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Open-source community threatened: JDownloader declared illegal because of third-party add-on

A German court recently declared JDownloader, an open source download program, illegal for copyright infringement because of an add-on tool used to save encrypted video streams. The ruling, which holds JDownloader responsible for the optional contributions of a third-party, a feature that had been removed by the time of the ruling. 

For open source development, this is a disturbing ruling.  Already in the United States, third-party liability create risk for software and service providers worried about how consumers will use their products. This legal concept of contributory infringement was used to ban file-sharing services like Napster and is used to block websites and software that are used to share copyrighted content. However, rarely are the providers of the software themselves infringing on copyright, simply the software can be used for that purpose.

The German court ruling takes this concept even further by declaring an entire software illegal because of code written by a third-party.  JDownloader already can be used for downloading copyrighted content – it downloads links from file lockers like Rapidshare. The issue in this case was over an add-on that downloaded encrypted video streams, which meant circumventing DRM.  Even though JDownloader removed this add-on, it was still held responsible.

Consider how this might apply to other software. There are similar add-ons for Google Chrome and Firefox.  Many third-party tools allow for downloading YouTube videos or copying music off Spotify. It’d be hard to imagine a U.S. court banning these products (though YouTube is fighting a billion dollar lawsuit).

This is why the German court ruling should still make Americans nervous. The internet doesn’t differentiate between court jurisdictions. A website made available to one country will likely be accessible from any other. The fear is that countries may race to the bottom with restrictive court rulings banning important technological innovations out of fear of how they might be misused. Germany’s ban of JDownloader is unlikely to lead ot its removal from the internet, but it could impose a chilling effect on future development, both for contributors to JDownloader, and new software developers deciding whether they should allow third-party contributions.  Having open and vibrant communities has helped make useful products even better.  These communities should be encouraged and incentivized, not stifled and scared away. 

No Xbox DRM: Consumer voice matters when industry is competitive

The internet took a victory lap when Microsoft announced a major policy u-turn regarding it’s next-generation video game system. Microsoft pulled back limitations on used video game sales and frequent online checks verifying the system.  Key in their decision was massive consumer backlash. But also key to the u-turn was the presence of strong competition, specifically Sony, who announced their system would lack any restrictive DRM.  The pressure of consumer backlash combine with a viable alternative compelled Microsoft to give consumers what they wanted.

The video game console industry is particularly unique. It’s a large industry with only three significant players (Microsoft, Sony, and Nintendo), but profit margins can be very tight, particularly early in a new console’s life cycle. Consoles are often sold at a loss in order to establish a larger user base and make up the costs from software licenses. Early values are valued, even when selling at a loss, because the lifetime customer value will be higher and third party game developers will be more interested in selling games on the platform (leading to greater license revenue).

Microsoft and Sony are heated competitors, even on many fronts. Both have comparably functional consoles. Exclusive games, mostly developed by Microsoft and Sony’s own studios, are the key differentiating factors. Nintendo, while also a key competitor, has been targeting a lower price point and more casual gamer, whereas Microsoft and Sony have preferred the hardcore gamer and all-around entertainment center market.  Competition from mobile devices and the PC have further constrained the market size and profitability of the console market.

Compare Microsoft’s response to consumer demands for Apple to open up its iPhone platform, for example, allowing alternative default applications.  Apple and Android are engaged in a mostly two-sided war.  Android, in fact, is by far dominating in market share. But even with its lower market share, Apple is far more profitable. Incredibly profitable. Apple, who manufacturers both the hardware and software for its iOS platform, generates so much revenue, and commands such loyalty from its customers, that Apple has little incentive to respond to those customer demands. Rather, Apple can provide the product it wants to provide, not the product its customers claim they want.

Once again, we’re reminding how important competition is to improving the customer experience.

Innovation in television held back by television companies, not technology

Much of the technology hype these days surrounds reinventing television. Apple has long been suspected of designing a unique television experience. Samsung and other hardware makers have already launched so-called smart TVs. The goal of smart TVs is admirable – to improve the television watching user experience, something technology companies like Apple excel at. But unfortunately, these smart TVs are not yet better experiences. The may have Netflix and other apps built in, but often they are just portals to select web services with even fewer options. What’s more unfortunate is improving the television experience is simple and obvious, yet is no where closer to being implemented. That’s because the television companies do not want a better experience.

