The New, New Economy Comm 181F San Jose State U Dr. T.M. Coopman Okay for non-commercial use with attribution This Workshop

These workshops are self-paced overviews and information references that provide critical knowledge to help you succeed in this course. This workshop covers concepts of the new economy that provide background for your course project. $ = Unnatural Media and economic systems and Money is created in bizarre two way norms are NOT natural. They develop process. On one hand (US) the over time based on the interplay of Treasury prints bonds that it exchanges technology, politics, culture and self- with banks for money (not physical interested parties working for their cash). On the other, banks, under the own advantage. fractional reserve system, can lend more money then they actually have, Money, or rather the value of money, is thus “creating” money out of nothing. It a “consensual hallucination.” A dollar is would be like being able to lend worth something because enough someone $10 when you only had $2, people agree that it is. It is a virtual but once that loan was signed that debt representation or proxy of value. to you of $8 is counted as an asset. So ! it is like now you have $10 and could lend someone $30 and so forth. ! This is REALLY oversimplified, but this ! is not an Econ course. The point is that the economy is not as reality based as one might think. Case Study: Bitcoin (created in 2009) is a virtual, A public ledger records all transactions virtual currency that is not tied to and keeps the system functional. specific nation/entity that guarantees its Transactions are public but identities value or exchange rate. This makes it an are private (encrypted). See the next unregulated currency and subject to slide for a more detailed explanation. speculation and wide swings in value. Before you start thinking about how For example, in 2013 a Bitcoin went complex this is, ask yourself, do you from being worth $140 to $266 in just really understand how the regular 4 days and later hit a low of $70. The money system works? Remember, a January 2014 value of all Bitcoin in dollar is a worth a dollar because we circulation is about $1.5 billion. agree that it is worth it. Basically, the system is software based Anyway, Bitcoin can be accepted “as is” and protected by cryptography. The and exchanged for goods or services or available number of Bitcoin are limited, can be traded for other currency. which like any finite commodity, makes Bitcoin is attractive because its value based on demand. New transactions are less traceable (nothing Bitcoins are created at a rate of about is untraceable) than standard ways of 25 every 10 minutes and total supply is exchanging value which makes it a “go capped at 21million. The rate of Bitcoin to” currency for illegal activities or created decreases steadily over time so simply to avoid the gaze of the state. that cap will not be reached any time soon. Case Study: Bitcoin http://spectrum.ieee.org/computing/software/bitcoin-the-cryptoanarchists-answer-to-cash Case Study: So far, governments have not Interestingly, Paypal was also a moved to restrict Bitcoin libertarian flavored attempt transactions. get outside a system Several thousand businesses controlled by government accept Bitcoin, mostly around and large banks. high-tech metro areas. Bitcoin The implications for the friendly businesses include emergence of these types of Overstock.com, Zynga, and alt currencies is huge and Virgin Atlantic. perhaps the biggest challenge to the monetary system since ! the private production of ! physical currency was ! outlawed in the 19th century.

! The Old New Economy Capitalism is more about the value of ideas and faith in them than material things. The new economy/dotcom boom was the latest in a long line of innovations that was supposed to change the basic rules of business (see railroads, clipper ships, etc.) but didn’t. The belief of the value of a company = the actual value until enough people no longer believe it. This is what happened in the dotcom bust of 2000 and the recent financial collapse. Again, , like money, is much closer to religion (belief) than most people find comfortable. When Things Changed

The web economy emerged in 1999 with the confluence of the interest of large retailers in online sales; the maturation of the inventory networks and relationships of businesses such as Amazon and eBay; obvious sales tax benefits (although this is changing); increased use the by the public; and the economies of scale of being able to reach distributed markets - that is - not needing a geographically proximate customer base. Gift vs. Commodity Information/knowledge was widely seen as a cross generational gift (“information wants to be free”) and the web was founded on this ethos. However, since information/knowledge is also a commodity to be bought and sold, this confounds the idea of “ownership” and “rights” and can make business online problematic (see recording industry). A physical item can be tightly controlled (CD) but digital music which can be perfectly copied an infinite amount of time cannot. New Economic Models Peer-to-peer Crowd Sourcing (Facebook): User generated content on proprietary platforms generates revenue via marketing data or ads. ! Long Tail (Anderson)[EG. Amazon, , HD Jukebox]: Selling large mounts of more obscure items to many people. ! "Freemium": What's free - Web software and services, some content. Free to whom: users of the basic version. (think Flickr and the $25-a-year Flickr Pro) ! Cross-subsidies: What's free- any product that entices you to pay for something else. Free to whom: everyone willing to pay eventually, one way or another. In any package of products and services the price of each component is often determined by psychology, not cost. Your cell company may not make money on your monthly minutes — it keeps that fee low because it knows that's the first thing you look at when picking a carrier — but your monthly voicemail fee is pure profit. ! Zero marginal cost: What's free - things that can be distributed without an appreciable cost to anyone. Free to whom: everyone. This describes nothing so well as online music. Between digital reproduction and peer-to-peer distribution, the real cost of distributing music has truly hit bottom. ! Labor exchange: What's free: Web sites and services. Free to whom: all users, since the act of using these sites and services actually creates something of value. The act of using the service creates something of value, either improving the service itself or creating information that can be useful somewhere else (eg. captchas and porn). ! Gift economy: What's free: the whole enchilada, be it open source software or user-generated content. Free to whom: everyone. From Freecycle to Wikipedia, we are discovering that money isn't the only motivator. In a sense, zero-cost distribution has turned sharing into an industry. Case Study: The idea behind crowdfunding is raising Normally, those who fund receive capital for projects or businesses from products or physical items in return, many small investors rather than a although soon it will be legal to allow bank, venture capital firms, or other businesses to sell equity in the traditional sources. This is made companies they are trying establish. possible by digital networks and Crowdfunding leverages the network websites such as Kickstarter (2009). In effect whereas the more people who its first 4 years 38,000 projects use the system the greater the benefit received pledges of $441 million. of the system.

