Lyndsey's X10 Blog

A response to Marko’s thought provoking (if not directly related) final question…

Online file sharing has been a big deal for almost a decade, but as far as I can tell companies and performers benefit so much from making their goods digitally transferable that the loss of some of those goods due to illegal file sharing is worth it in the overall scheme. File it under loss of potential profit regularly accounted for. But maybe there’s something else companies stand to gain...

Pirates at the Gap
Take this example. I’ve had quite a few friends who put themselves through school working retail for the Gap. People regularly shoplift from Gap stores, and they go to great lengths to do it. A friend of mine who was an assistant manager once told me that women would waltz through the entryway of a store with a shopping bag lined in tinfoil, slide a stack of twenty or so tops off a display table, and slip past the RFID sensors undetected. This was a daily problem. Gutsy. Gap Inc. knows this is going to happen from time to time, and has to account for that theft in production and distribution. There is a certain amount of clothing the Gap knows it’s going to lose, and they try their best to deter it with Loss Prevention efforts, but at the end of the year their accounting department knows there’ll be some margin of loss.

Polly Pocket strikes again
But Gap clothing is a physically produced good. Not an idea or a reproducible file. Someone’s hands stitched the shirt that Polly pocketed, and it can’t be remade by a Xerox machine. A consumer can only have the benefit of that tee shirt by either buying it or stealing it. File sharing is intangible. It’s difficult to measure because it’s a loss of potential profit not a loss of inventory. It’s not as though someone actually dipped into the company coffers and yanked from executive pockets to get the latest copy of Pink’s I’m not Dead, they copied a file that they probably never would have purchased in the first place. They also did something else. They identified themselves as people who were interest in the company’s product and wanted to have it. They made themselves a measure, in some sense, of the number of people who are potential buyers but unwilling to spend money out of pocket for something they could get for free. This could either be taken as a form of theft on the part of the pirate, or a major snafu on the part of the recording industry that placed Pink’s CD at a price point of $15.99.

Think tank
Let’s think about this. According to People to People Net (p2pnet.net), “It’s estimated that somewhere between 40 million and 61 million people regularly download music in the US, and indisputably, by far the vast majority do so from the p2p networks...” Ok now let’s (very hypothetically) presume that some portion of those people actually pay for their p2p shared music at $1 a download. That’ll knock the estimate down to 35 million people. So if there are 35 million people out there not paying $15.99 for Pink’s smarty-pants album by walking into Sam Goody or ordering from Amazon, but still demanding the benefit of owning it, what have they done? They’ve let LaFace Records know that there are 35 million people out there who want Pink’s music, but don’t want to blow $15 big ones on it. Maybe those people existed before the market for music turned digital. That means all the potential sales record companies were losing before music turned digital was staggeringly high. (Ok, I’m not naïve enough to assume that there are really 35 million out there who were unwilling to buy Pink before. That number has clearly grown over the past 8 or so years).

The fact still remains that the market has changed, and free markets don’t lie. Record companies, and other companies that provide digitally reproducible goods are simply going to have to get smarter about their medium of sales from now on. Start providing a tangible, physical benefit to buying the reproducible item from the company. Use the downloading data you receive to boost sales in other departments. The smartest entrepreneurs are not the ones who play tug-o-war with buyers. File sharing has its benefits to corporations and artists, it's unfortunate that companies, artists and governments haven't invested enough energy in figuring out how the piracy phenomenon can benefit their individual causes. Seems silly to fight such a powerful movement.

What this has to do with hackers infiltrating the Swedish Government’s website and taking it offline for nearly 24 hours is beyond me, but it was good food for thought…