Consider Aereo, a technology start-up attempting to compromise copyright law with useful television viewing service over the internet. Aereo will install an antenna for every subscribing user and stream them broadcast television for a monthly fee.  Their argument is it is legal to freely access broadcast television with an antenna, they just change the location of the antenna. So far the courts have upheld Aereo’s claim, which has led News Corp. COO Chase Carey threatens he may pull all Fox channels to cable. Aereo’s incredibly inefficient and costly process of offering consumers a useful product is met with legal attacks and innovation crushing tactics by the television companies.

What does this better experience look like? Well, simply, on-demand television. Let us watch the shows we want when we want to watch them. The whole concept of a TV schedule is archaic in the age of YouTube and Netflix. Rumors claim both Apple and Google have lobbied television companies to allow there shows to appear on new TV platforms, but for TV companies, the money is just too significant under the current regime for them to risk changing it.

Because television companies refuse to move toward an on-demand type model, the television experience remains sub-optimal. Television requires following someone else’s schedule (or using expensive DVR equipment), paying extremely high cable fees for channels you don’t want, and not being able to view content across multiple devices. We have wi-fi and 4g data, but never few ways to watch television over them.

Incumbent companies are able to block innovation and new business opportunities in order to protect their own profits; profits that partially result from using free, public airwaves.  Copyright and intellectual property are supposed to be encouraging innovation, yet time and time again we see the established companies using their entrenched positions to limit consumer choice and prevent innovation.  So consumers continue to over pay for flawed products, not what capitalism and competition are supposed to be about.

How to use the data you’re already collecting

Big data appears as the solution to all our business problems, able to reveal what customers want, how to increase profits, and cut costs all by doing some fancy math. Of course, big data is more complicated than that, but amid all the zeal for collecting and analyzing big data, we’re forgetting the small data many companies already collect but don’t know how to take advantage of.  Almost every company, from doctor’s offices to web developers have some data they have already collected that can be used to improve some aspect of their business.

Data appears in many forms, not just sales numbers and conversion rates.  Anyone with a website already has mountains of data they can collect with free tools like Google Analytics and Google Webmaster Tools. Google Analytics provides free web traffic information with many robust custom reporting tools, along with simple statistics of how many people visit each page, for how long, and how they got to your site. Even with low web traffic, looking at how people are finding your website (from Google searches or social media) can inform your marketing efforts.  Google Webmaster Tools, a little less well known, can be even more valuable than Google Analytics because it provides extensive information about how your website appears within Google searches.  Webmaster Tools tells you how high your site appears on search terms and which terms send people to your site. Because of privacy settings, Google Analytics isn’t able to give you this much information.

Beyond your website, it’s important to find the different ways you interact with clients and staff and mine these for informative data.  At a doctor’s office I consulted with, we found that patients were leaving after completing their treatment, but coming back weeks or months later for different services.  We asked a few of these patients why they returned and they said they didn’t know these services were offered before.  Often these were services they were looking for but didn’t think to ask about.  The doctor began introducing related services to patients earlier and adding additional brochures which increased the quality of care for patients and increased revenue with a minor cost and time investment.  With web development, I keep track of the number and frequency of emails with clients, during and after a project.  I use this to gauge how well I am explaining progress or issues with clients and have refined many ways I speak about web development to non-web developers.  I also assess my own efficiency after completing projects with the number of subsequent emails and whether I need to update my technical documentation or training practices.

Small data can provide small insights (and big ones) that are still beneficial, especially relative to the time and cost with finding them.  Every company has accounting records, emails, costs, sales, and other data rich with information about how well you are running your business. While all data will tell a story, not every story has to be interesting. Know where you have data and know how to understand it can be enough to open new opportunities to improve yourself work and business.

No limit to what customers can tell you: Ask them and respond

Some consumer insights might seem obvious in hindsight, but it’s nevertheless very easy to get caught in the way we do business. This is why surveying customers to glean insights is so valuable, either to confirm you’re on the right track or to discover new business opportunities you’re customers are craving for.

Bonobos, a menswear website, sought to make a better dress shirt.  Using a Qualtrics survey, the company found exactly what customers wanted: slimmer-fitting shirts for work.

Bonobos responded by making a $98 slim button-down shirt and sold almost half the stock in the first week.

They are now using survey’s to make better sweaters and jeans.

Having purchased a great many ill-fitted dress shirts, this observation seems apparent to me. Yet without a company asking for my feedback, and including a mechanism to respond to it, my concerns go unheard.  Having a company willing to hear customer feedback and be willing to act on that feedback can lead to valuable business opportunities and competitive advantages, simply by asking basic and obvious questions to truly understand what your customers want.  Relying on intuition and assumptions alone is not enough.

