Lodsys, a company that produces no products, has been sending out letters to Apple App Store developers demanding license payments over their patent on in-app purchases.  While Apple itself is mixed up in more than a dozen patent lawsuits, it is becoming growingly apparent that there is no area safe from a patent lawsuit.  Lodsys, who seems to be offended at the idea that people call their company a patent troll, is only looking for 0.575 percent of in-app purchases.  Now Lodsys didn’t invent this patent. They purchased it from Intellectual Ventures.  And the patent itself is pretty obvious.  Applications and websites have long had purchases to be made after opening their program (or site).  This just applies to the mobile version of doing that same thing.

How is innovation served by paying Lodsys?  How does paying Lodsys promote the progress?

For developers, you can get some advice here on what to do if you get one of these letters.

France is push forward a law to place price regulations eBooks.  This expands current price regulations on paper books that requires all books sold in France to be sold for the same price – no discounts. The law aimed to protect small book stores, but it now going to cover eBooks regardless of who is selling them.

Our love for the corner book store is wonderfully nostalgic, but economically inefficient.  While we in the United States lament Walmart and Amazon pushing out mom and pop bookstores, the reality is authors are publishing more books than before, and people are reading more books than ever before.  And because eBooks reduce upfront and marginal costs for book publishing, authors are more able to read audiences. Amanda Hocking, for example, has been selling her own, cheap eBooks without a publisher and is making millions of dollars.  Even publishers are starting to see the success of eBook revenue – Hachette claims more than 20 percent of its U.S. revenue is from eBooks.

Let’s ignore the impossible regulatory nightmare France opens up by trying to regulate online businesses like Amazon and Apple.  Rather price regulation is a mistake France and even digital media companies are making.  Apple and Amazon set very specific prices on songs, movies, and TV shows. Almost every new video game is sold for $60.  These are price regulations even without government interface, and they only lead to economic inefficiency.  It means more popular/valuable products can’t sell for higher prices and less popular ones can’t sell for cheaper.

Like Amanda Hocking, other digital products not subject to price regulations are seeing great success with lower prices leading to great profits in greater volume.  Game publisher Valve discounted Left4Dead significantly and found sales jumped 3,000 percent – leading to more sales than its opening weekend.

Remember, price and value are not the same thing. We all value air immensely, but the price is free. When something many people value is made cheaper, then the market for that product increases.  With smart pricing and other business models, businesses can make more money with lower prices – computers are more valuable today, but are far cheaper than 10 years ago.

Price regulations can be used to fix inefficient markets, most specifically for products where the overall cost is not built into the price.  For example, oil is running out and damages the environment, but these costs are not felt by the purchaser because the costs will come years later.  Smoking also will lead to greater health costs in the future, but that is not built into the price of the initial purchase.  This is why taxes can help limit these markets for the better.

It’s a very fine line to find an inefficient market.  Price uniformity is in the form of price regulation is inefficient.  Maybe that’s why so many economists oppose it. Or tax a working market just because. Utah seems to like that idea.

I’m sorry if I sound like an Android cheerleader. I love Android phones, but have an iPod Touch and an iPad 2, so I live in both camps.  What is frustrating is Android, for all its success, gets pretty unfairly criticized by even tech circles.  Take the most recent example of allegedly low sales for the Motorola Xoom, the premiere Android tablet.

The Xoom sold an estimated 100,000 units, a spec compared to the millions of iPad 2 sales over the approximately sale timespan.  But you don’t judge success against the blockbuster.  The iPad is the Avatar blockbuster compared to the the Tourist’s healthy box office.

The same comparisons of Android phones get made to the iPhone. No single Android phone will match Apple sales 1 to 1. Android hardware competes with dozens of hardware makers for carrier and shelf space.  Apple has a focused process which works very well for them.  It would be like saying the Macbook Air outsells every Windows laptop and thinking this somehow says every Windows laptop is a failure.

Also note that for most of this sales period, there was only one version of the Xoom compared to 6 different iPads.  Yes, I’m sure the top of the line iPad sold more than the Xoom, but those numbers would likely be more comparable than all iPad versions.

Let’s do some math. The Xoom, retailing for $800, sold 100,000 units. That means Motorola made $80,000,000 in about a month.  Even for a large company like Motorola, that is some respectable revenue.  It’s very possible Motorola expected higher sales. But can we please stop calling Android hardware a failure? Let’s remember how unremarkable the first Android phone, the G1, was. And yet now the total of Android phones are outselling iPhones.  This is a marathon.

