That makes it more challenging and exciting at the same time. And hopefully I can summarize the views from a few different perspectives in a few simple words:

For consumers, it is a great time. Technology innovation is driving material goods cheaper, even more so for digital goods, ultimately to “free”. Further, consumers are empowered by digital media, to become more active participants in their passion, hobbies, community, or whatever their subjects of interest.

For companies and organizations, it is a disruptive force. The impact really varies case by case, depending on the industry and business models. But things happen for a reason. An organization is inclined to maximize its resources to advance its own interests. But it is safe to bet no organization(s) can turn back the tide. The types of organization that survives and thrives in the long run are those that ride the tide. How IBM and Intel has re-invented themselves provide some examples.

For individuals, it is a challenging time career wise. Personally I think it is challenging not because lack of opportunities, but lack of clarity. Media requires creativities. With the disruptions and unknowns, it also takes the kind of personalities who are willing to take risks, take actions, make mistakes and learn from them. What we have repeatedly seen is the shift of power from structured and established institutions to individuals. Individuals need to first empower themselves, then leverage the tremendous reach of the new media, and that’s probably how new institutions will be born.

Digital media ultimately makes the world smaller and more efficient. Abundance will allow information and entertainment to reach a much bigger population base, which in turn creates new markets and new wealth. There will also be more interactions, easier communication, more exchange of knowledge and views between people – I think that is a good thing.

In “The Laws of Disruption”, Larry Downes describes the disruptive impact of technology innovation and how the revolution in communications and commerce in the digital age is outpacing existing social, economic, and legal frameworks.

Downes is an author and partner at the law firm of Bell Mason Group. Currently a nonresident Fellow at the Stanford Law School Center for Internet & Society, he has held faculty appointments at various universities. His previously authored ““Unleashing the Killer App: Digital Strategies for Market Dominance” (Harvard Business School Press, 1998)”, which was a Business Week and New York Times Best Seller.

Downes’ central thesis is that “technology changes exponentially, but social, economic and legal systems change incrementally.” Downes criticizes much of the existing legal instruments as being outdated in the digital age, and he proposes that the best regulation for innovation is by “leaving it alone” (270).

Downes explains the laws of disruption, by first examining history. Technological breakthroughs like the adaption of metal stirrups to flexible leather in the middle age have far reaching consequences. Downes points out the two forces driving the law of disruption in the Internet age: Moore’s law that computing power doubles every year or so and Metcalfe’s law that the power of a network increases exponentially with each new user.

Downes argues it often takes much longer, for “human systems”, economic, social and legal, to keep pace with innovation. Therefore, we are always playing catch-up.  Downes summarizes nine areas of disruption and offers analysis and solutions.

In the second half of the book, Downes further explores the conflict between innovation and law. Since the production of information is accumulative and not always original, he argues that industrial era laws are inadequate in the current reality of digital environments. Downes criticizes the strict legal codes in current copyrights laws, using examples such as Shakespeare’s practice of borrowing heavily from others.  Finally, he offers advice for policymakers, business leader and individuals to adapt to the new realities.

In analyzing the thesis and arguments, Downes makes a strong case for the disruptive nature of technology and innovation – by focusing on a critical characteristic of digital technology, which is efficiency, or “lower transaction costs”. In order to explain how technologies operating under the laws of disruption have driven up productivity and efficiency in the digital economy, Downes uses the theory first proposed by Nobel Prize-winning economist Ronal Coase. Transaction cost is a form of inefficiency, yet up to 45 percent of total economy consists of it. Companies are created because the additional cost is still cheaper than individual transactions. However, in the digital age, transaction costs are coming down dramatically. Downes clearly captured the true impact of digital innovation, which is the free flow of information at almost negligible cost – “As transaction costs in the open market approach zero, so does the size of the firm” (40).

Downes’ notion that big companies may not exist as technology is minimizing transaction costs is a rather simplified view. What Downes fails to distinguish is the difference between economic and non-economic activities.  Clearly, the digital revolution is pushing some of the traditional economic activities into non-commercial production. For example, open systems and peer production emerges to provide similar capability offered by commercial systems. However, not all transaction costs are approaching zero, and not all big companies are doomed to fail. Thus the one size fits approach may not be applicable when it comes to the laws and policies governing commercial enterprises and not-for-profit segment of the market.