So speak to your customers. Ask for their insights. And don’t just listen. Respond. Don’t give customer’s an excuse not to give you their money.

Time Warner proves competition improves broadband speed and cost

Broadband speeds have lagged in the United States, offering slower speeds for higher prices compared to most first world countries.  The U.S. ranks 9th for speed and 21st for price. Broadband providers have claimed people are using too much bandwidth, leading to data caps, reduced speeds, and other limitations.

Time Warner Cable, one of the first companies to test data caps on customers, has miraculously increased speeds and cut prices for a least one customer.  Consumerist reports a Kansas City customer received an email increasing his broadband speed 50% and lowering his monthly bill by 30 percent.  While its great to see a company lowering prices and providing more functionality, the reasoning behind it reveals ulterior motives.  Specifically, Google launched its own fiber optic internet service in Kansas City, offering 1 gigabit of speed (compared to a national average of 6.6 megabits) for a slightly higher monthly rate and offering free 5 megabit internet (which is the standard paid version from most broadband providers).

I and others have argued the dismal state of U.S. broadband is due to a lack of competition. In most markets, consumers have at most two choices for their internet service. Even in major cities, customers are locked into one option (like myself) where if we are unhappy with our speed and price, we have no option to switch.  Once a competitor enters the space, in this case Google, Time Warner finds it now has to compete for customers. No longer can it offer poor service for a high price simply because it has a monopoly on customers.  Claims of data congestion or over usage seem much weaker. 

There is speculation on whether Google intends to roll out its fiber service nationally, as that would be extremely expensive. Others suspect Google is simply showing up broadband providers, forcing them to improve their service (and show its technologically feasible and affordable to do so).  I lean more to the latter opinion.  Google favors a world where people use the internet more and faster.  Further, Google wants to be able to offer more services using the internet, and faster speeds make that a possibilities – showing more ads along the way.  As consumers, even if we may be wary of Google controlling more of our internet experience, we should be happy to see someone challenging the incumbent players who have so limited our internet experience thus far.  Competition improves services and lowers prices. Hopefully we’ll see more of this.

Newegg saves money by standing up to patent bullies

Patent lawsuits have become the norm in almost every business, from technology start-ups to retail. Patent trolls, or non-practicing entities, makes tons of money by suing dozens of companies over often overly broad or extremely obvious patents.  Many companies settle these suits because of how expensive a drawn out lawsuit can be.

Online retailer Newegg took a stand, stating in 2007 to never settle with patent trolls.  This strategy has been deemed a success.

Soverain Software, a company without any products, happens to own patents cover basic functionality of online shopping carts (5,715,314, 5,909,492 and7,272,639), which they purchased from another company. They decided to sue a range of companies from Nordstrom’s to RadioShack.  Many settled. Some faced million dollar verdicts and ongoing royalty payments. Newegg, even after losing in district court (in East Texas, a common venue for patent trolls), appealed and has managed to invalidate these patents, meaning Soverain cannot sue more companies and cannot even collect on payments from other judgments in their favor. 

Newegg is so impressive because of their unwillingness to settle.  Newegg noticed that settling with one, only invited more to sue.  By showing themselves willing to fight back, especially if they can win, might deter other trolls.

Sadly, Newegg’s strategy, while successful this instance, isn’t enough to stop this strangle on innovation.  Start-ups and small companies do not have the legal team or money to burn to endure a drawn out lawsuit, which is often why especially small companies settle.  Newegg claims they still receive threats over patent lawsuits, including four companies claiming ownership over some part of the search box.  Until Congress and the courts can return some fairness to the system, innovation will be stifled and money will be wasted on lawyers and trolls.

Netflix’s Innovation: Giving Viewers Control Over Content

netflix-logoNetflix’s stock has soared this week on news of excellent earnings and growing subscribers.  More significant is the release of Netflix’s new original series “House of Cards.” The $100 million prestige soaked series, from Academy Award winners David Fincher and Kevin Spacey, launches its full 12 episode season in all markets on February 12th. Also important, “House of Cards” will be available on every platform Netflix supports.  Any Netflix subscriber can watch every episode of the season by Saturday morning.

Compared to legacy media models, this is revolutionary, while at the same time, so simple and obvious about how consumers want to consume media.

Between time-shifting DVRs and online piracy, viewers already have pretty significant control over their viewing experience. International viewers still have to choose between piracy or waiting months to watch foreign shows. American “Downton Abbey” fans waited for almost six months for season 3, even needing to avoid major plot spoilers because of the long delay. Legacy television continues relying on windows and restrictions, something consumers are less willing to accept.