It’s always exciting to see a new, mainstream publication see what I and other haves been so concerned about.  James Allworth writes a short piece for the Harvard Business Review about how Big content is strangling innovation with its misunderstanding and animosity against technology. Allworth writes:

Many in the high technology industry have known this for a long time. Despite making their living relying on it, the Big Content players do not understand technology, and never have. Rather than see it as an opportunity to reach new audiences, technology has always been a threat to them. Example after example abounds of this attitude; whether it was the VCR which was “to the American film producer and the American public as the Boston strangler is to the woman home alone” as famed movie industry lobbyist Jack Valenti put it at a congressional hearing, or MP3 technology, which they tried to sue out of existence. In fact, it’s possible to go back as far as the gramophone and see the content industries rail against new technology. The reason why? Every shift in technology is difficult for them. Just as they work out how to make money using one technology, it changes.

This is nothing new and shouldn’t be a surprise to anyone who follows Big Content’s approach to technological innovation.   Allworth didn’t even include the TV industry fighting cable television, movie industries fighting TV, and the music industry fearing the player piano (leading to their own congressional hearings in the turn of the 20th century).

Today, Big Content is trying to stifle everything from Netflix to BitTorrent.  Viacom is continuing its billion dollar lawsuit against YouTube.  Media companies prevent web browsers on your TV or phone from viewing Hulu because they want you to pay for the privilege, limiting its usefulness.  Movie companies have announced they want to cut off Netflix’s supply of good movies. Cloud music services and news aggregators both offer products customers want, but the established content providers only see this technology as threats to their current, obsolete business models.

Let’s not forget how that VCR thing worked out. Home video eventually grew to be a larger part of the movie business than the box office.

With the DMCA already oppressively one-sided, Big Content is trying to get the COICA passed which would make legal the domain seizures the government is already engaging it (and finding it to be a complete failure).  Censorship and stifling new, innovative businesses.  Sounds like the perfect way to win the future in America.

Apple announced its subscription feature to iPhones and iPads last week. The fallout has ranged from excitement to launching antitrust lawsuits.

The controversy is over Apple’s requirement that any subscription service must use Apple’s subscription feature in addition to their own web alternatives.  Any in-app purchases would earn Apple 30 percent.  So while Amazon and Pandora Radio can still sell products and subscriptions on their website, where they keep 100 percent, they must offer iOS users the same options in the app.  Because of the convenience of the in-app purchase, it is likely many users will use Apple’s offerings.  There is significant ambiguity in the rules: Netflix, for example, has already received a special exception, likely because it adds so much value to Apple products.

Music subscriptions are rightfully angry about this.  The iPhone and other portable devices have made music subscription services useful.  Record labels squeeze any business built on their music for every possible penny.  Pandora Radio reports 45 percent of its revenue went to SoundExchange in 9 months of 2010, and that doesn’t count the licensing dispute its still having with the ASCAP. Take 30 percent off the top for Apple and music subscription doesn’t look very viable.

But this is part of the problem with relying on others for your business.  Apple loves to control its business, and it’s within its rights to (Claims of antitrust on Apple are completely unfounded. Apple does not have a monopoly. It has significant competition in all areas of its business.). But newspaper, magazine, and music publishers have all been looking to iTunes or the iPad to save them or fix their problems (such as people paying for content). This is a poor way to grow a business. If Apple decides to alter course or Google changes its search algorithm, it could hurt or destroy your business.

Newspapers and magazines eager to charge users for content have linked their fates to the iPad.  The Daily, while impressive solely for its exclusivity to the iPad, does nothing that couldn’t have been done in a web browser.   As a web app, the Daily would have sacrificed some hype and sleekness compared to an iPad app. But it also could have had full control over its fate.

This is not to say building iOS apps are bad for business. Just like you never want only one revenue stream, you never want your business beholden to just one company, whether it be Google, Apple, Microsoft, or another.  The web opens up these options and the more inventive and innovates your business is, the more control and freedom you will have.

The newest salvo against piracy and copyright infringement comes from the Authors Guild’s executive director Paul Aiken and board member James Shapiro, two people who should have a better understand of Shakespeare.

The two, in their New York Times op-ed, claim Shakespeare would not have survived the internet because of piracy.  Shakespeare benefits from “cultural paywalls” they claim.

By the time Shakespeare turned to writing, these “cultural paywalls” were abundant in London: workers holding moneyboxes (bearing the distinctive knobs found by the archaeologists) stood at the entrances of a growing number of outdoor playhouses, collecting a penny for admission.

These cultural paywalls sound like theater tickets.

Aiken and Shapiro try to claim cultural paywalls and copyright are the same thing.  Let’s remember Shakespeare predated copyright law by almost 150 years.  Shakespeare himself pirated and copied from others extensively to write his famous plays. It’s rather copyright that would have prevented Shakespeare from writing Hamlet, Merchant of Venice, and Romeo and Juliet, all of which were adaptations of other works. King Lear was compiled from about half a dozen sources according to Groklaw.

Also, Shakespeare made sure to sell scarce goods – theater tickets – rather than relying on artificial scarcity to sell infinite goods – the script itself.