Downes advocates the “neutrality” principle – legislators should resist temptation of regulation. Downes uses the example of AT&T, a monopoly that took twenty years to break up. His argument that laws of disruption eventually overruled everything is less convincing. AT&T does not become a monopoly because of government regulation. So one may argue, government let AT&T become a monopoly. Then you are arguing for regulation. Often, monopolies are created as a result of innovation and disruption – invention of telephone created AT&T, much like the birth of PC gave rise to Microsoft, and Internet made what Google has become today. Without government intervention (however late it was), would it be acceptable to wait fifty years for the innovation of packet based networks to break up AT&T’s dominance in circuit based networks? For the Ohio woman that was still paying $30 a month to lease a black rotary-dial phone after forty-two years and over $14000, anti-trust laws could not come too soon.  The lesson of AT&T shows us that slow and inadequate government action is not always in the best interest of the economy and consumers.

Downes is very convincing is his presentation of copyright laws, or, in his own words, “the perfect storm of copyright abuse made both possible and inevitable by the Internet” (195).  Downes refers to work done by Chapman University law professor John Tehranian, who draws the stunning conclusion that a hypothetical professor commits at least eighty three acts of infringement on a single day, and faces liability in the amount of 12.45 million. According to today’s copyright law, “Happy Birthday to You” is protected till 2030 in the United States, singing it without paying a royalty constitutes an unlicensed public performance. However, Downes’ over generalization that other laws should be relaxed in the same manner significantly weakens his argument. His notion that law enforcement cannot effectively deal with online crime, and his proposal to use private enforcement is rather naïve and lacks supporting evidence.

In conclusion, Downes captured the essence of technology innovation and the resulting disruption that reshapes our societies. It is well argued and supported by intriguing observations. Downes also makes a compelling argument that outdated laws always play catch up to innovation; therefore policy makers’ best way to regulate innovation is to leave it alone. However, there are many other factors at play that calls for preservation and regulation. Downes offers captivating thoughts, but policymakers, businesses and individuals are well advised to take a balanced approach.

So if the content is free, and much of it comes from the commons model, where is the economics and wealth in the future of digital media? Are we ultimately paying an economic price for the social freedom and advancement that technology provides us? Or, will the free and peer production model be unsustainable in the long term?

While I don’t have all the answers, I think it is necessary to step back from the changes that are happening everyday, to put it in a more historic perspective. If we ask ourselves, how many well-paid, desirable jobs in the 19^th century, that still exist today? How much the society has evolved in a mere one hundred years? And for the average person, how far have we gone from barely surviving to have the kind of tools and voice, to do what we want to do, to have the kind of impact as individuals, and to be able to interact and collaborate with each other.  As in every industrial revolution in the past, the more dramatic the change, the more painful the transition can be.

I also think of the example of Intel, which seemed to have weathered every economic storm in its history. Few realize, the original Intel was built on the memory business alone. In 1984, then-CEO Gordon Moore and President Andy Grove proposed to exit the core memory business, and reinvest in microprocessors. It was a disruptive decision as it threatens almost everything the company and its employees value. As Grove remembers, “Intel equaled memories in all our minds. How could we give up our identity?” They resolved to eliminate the division.

It is often more comforting to hold on to the past, but it takes courage and leadership to be the first to adventure into the unknown. History has shown that the odds often favor the brave.

We have heard that careers are shifting from corporations to individuals. But even if we work as independents, somebody has to pay. Or we do more bartering? That doesn’t sound very efficient.

So we tried to look for some answers. And we thought Asia is a little bit ahead in certain stages of “free”, largely thanks to looser IP protection. Take the DVD market as an example:  there are thousands of new TV shows produced in Asia. Almost none is sold as “legal” copies. In fact, there are less pirated copies sold now due to online viewing (which is another form of piracy). But all of that seem to be (however unwillingly) accepted by the industry. In the mean time, the media industry didn’t collapse there. There are actually more shows produced every year, many of them very popular. Actors and actresses can usually turn popularity into profits, with concerts, shows, and as spokespersons.

