From the Editor's Desk… Paul Coe Clark III

Communications Today, June 5, 2000

The Middleman's Dead, But His Corpse Won't Leave

As a kid, I spent two years in Nicaragua. That otherwise-lovely country is prone to swarms of locusts, which shed their skins while clinging to trees. The process leaves a perfectly formed, empty replica of a locust clinging to the tree. The locust husk is complete with legs, antennae and eyes. If you don't look closely, you'll swear it's still a living insect.

Odd way to kick off a tech column, I suppose. You don't see many references to Schistocerca paranensis in Network World. But it seems to me that the landscape is now littered with locust-husk companies, companies whose reason to exist is gone or fading. They still look great. They still have strong revenues. But because of their inability to adapt, they're dead inside.

At the top of the insect-corpse hit parade, I see Microsoft [MSFT] and record labels, particularly the large ones owned by the likes of Sony [SNE] and Time Warner [TWX]. Both Microsoft and record labels are, oddly, willing to sell their souls to hold onto revenue streams that, although running clear today, will inevitably dry up.

Microsoft's scorched-earth business methods have all been applied to one end: maintaining Redmond's operating-system revenue stream. To keep that money flowing, the company has been willing to saddle Windows with hideous design flaws, to treat its customers like dirt and to court suicide by flinging itself on the Justice Department's bayonets.

But it's evident that operating-system revenues are at a peak and have nowhere to go but down. The introduction of the IBM [IBM] PC and its clones drove the price of hardware perilously close to cost and killed businesses that depended on high-margin hardware pricing. Software, particularly operating systems, are positioned for a similar price dive. Whether or not the DoJ breaks up Microsoft, the days of the $239, shrink-wrapped OS are limited. That price, the current one for Windows 2000, is higher than the cost of some Internet- capable machines. And the $458 cost of Office Pro 2000 is higher than that of some of the machines that will run it. Those high prices won't last forever against the competition of free Linux, BeOS and the other operating systems to come.

The case of the record labels is even clearer. Microsoft is a creator of software. Large record labels are parasites, leeches surviving off revenues that should go to artists. When music distribution was complicated and expensive, it made sense to give them their pint of blood. That rationale is evaporating in the digital world. The surge in popularity of MP3 song files and of the Napster and Gnutella file-distribution programs is death for the blood- suckers.

John Perry Barlow, the co-founder of the Electronic Frontier Foundation and doomed for all eternity to be tagged a "former Grateful Dead lyricist" (he should make that his middle name), in a recent essay predicted the death of the current music industry within five years. Napster, Gnutella and their progeny will kill it, he said.

To the Recording Industry Association of America and the media conglomerates, Napster and Gnutella are high-tech piracy, nothing more. The RIAA is right about the piracy; it's wrong about the "nothing more." These programs are the future. The RIAA says they'll kill the music industry. Barlow says good riddance.

What will replace the music industry? The musician industry, Barlow wrote. "And even, with luck, something one might call the audience business," he wrote.

True, mechanisms for the flow of money from listeners to artists after the rotting corpse of the music industry is removed are not yet in place. But they will come. Current copyright law won't halt the evolution. "Whatever models evolve to protect the creation of music, I am not concerned that we will fail to economically support its makers after we quit calling it property," Barlow wrote.

Barlow, who wrote the piece for the New York Times and Technocrat.net, is not infallible. He predicted that Napster would be legally unassailable. Since then the company has lost a round in court. But he, and a growing number of musicians, are remembering that record companies are takers, not producers, as surely as the MP3 pirates.

When a company, or an industry, knows it's a hollow carcass, it fights. It blusters. It threatens. I suspect Microsoft's bare-knuckles style results partly from its fear. The company has never had a clear vision of what would come after Windows. So it killed rivals, like Herod killing babies, to prevent the advent of clear sight elsewhere.

The RIAA and the record labels barge around trying to kill technologies that could grow up to threaten them. In its heart of hearts, the music industry knows it has no right in law or justice to do so, but its fear drives it.

Barlow summed it up so neatly that I won't try to:

"The graceful industries go down gently when they've outlived their utility," Barlow said. "But it doesn't appear that this one is going to. They appear prepared to bury with themselves an entire epoch of music under a thick crust of copyright law, leaving a century-sized hole in the history of music."