Though as I’ve shown before, Shakespeare does pretty well in the internet age.  Shakespeare is the most filmed writer with more than 420 films and more than 5,500 publications in 2010 alone.  Yet all of Shakespeare’s works can be found free online (legally) and as free ebooks. Yet many still pay to see his plays, watch his movies, and read his plays. There are more than 90,000 YouTube videos related to Shakespeare which yes, includes copyrighted movies, but also plays, remixes, and unique interpretations of that Bard the could not have been shared as easily and as widely if not for the internet.  MIT even held a forum on remixing Shakespeare in 2007.

Because Shakespeare’s work is in the public domain, anyone can do anything with it.  Shakespeare made a good living in the 16th century on his plays – he did not need copyright to incentives his prolific works – he found a business model that works, selling theater tickets, and found that to be more than enough incentive.  Copyright would have impeded his creations, almost all of which were copied and innovated upon by Shakespeare. That’s how creation works. It’s a constant give and take.  Cultural paywalls prevent this – not enable it. I think the better question is, could Shakespeare have survived having the Authors Guild representing him with such a flawed understanding of economics and history?

Several media outlets are reporting on a new study from Envisional claiming that it shows music piracy is subsiding. But no, music piracy is not dying. If one reads past the first few pages of Envisional’s study, they’ll see music piracy is just as rampant – and even see real ways to deal with it.

The graph everyone is latching onto is below, showing that music only accounts for 2.9% of the top 10,000 torrents on PublicBT’s tracker.  Let’s ignore for the moment that PublicBT is a small sample of the many torrent trackers out there; this still is likely somewhat representative.  But how are these 10,000 torrents ranked? By leechers. Leechers are people who are still downloading the torrent file.  Seeders have completed the file. When a leecher completes the file, they become a seeder.

Music torrents are often only several megabytes. The complete Beatles catalogue can be found for under 2GB, a bit larger than a movie file. TorrentFreak found that the average video torrent is 1.73GB while the average music torrent is only 214MB.  A single album can be downloaded within minutes meaning there will usually be very few leechers on the average music torrent.  Just reading on a single page, for total number of downloaders, music jumps ahead of PC games and software by more than 100,000 downloaders (pg 14).

Let’s also consider that BitTorrent is not the sole file-sharing tool.  Cyberlockers like Rapidshare and Megaupload, music accounted for 10.1% of links found, slightly ahead of software and games, behind TV shows, films, and pornography, same as BitTorrent. So again, we see music is not disappearing.

But how can we track interest of file-sharers.  Thankfully, on page 25 of this same study, Envisional charts search queries on the Gnutella network.  Music accounted for almost 55% of all search queries.

Maybe, based on these numbers, other media have just gotten more popular on piracy networks.  As bandwidth increases and more learn about piracy, thanks to generous campaigns from the media industry telling every about it, larger files can be shared more easily.  So larger video files are growing as all file-sharing grows.

BPI (England’s version of the RIAA) claimed 1.2 billion songs were downloaded in 2010 in the UK alone.  So the music industry still sees music piracy as pretty significant.

So iTunes, streaming sites, and other legal music options still aren’t quelling music piracy as much as music execs would like to think.  Maybe embracing BitTorrent, like so many music artists have, they can increase the value of scarce goods and make more money. The selling of songs and plastic discs just isn’t a significant market anymore.

Hulu should have been Netflix. The major networks and movie studios had ownership of the upstart video platform and provided the site with excellent content in a pleasing interface – exactly what the market seemed to be demanding. Sure it took them almost a decade to get to this first step, but it exceeded expectations with its content, technology, and success.

But as to be expected with legacy businesses, they are more interesting in protecting their legacy revenue then investing in future returns.

For the past year, Hulu has been devoting time and resources to blocking media centers, phones, and specialized web browsers, all at the behest of their media company owners. Certainly Hulu has a right to do this, but how does it make business sense to actively block people from using your product?

Now Hulu, with impressive revenue, traffic, and highly effective ads (estimated at being twice as effective as TV ads), the media company overlords don’t see Hulu as a success, but as a threat to their still highly lucrative advertising deals and licensing payments from cable companies.  Rumor has it that media companies now want to turn Hulu into more of a cable-like platform for live content and get larger upfront payments from Netflix and other streaming sites (so they can bleed Netflix dry, but that’s another blog post).

What’s really unfortunate is how blind the media companies are in regards to the potential benefits of letting Hulu drive innovation forward.  Hulu CEO Jason Kilar wrote an excellent blog post on the future of Hulu and television which really challenges the status quo. Anonymous media executives responded in the Financial Times (paid registration required) saying:

“If I were given billions of dollars worth of programming, I too could probably build a business,” the person said. “But I know that in order to build a long-term, viable business I would have to do so in a way that works for everybody.”

and

“These are clearly the musings of an elitist who is obviously disconnected from how the majority of America watches television.”

