Friday, March 11, 2011

Hubs and Hugs: How the Right Networks Can Create Unlimited Value

Today's columnist is Julian Egelstaff from Freeform Solutions. He writes:

"You can't run out of hugs!" my girls told me, loudly. I had told them, after about a million hugs, that if I gave any more before bedtime then I might run out and there would be none for tomorrow.

It's obvious of course that some things are inexhaustible. But the lines aren't always as clear as you'd think.

My wife recently got a Kobo e-reader. She chose the Kobo in part because it's compatible with Toronto Public Library eBooks, and the Kindle is not. Yes, the library loans out eBooks. Now there's an interesting concept.

The library will give you a perfect copy of an electronic document, for use over a limited period of time. After that it will automatically expire from your e-reader. At least there's no possibility of returning it late! I wonder if they delete a copy from their own computer while its in your possession? More likely, some lawyers have simply been busy writing licensing agreements.

To make the situation more curious, there's a limit to the number of copies of eBooks that the library has to loan out. If they're going to auto-expire the documents, why can't they at least give out an infinite number of copies? Other than reading the book on a cool e-reader, where are the benefits of this being an electronic medium?

I suspect the limit on copies has a lot to do with Public Lending Rights and the inability of libraries to reimburse authors an infinite amount of money for an infinite amount of eBook loans.

Whatever the reason, at least you can get everything from project Guttenberg for free. Their copies are as inexhaustible as hugs.

It all makes me think about network effects. In my opinion, Metcalfe's law is one of the most important ideas of the last fifty years: "The value of a network goes up as the square of the number of users." I think it's a useful lens for looking at the basic mechanics of eBooks, hugs, and co-creation in general, which is the theme of this month's OSBR.

The eBooks from the library are about as useful as regular books. The lending model has effectively neutered them of all the potential benefits they could have from being an electronic medium, other than the convenience of storage and reading on an e-reader. The alternative, I suppose, would be a kind of "Napster for books", and we all know how that turned out for music. So there's no point in beating them up for it, their decisions make sense, even if they're frustrating to digital rights anarchists. The library is preserving the value of the hoard (or should that be horde... of lawyers?).

But imagine if the eBooks were an inexhaustible resource. Free for all to use and not locked up by some licensing agreement or lending right reimbursement limit. Where would the value be located then? It would be dispersed through the network. People with more books to share would be important. People with many connections to others, and therefore an ability to get more books, would also be important (as connector nodes).

Certainly, libraries would still be important because they would have more books than other nodes, though not for long perhaps, depending on the technical implementation. But regardless, the expertise of librarians, who know the "book landscape" better than anyone else, would still be a valuable commodity if libraries could figure out how to offer that value to the network.

As things stand, back in the real world, all those people are still out there, reading eBooks, but their network is not so interconnected, in most cases (more on that later). For the most part, the network is hub-and-spoke, with the libraries and retailers in the middle, and the value locked up there. All that potential, lost.

If you read Metcalfe's law more deeply, it's the connections between the users that matter, not just their number, and the community of eBook readers is all the weaker because the number of interconnections is fundamentally limited by the network model of the old publishing industry, where the libraries and book sellers are trying to dominate as large hubs among all the consumer nodes.

So-called "open business models" try to capitalize on all that network potential. Social networking is the perfect example. The value of Facebook lies in its huge number of users. Who wants to be the first user of Facebook? It's about as useful as having the first telephone. Facebook's business model (if they have a business model) explicitly tries to create value from the network by providing a way for the connections to happen and enabling the free exchange of resources and information. The users of Facebook are co-creating the value of Facebook. Every time you post a new photo, Mark Zuckerberg owes you one. Hopefully you feel justly compensated by free access to all the sharing tools he has given you.

I did say "for most", when describing the lost potential of real-world eBook networks. For some people, there is a new and growing option on the horizon: person-to-person eBook lending. This is a very exciting development that shows there may yet be a happy, truly interconnected digital future for the old business of publishing.

As Catherine MacDonald wrote recently in the Globe and Mail over the past two months, 12,000 Kindle users in the US have signed up for the "Kindle Lending Club", a service that lets Kindle owners swap copies of books they own. There are other similar services popping up, though nothing yet for Kobo users in Canada.

The huge interest and fast growth of these services should come as no surprise. It's the same open model as we see in social networking: it encourages connections between people. It's not far removed from my fantasy world of inexhaustible eBooks. It makes everything about the network – everything about owning a Kindle and having eBooks – more valuable and worthwhile to the participants. The network configuration doesn't just determine the value through some abstract process. The network configuration actively encourages different kinds of behaviour, and through that behaviour the users will co-create the value.

People only participate in old hub-and-spoke networks because they have to, since the value is being hoarded in the middle of the network and they can only get to it one way. Open networks encourage people to participate. There's something in it for them. When people sense the value of sharing information on social networking sites, when they can easily swap their eBooks with other
readers, when they get something out of it themselves, they're more motivated to participate. It's the same thing with open source software, with Wikipedia, and all the other blossoming examples of openness surrounding us. When people are motivated to contribute, the value they can create is inexhaustible.

It's like hugs. You give because it feels good, not because you have to, and that feeling never runs out.

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