whether cuecats are a public good

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From: Lisa Dusseault (lisa@xythos.com)
Date: Tue Oct 03 2000 - 15:06:48 PDT

You may be onto something, Jim, though I'm not sure about the terminology.
As I understand it, a "public good" is defined by economists to be a good
which cannot be provided to a limited set of people for a fee; it must
either be provided to everybody in a set/region or nobody. Thus oxygen in
air is a public good; less pollution in air/water is a public good.

Some information is a public good. Information that cannot be hidden
easily, like how to make a pipe bomb, is a public good (or bad, depending on
how you look at it). Copyright and NDAs and these kinds of contracts are
the only things that keep information from being a public good.

So you can look at the bar-codes in the magazines as a public good: there's
no way the provider of the technology can limit its use to only its
customers. But the "cuecat", as a product, is not a public good: it would
be easy to charge for. Just like Nintendos and cable boxes aren't public
goods, they're just devices that are being given away for less than they
cost, in order to generate a revenue stream for games or cable channels. I
don't know what you call those kind of products, and I do wish there was a
name for it. Computers now fit into that too with "internet service
contracts" built into the price of the computer.

The only thing that the makers of Nintendo, cuecat and others, can do to
make up the money they lose on the players/devices, is to lock onto the
follow-on market. Eventually they lose that, even Nintendo games. The
"free-rider" effect eventually causes the creator to lose money getting
undercut by compititors that don't have any losses on hardware.

The VCR+ stuff is similar to cuecat, and their people did much better at
protecting their market but I'm not sure how. Their algorithm, at least, is
secret and hasn't been fully cracked.

Is this the kind of thing you were talking about?

One observation is that it costs more to manufacture the cuecat than people
have been willing to pay for it, so without an artificially cheap source it
wouldn't even have become a market. But, if the codes (content) become
widely-enough distributed, then the devices (readers) might be worth what
they actually cost.

So, a possibility for Digital Conversions is that they might be able to
create a market for themselves through a network effect: if it becomes
valuable to have a cuecat only becuase other cuecats are out there, then it
might make sense for them to give away 100,000 cuecats in order to create
the market. Think telephones; these weren't very useful until a bunch of
other people had them. Lots of examples, like lack of content for new types
of media readers, like WebTV. Anyway, the free-rider effect hurts them here
too, because another competitor that doesn't have to make up the cost of the
100,000 free devices can sell for less. The only thing that would protect
the company would be significant patents in the manufacturing or positioning
of the device.


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