Except in both cases, these execs missed the point of Kilar’s article and his goal.  The first quote, believing that if you just offer the content, you can build a business, ignores that Hulu still has a tiny amount of content compared to any piracy site on the web – and there are many. Hulu and Netflix have been successful by offering an excellent user experience, making it easier and more convenient to watch content than trolling BitTorrent sites.

The second quote might even be true, that Kilar doesn’t understand the TV viewing audience, but he understands what the next generation of potential TV watchers want, and sitting through long commercial breaks is a pretty obvious trend.  It’s rather TV executives who are dreaming of the old days when viewers were beholden to set schedules. From DVR to iPads, TV viewers are demanding more control over their TV viewing habits. And if these media companies don’t catch up to the future, then someone else will leap frog them and reap all the benefits for themselves.

The hype around Rupert Murdoch’s newest pet project, The Daily, is a big strength. Few general interest publications could gain mass media attention.  But any dot com survivor can tell you, hype alone does not build a business.

Murdoch and his News Corp. empire do not lack for funds, but the $30 million outlay for the iPad only newspaper is a shocking number. Not to mention the estimated weekly $500,000 operating budget, The Daily is no boot-strapping start up.  And this is the first flaw.

The dream of Murdoch and other publishers is The Daily will somehow return users to paying for news content.  So Murdoch is spending the amount he would spend on a paid publication.  And this is the flaw in his economics.

It’s not simply will people pay for news, but how much is that worth?  For math fun, several have tried to estimate how many readers The Daily needs to make money, saying, oh, they only need X many or they only need X% of iPad users.  Hoping a certain number of people give you money is incredible limiting and not how you build a growth business.

Yes The Daily gets hype from being iPad only, but what is the gain? What can you do on an iPad but not on the web (even if the website is paid for) unless someone shares it, and even then its missing the multimedia?  You can’t even get The Daily on the iPhone or iPod Touch. How is this maximizing your earning potential?

Hype is The Daily’s only unique element. None of the content is revolutionary thus far – and for all the money spent, they still include AP articles, just like every other free news website.

When I and others claim news and content want to be free, it isn’t because we’re cheap (most of us did shell out a lot of money for iPads and smartphones).  Rather, we see the economics at work. There is more competition. Competition pushes prices down.

This also means costs must come down. No printing or delivery trucks cut huge costs, but many ambitious start-ups run on a few million over their first few years. This allows you to be nimble and respond with dollars and time in accordance to the marketplace. By investing so much money upfront, The Daily is already locked into technology and likely methodology that if ineffective, will be expensive to replace. That and it requires a lot more readers at the start rather than letting growth happen naturally. Just another example of the legacy publishing mentality rather than finding more efficient ways to deliver news.

But people pay for the Wall Street Journal and Financial Times, you say.  Well both of those are not general internet, but specialized business papers that cater to a need-to-know first crowd. Plus, both have decades of history and credibility built up to prove their value.  How does The Daily plan to convince people to read it instead of the New York Times or CNN or the USA Today? Hype is not enough of a reason.

Of course, if you really want to read The Daily for free, there’s http://thedailyindexed.tumblr.com/. Sorry Murdoch, you can’t uninvent the internet.

Google announced this week that it will begin censoring  “piracy-related terms” from its Instant Search feature.  Now, when you type a movie or album name into Google Search, it will not longer suggest terms like BitTorrent, Rapidshare, or Megaupload.  Google’s Instant Search algorithm likely found these piracy-related searches popular enough to place their terminology higher than official information on the content.  By censoring its term suggestions, Google avoided likely grandstanding from the content industry claiming Google was sanctioning copyright infringement.

As a private company, Google has every right to censor or limit itself product as it sees fit. What’s unfortunate is we are finding ourselves more accepting of censorship in the name of copyright infringement.  Google, often professing a love for freedom of information, is censoring access to legal software and being arbitrary about it.  uTorrent is blocks, but BitComet is fine.  Rapidshare is blocked, but Mediafire is okay.  Remember, BitTorrent and file-sharing lockers are not illegal, even if they can be used for piracy.  Nothing stops users from typing in these words and searching for them manually (the censorship only applies to Google’s Instant Search suggestions).  But it’s a slippery slope that we are sliding further down.

The government confiscates domain names without due process, courts can ban books, and now Google has no issue censoring its search suggests, all in the name of copyright infringement.  Oh, so how has any of this stopped piracy?

UPDATED – Another 51 domains have been taken down, in a joint effort by the MPAA and Dutch equivalent, BRIEN.  It’s uncertain if the domains were actually confiscated by the government like in previous cases or if these were just DMCA takedowns.