One key difference that makes it more sustainable, is the income level of “stars” in Asia, which is far lower than their Hollywood counterparts. They still do very well, making maybe ten thousand instead of a million per episode. So to Benkler’s point, Hollywood and the media establishment will fight hard to protect the “status quo”. But is it really a sacred “right”, for somebody to make in one day, what an average consumer makes in a life time?

In “The Wealth of Networks”, Yochai Benkler examines how the Internet and digital technology is changing society.  Benkler describes new types of collaboration as “social production.” In his view, non-market innovation is reshaping markets, while at the same time offering new opportunities to enhance individual freedom, cultural diversity, political discourse, and justice. Benkler also highlights the role for law and politics, calling for “an embrace of the networked information economy by anyone who values human welfare, development, and freedom”.

Benkler is a Yale law professor. Prior, he was a professor at New York University School of Law and a faculty co-director of Harvard’s Berkman Center for Internet & Society.

Benkler uses the first part of the book to describe “networked information economy”, a term he uses to describe the production, distribution, and consumption of information as enabled by digital technology and the Internet. Benkler’s focus is on commons-based approaches to creating information in networked environments.

Benkler then examines the impact of the shift from industrial to a networked information economy, specifically liberating individuals to better able to do things “for and by themselves.” Benkler further points out its cultural implications, and predicts the decline of mass-media as a result of the newly-gained freedom. Individuals are better informed, empowered to act, thus becoming more “active participants in producing their own cultural environment”.

Finally, Benkler offers his perspective on the necessary social practice and political actions, to protect the emerging “networked information economy.” Benkler believes the incumbents, such as Hollywood and recording industry, will attempt to influence policy and laws to resist change. He calls for law and regulations to embrace the rise of commons based information production.

In analyzing the book’s arguments, Benkler makes a strong case for the phenomenon he calls “networked information economy”. Throughout the book, Benkler provides concrete evidence, with sufficient in-depth technology descriptions, and solid data, to back up his claims. Benkler’s strength in capturing the essence of complex technology in the context of digital economy is clearly demonstrated in his concise interpretation of the search technology and the rise of Google.

Benkler’s thesis of “social production” is built around how network information economy has empowered individuals, and consequently, encouraging collaboration among peers to produce information of significant social value.  Again, Benkler deployed his legal expertise, backed up by an amazing array of intriguing stories, like the one about rice genome.

However, Benkler’s presentation of “peer production” tends to underestimate the role of leadership and management, which leaves a critical gap. Benkler sometimes mixes mass production with collaboration. Benkler’s take on the NASA Clickworkers experiment (69) is such an example. In this case, success has everything to do with the cleverness of the designers. Dividing up a large task into discreet ones to be performed by the mass is quite different from active participation through collaboration. The role of leadership is as significant in social production as in a corporate environment.

Benkler seems to view participants as equals and provides little insight into the organization of a social production system. Clearly, the role of leadership is uniquely different in a social production system. Many believe that large scale effort such as Wikipedia are successful not because it lacks management structure but because it has a very good one. Therefore, examining the structure, the communication, and the minds behind them will provide more insight into how networked information economy functions, and its long term impact.

In analyzing the economics of social production, Benkler’s take on motivation is rather scholarly, complex and inconclusive. As an academic, Benkler does not often see the pragmatic side of motivation. Consider these from a (professional or amateur) individual’s perspective:

• Learning new skills
• Enjoyment of solving problems
• Showcasing one’s talent
• Pride and recognition
• Opportunity to contribute

All of the above have positive career and economical benefits. And the Internet provides the perfect platform. For those in the IT profession, playing a recognized role in a social production project carries great prestige and benefits. Given the low cost of entry, it is well worth the time and effort. This is not to negate Benkler’s search for noble causes, which absolutely do exist everywhere. It is just as important to acknowledge that the rise of the network digital economy does not fundamentally changes human motivations. Rather, it simply provides the better platform to act on them.

In conclusion, Benker’s work in “The Wealth of Networks” is a profound. He pulls together perspectives from technology, law and politics, referencing an impressive array of evidence both in breadth and depth.

