting U.S. Competitiveness by Reducing Legal Costs and Uncertainty, notes that high U.S. tort costs are a competitiveness issue that merits sustained efforts aimed at getting these costs in line with those of other nations.  There is also a pressing need for additional economic research on the impact of a litigious society on a country’s ability to attract foreign direct investment (FDI).

Overall the U.S. legal system is the best in the world. But we can and should be better. America’s open investment policy is based on the principle that foreign investors should not be treated differently.

The new Obama or McCain administration needs to be a good promoter of this, even in the face of protectionist forces and a bad domestic economy.

Cloudy Forecast

by on October 30, 2008 · 5 comments

Coincident with the news of a few days ago that Microsoft is embracing the Web even for its longtime PC-centric OS and apps, The Economist has a big special report on “cloud computing,” including articles on:

– “The Evolution of Data Centres
– “Software as a Service
– “Connecting to the Cloud
– “The Economics of the Cloud
The Effect on Business; and
– “Computers without Borders

I’m fond of quoting Diane Mermigas, editor-at-large at MediaPost, who is one of the finest media market watchers in the journalism business today. Her latest MediaPost column offers another sobering look at the radical changing sweeping through the media marketplace today. In that article, she notes that even though we are in an era of Big Government bailouts for financial institutions and (possibly) auto makers, old media operators will be left to to fend for themselves, and many will likely die off as a result:

What we do know is there will be no federally funded bail for media, Internet, entertainment and advertising. Big media by definition is not nimble and innovative enough to simply dump what’s not working, modify what can be saved, and grow what works. There isn’t much that big media companies can bank on or reliably forecast moving into 2009. They are hamstrung between deteriorating traditional costs and revenues and evolving digital business models that do not offset the losses, generating less than 10% of their overall incomes. Big media isn’t just being ravaged by recession; it is being sacked by a technological transformation of enormous proportions.

I discussed a lot of the forces behind the current media meltdown in my recent PFF special report, “Media Metrics: The True State of America’s Marketplace.” As I noted there, this Schumpeterian “creative destruction” we are witnessing today is a normal (but gut-wrenching) part of any major technological transformation, and it need not be addressed with government subsides or interference. However, the problem for many traditional media providers is, as I noted in my special report:
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