Using the web to raise money began in Special thanks to COMM 181F alums Nora Nicholes, Lisset the 1990s and the first official Osuna, and Noella Robles. Their project provided information for crowdfunding site, artshare.com, was this discussion. founded in 2000. Artists were able to connect with their fans, share their work, and raise money for projects. Fans would fund projects and in return receive access to copyright material and the artist’s creative process. There are now hundreds of crowdfunding sites around the world. Case Study: Virtual Goods Virtual Good are digital items that are A big question is who "owns" these used in online games or environments. items since they only exists in specific They usually cost "real" money but do environments that are wholly owned by not exist in physical space. For example, a business whose licenses players use of buying a flaming sword in World of War the service and can be terminated at Craft, virtual gifts in Facebook, or will. virtual real-estate in Second Life. These items are closer to intellectual The virtual goods market is HUGE. property than real property (so think One in four US residents participate in song vs. a physical CD). How this will the market. Globally, virtual good sales play out legally is unknown. There is total around $15 BILLION! also the issue of the ability of copy a virtual item, which degrades its value. People make huge investments in intangible items including $330,000 for ! a virtual space station in Entropia ! Universe. Finally, there are ethical considerations Virtual goods are sold by the operators as a player may earn his gear in game of the specific services, games, or play whereas those with the cash can websites and on a secondary market. buy it. This also can degrade the social Secondary markets may or may no be and emotional aspects of play that drive authorized by the companies that own users to participate. these games. Case Study: The sharing economy is based on Taskrabbit (2008) connects idle hands providing services based on excess with short paying gigs doing a variety of capacity in a system. A service is tasks. created to facilitate some sort of These services provide infrastructure exchange between parties and this (platforms) to connect people, deal often falls outside the normal scope of with vetting participants handling similar economic activities as well as disputes, insurance and regulatory and the normal regulatory framework that licensing issues. controls them. Many municipalities tightly regular such For example, (2010), , Zephyr, activities as cars for hire and lodging and Sidecar (2012) are apps/services and struggle to deal with these new that connect those who need a ride services. Likewise, incumbent services with those who have room. For and business have invested significant example, idle limos or taxis, or even money in establishing themselves and just regular people who can give you a controlling certain industries and are ride or a car that is sitting idle. fighting these new services, usually by (2008) facilitates sublets and trying to get them outlawed or to temporary stays at peoples homes subject them to regulation. around the world. This illustrates how the “virtual” economy is often not very virtual. Startup 2.0 Finally, there are the changes in the Many startups begin in startup way high tech companies come into schools (accelerators) where they existence - the legendary "startup." can get space, expertise, and access Classically, some guys (yes, still to funding. mostly guys and either white or Asian) in a dorm room or garage What has changed is that there are coming up with the next big idea and so many easy to use tools it has making ridiculous amount of money. opened the door for many to start their own business based on apps or Obviously, more the exception than similar software that provide rule here, but the idea and its place entertainment or services. Basically, in the economy and its impact on the application of known technology work in the information industry is to solve problems. As we saw with both critical and evolving. services like Uber, this is highly disruptive of existing industries. Despite the myth of starting a company online from anywhere, in The platform is the key (see fact, startups generally cluster around workshop article) both the broader each other and sources of capital, since of the web and also within it on expertise, and established companies. smaller scale. Tasks To earn credit you need to submit the workshop task below to Canvas as an attached file. 1. Select one example each from Meikle and Young C2, Tech Giants at War, and the Something to Stand On article on the workshop page. 2. Write a sentence or two on how these examples relate to each other (clearly label). 3. Discuss how each of these examples (be specific) interact with your own experiences of work, the economy, your use of these or related services, and your own expectations of your future employment. 4. Submit as a .doc/.docx to Canvas

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