Netflix’s model has long been about enablement.  “House of Cards” screenwriter Beau Willimon explained Netflix considered several ways to release the episodes:

Should we do a traditional [one episode per week]? Should we do it in chunks, like four episodes, then five episodes, then four episodes? And we eventually arrived at [offering] 13 all at once because that speaks to what Netflix has to offer that really no other network does. Its subscribers watch content when they want to watch it, how they want to watch it, in what chunks they want to watch it. And so it puts the decision in their hands.

Let consumers choose how they watch their shows. It’s a revolutionary idea. Remove restrictions and enable users.  It’s empowering and value-enhancing.  These sound like great ways to build a business.

Pandora Radio versus Music Labels, Again

Pandora Radio entertains 60 million users a month with doubling revenue, yet this success is marred by oppressive royalty fees that make its growth a financial burden.

Pandora pays royalty rates for music played based on overall revenue, not profits, and pays higher rates than terrestrial radio stations.  Pandora is lobbying Congress to lower its rates so that it can stay in business.  Some in Congress believe terrestrial radio should instead pay the same higher rates that Pandora and internet streaming companies currently pay.

Artists and labels are fighting back against any decrease in the rates paid.  They claim the rates per stream are already fractions of a cent providing them with little income.

Laura Balance, co-founder of Merge Records, representing Arcade Fire and Spoon, told the Huffington Post "[Rates] should be higher. It doesn’t make me feel badly for [Pandora] at all that they should be paying out half of their revenue or more to artists – that is entirely how their revenue is generated."

But this is, of course, not true. Pandora generates revenue by providing a service that adds value to consumers. Not simply a radio station, Pandora creates custom playlists for listeners based on their interests, and adapts the playlist based on what the listener likes and dislikes.  The result is listeners might discover new music they never knew about. 

Music labels still seem to believe their content is the sole value generated by any music related technology company.  There’s a reason music labels have spend the past half century illegally paying radio stations to play their artists – because the radio stations have influence over their audience and are valuable promotional resources for artists.  Pandora, through all its algorithms, software interfaces, and community building, offers incredible value to consumers and back to music labels.   Music labels should consider what happens if their demands put Pandora and other streaming services out of business. Do they expect consumers will just start buying the music they tell them to? Or will consumers move to more piracy and music sources that provide no revenue.  Eventually, I hope, music labels will start recognizing the value they gain from embracing new music services rather than trying to drain them out of existence. Music labels might discover they are on the loosing side of that regime.

When no regulation is still regulation: New law proposes to ban new laws regulating the internet

Congressman Darrell Issa (R-CA) has proposed legislation that restricts any new regulations or laws governing the internet. The legislation states: “After 90 days of passage of this Act no Department or Agency of the United States shall publish new rules or regulations, or finalize or otherwise enforce or give lawful effect to draft rules or regulations affecting the Internet until a period of at least 2 years from the enactment of this legislation has elapsed.”

Issa proposed the law on Reddit to a skeptical audience pointing out the congressman’s support for the Cyber Intelligence and Sharing Act.  This may be part of a Republican effort to court young voters protective of the internet, free expression, and the expansion of copyright regimes (like the released and rescinded policy paper by the Republican Study Committee on copyright reform).

But free market economics should not need regulations to prevent regulations.  Congress is certainly capable of proposing (and passing) terrible laws but they can also pass good laws. Just because some regulations are bad does not mean all regulations are bad.

The DMCA, a terrible law that is a massive infringement of the first amendment and is regularly used to restrict speech, has somehow managed to included the beneficial safe harbor provisions that have allowed many internet companies to survive copyright holder pressures to stifle innovation.  If the safe harbors hadn’t been explicitly written, it’s not apparent that the courts would have protected third-party companies from copyright lawsuits, putting into jeopardy all search engines and social media websites from YouTube to Facebook.

This kind of moratorium just punts all questions about net neutrality, copyright reform, and cyber security out two years.  In fact, it bars Congress from reacting at all, possibly preventing DMCA reform or banning packet inspections (which is my favored way of instating de facto net neutrality since ISPs would not be allow to know what kind of traffic you are transmitting).  Further, if there is enough support to pass a moratorium on internet regulations, than there should be enough support to just not pass these laws in the first place.

Banning new regulation only serves to avoid debating what regulations are or aren’t needed.  It fails to solve a problem and could birth unintended consequences that may be more detrimental.  If the goal is to do nothing, than just do nothing. Congress has proven itself effective at that.