While the thesis is well argued and supported, Benkler’s academic approach has some limitations. Specifically, he significantly underestimates the role of leadership in networked digital economy. In doing so, he missed an opportunity to examine the emerging new and perhaps superior managerial structure that has potential implications on how work and individual careers are organized.

More than two years after its initial publication, “The Wealth of Networks” is still thought-provoking, a must read to understand and explore the social, cultural and political consequences of the digital age.

A pack of eight razors costs £18.53, that’s almost $30! A small fortune just to get a clean shave. The Office of Fair Trading, a UK Government watchdog is involved in a long-running inquiry into alleged collusion between manufacturers and retailers.

Apparently, it only costs about 50 cents to manufacture and package the goods. A profit margin that is hard to beat.

So what makes Gillette so successful? There are competitive products, selling for less, and does the same job more or less.

It’s the brand. Gillette knows it.  Just look at who is on its payroll: Tiger Woods, Roger Federer, David Beckham, Derek Jeter, the list goes on.

For the digital media industry, Gillette is more than a pioneer that invented the “free” model. From its humble beginning, it has come a long way building the tremendous brand recognition, and a loyal customer base, generation after generation.  In other words, “free” itself is not a guarantee for success, rather it’s a bridge to “be known”. And if the product or solution is attractive enough, it will grow the market by itself.

In the digital world, free is the most effective way to gain visibility and mass adoption. Given the speed of how new products are emerging, it is probably the only way to take the enviable number one position. Google already got to first place, and became very profitable. Yet it continues to pour out new features, services, for free…much like Gillette has continued to strengthen its brand. Think Linked-in, Facebook…none making money, but few doubt their command of the market. The overwhelming priority is to get an absolute lock in the market, leaving no competitions in sight, becoming totally indispensable to consumers.

Just remember, 100 years later, we are still paying for very expensive razors.

I will never forget those words from the head of the research, he said our research team was so strong with so many patents, that even if we stopped doing anything, we would still have enough to last us another 25 years. It was truly an awesome institution.

In 2009 that company declared bankruptcy.

In technology domain maybe more so than others, failure of institutions has been the norm. Although the human impact behind those failures are always painful to bear, technology advancement has only accelerated. In fact, failure of old institutions is almost always accompanied by the birth of new institutions, thus starting a new lifecycle.

History is filled with colossal failure of once mighty institutions, their significance often fading into distant memories. Dynasties fall, replaced by another. In nature, whole species sometimes disappear. New species emerge. Charles Darwin called it the “natural evolution”.

The Internet and associated technology advancement, whether it is processing power, bandwidth or storage, is constantly changing the cost equation. Sometimes those cost equations are the foundation of institutions. When those equations are no longer balanced, and if institutions are not able to adapt and re-balance, failures will occur.

The more meaningful question is, are new institutions replacing the old, to fill the gap socially and economically? History has shown that has always been the case, as the failure is often the direct result of the new. Wouldn’t we be better served by embracing the new, than trying to save the old?

Anderson has had an accomplished career. With a degree in physics from George Washington University, he did research at Los Alamos National Laboratory. He launched coverage of the Internet at The Economist. He has also worked at the journals Nature and The Scientist, before becoming editor-in-chief of Wired Magazine. His previously authored “The Long Tail: Why the Future of Business is Selling Less of More”, which became a New York Times Best Seller.

Anderson’s thesis is based on the observation that technology has been driving cost down to a level that is “too cheap to matter”, bringing disruption to the traditional economic model based on scarcity. Anderson uses many examples to illustrate how Internet and digital age has brought abundance of information, and how companies react and compete in this new environment.

Anderson starts by examining the history and psychology of free. He explains that free is an age old tactic that has been used successfully as a business model. Free is a weapon to generate tremendous interest, according to Anderson, “there is huge difference between cheap and free” when it comes to market penetration.

Anderson then proceeds to explore abundance in the digital age. He examines the effect of faster, better, cheaper technologies – processing, storage and bandwidth, all coming together to drive down the cost of all things digital. Anderson concludes that there is only one end state, which is free.

Finally, Anderson explores free as an economic model. He provides numerous examples to show how savvy businesses are already succeeding with the model. Anderson uses cable companies to illustrate the cross-subsidies model (giving away a DVR to sell cable service). He uses Flicker to illustrate the freemium model (offering Flickr for free while selling the superior FlickrPro to serious users). In music industry, Anderson highlights Radiohead’s successful name-your-own-price experiment with its latest album. Anderson went further to examine the use of free model in China and Brazil. While piracy accounts for a large percentage of consumption, artists can still benefit from publicity generated by free, and profit from concerts and merchandising. Anderson brings collisions of thoughts to readers vividly, by telling stories of email battle between Google and Yahoo, as well as Microsoft’s war with open source and Linux. The most effective price is no price at all, argues Anderson.

In analyzing the thesis and arguments, I agree with much of Anderson’s assessment of the technology revolution and its impact. Anderson brilliantly pointed out that the key difference between “atom” economy and digital economy is the difference between scarcity and abundance. In the digital economy, marginal cost, or the cost to make a digital copy is practically zero. With examples such as Google and Craigslist, I think Anderson has convincingly presented the case that free is a viable business model, even a superior one in some cases.

Anderson is less convincing with a radical “one price fits all” model. Will all things digital eventually be free? In arguing for the case of technology driving down cost, Anderson mainly focused on content distribution. There is little coverage about content creation which is a critical aspect. In the example of music and DVD piracy, Anderson discards strict DRM and copyright technology, which I agree. However, by ignoring copyright in favor of free, can we sustain a creative and artistic ecosystem? Perhaps the answer is yes, but more analysis and evidence remains to be seen.

Anderson’s over-simplification and dramatization sometimes weakens the argument. In his detailed analysis of Microsoft’s battle with open source (chap7, competing with free, 101-112), he presented a case of the software giant going from denial, anger, bargaining, depression, to acceptance. Anderson told a great story but is less convincing to support his arguments. With the exception of web server, Open source still only has a relatively small portion of the enterprise server market. Even its biggest fans are not predicting the demise of Windows Server or Microsoft. From a business point of view, Microsoft probably executed quite well over the years, protecting its revenue stream, and maintaining its leading position in corporate America.  In fact, the example is a case of coexistence of free with paid software.

As a comprehensive study of the free economic model, Anderson paid surprisingly little attention to consumer’s role in the free economy. Low cost technology does not produce content, consumer participation does. It is an equally powerful force that works in parallel with technology, to bring abundance of content. Finally, Anderson largely ignored non-economic and social motivations behind the free movement.

In conclusion, Anderson brilliantly captured a trend and phenomenon, and brought it to world’s attention. It is well argued and supported by intriguing observations and real-world stories. However, there are many other factors at play in business and the world in general. Anderson’s “Free” is definitely an interesting and rewarding read, but businesses and individuals are advised to conduct analysis and exercise judgment before applying in their specific scenarios.

Looking at the model again: Facilitation Cost / Aggregate Value

Facilitation method is being revolutionized, facilitation cost is going down, way down. So any business and career built around that value proposition will be difficult.

Aggregate value represents the value created by aggregated participation (facilitated by digital media). Facebook uses software and web technology for facilitation. The aggregate value include the enjoyment and opportunity for communication among members, as well as commercial value enjoyed by owners of Facebook.

Aggregation value is the real upside, that’s where we want to be. Writing a reivew or contribute a piece for Wikipedia provides a certain amount of satisfaction. Starting a popular blog and drawing a large crowd may lead to a modest financial gain. Yet it takes special skills and creativity to develop a social media platform, reaping even more rewards.

Why would Yahoo hesitate to match the “free” offer? In the email market, wasn’t it already in the enviable position Google wanted to be in? There is prehaps the factor of margin erosion, and different financial and competitive positions. The real difference is the mindset, one says “free is going to cost us”, and anther says “free is going to help us”.

I believe “topple rate” applies only to companies and individual who fall behind in mindset. Yahoo is focused on keeping facilitation cost down, but lost sight of creating exponential aggregation value. Microsoft never lacked the cash, and still doesn’t today. “Free” is a mindset to embrace a new world, but it takes courage and vision.

Loss of an “institution” may not be so comforting, but it is not nearly as horifying as some would want us to believe . Change is inevitable. “Free” is a a world of opportunities to embrace.