Open Source Essay of the Week: Cooking Pot Markets: An Economic Model for the Trade in Free Goods and Services on the Internet

by Rishab Aiyer Ghosh


What is value, or: Is the Internet really an economy?

This is perhaps the wrong question – akin to asking whether direct-sales, or academic research is an economy. There is much of value to be found on the Internet, much production and consumption of goods and services. This is hardly surprising, given that the Net has attracted 60 million people and is growing in population at more than 100% annually. Many of the things found on the Net, though, can be found off it – free software such as Linux is distributed on CD-ROMs (for which you pay), not just on Internet FTP sites. The Net is not another planet, the people populating it are part of some “real world” society too, trading, producing and consuming things off-line.

Although the word “virtual”, like “cyber”, has come to be associated with everything on-line, the act of creating products – such as home pages and notes published in discussion groups – is as real on the Net as it is in a factory or newspaper office. The “virtual” trade in knowledge products on-line, their “virtual” consumption and production by millions of people, are very real indeed, and affect the world outside the Net if only because its own population forms an increasing (if still small) part of that world’s.

This makes it all the more important to take note of differences between the part of the world’s economy that is on the Net, and the rest. Millions of people have been interacting and participating in what they clearly value, using an economic logic different from what they might normally use in off- line lives. So there must be a definite possibility of the on-line economic logic spreading beyond the confines of the Net – it’s the same people in both worlds, after all. There is no question that there are differences between the economic logic – the application of basic economic principles – on and off the Net.


To begin with, much of the economic activity on the Net involves value but no money. Until a few years ago, there was almost no commercial activity on the Internet. As commerce discovered the Net it was natural for the Net to become commercial – which makes the incredibly vast amount of resources still available free remarkable. The free resources of the Net greatly outweigh all commercial resources, especially if one counts only purely on-line transactions (e.g. a bookseller like Amazon [1] makes money selling books, which requires the physical transportation of goods). It is quite hard to put a price on the value of the Internet’s free resources, at least in part because they exist because they don’t have prices attached. They exist in a market of implicit transactions. [2]



The economics of gossip

I prefer arguing with extreme cases, so I won’t start with the obvious worth of free operating systems (Linux [3]) or Web server software (Apache [4]). Newsgroup discussions are a less obvious case, so I’ll begin there.

If you are a heavy user of the Net, you might wonder how all your little posts to discussion groups – say, rec.pets.cats – could possibly be called economic transactions. But they are.

The Internet has, of course, changed enormously in the past couple of years, indeed it changes all the time as its population keeps doubling [5]. Many early users of the Net complain about recent users – pejoratively calling them “newbies” – and the “junk” they post. Although posts were more relevant and better written, on average, before the Net became headline news, few were likely to be accepted for publication in the average newspaper, leave alone an academic journal. But I, like most people, found many of these unpublishable notes useful; and most polite contributions from newbies are useful to someone or other.

We were not (and are not) on the Net just to read books, but to participate in discussions, to meet people and share ideas. So our criteria for what is valuable was and is quite different from those of a publisher of printed books.

In fact, these criteria do not really matter – nor does the fact that we find value in small posts by newsgroup participants. What is important is the fact that the post – any post, even “junk” and the rudest of “flames” – is a product. It has been created by somebody, is being distributed, and can be consumed – and possibly valued – by others. In the “real world”, we find value in rubble from a wall that happened to divide a big city for 28 years; a rock that might or might not have come from another planet – these things are rightly included in our catalogues of economic goods. It doesn’t matter who finds them useful – or even whether anyone does. The ability of anything to be produced, traded and consumed is enough.

Clearly, no subjective line should be drawn separating economic from uneconomic things on the Net. And in a knowledge economy, it is reasonable to treat all forms of knowledge – with the broadest possible definition – as economic goods. It is certainly true that the least relevant of newsgroup posts is produced, distributed, and consumed – so they too did, for me, qualify.

Come to think of it, the world would be very different without things normally thought as not part of the economy. Although you don’t stop to write out a cheque – or even think of it – every time you hear some industry gossip, or get advice from a senior colleague, such things do have an economic impact, without involving explicit economic transactions. The importance appears diminished in the “real world” environment – in this example the office where everyone’s pay and job description includes the implicit tag of “intra-office industry gossip distributor” or “junior colleague advisor”. But on the Net these implicit transactions stand out in stark relief, suggesting even more strongly that in a knowledge economy, every exchange of knowledge in any form is an act of trade [6].


Every snippet posted to a discussion group, every little Web page, every skim through a FAQ list and every snoop into an on-line chat session is an act of production or consumption, often both. There is no specific economic inherent value in a product. Value lies in the willingness of people to consume a good, and this potentially exists in anything that people can produce and pass on.

Having settled that bad writing and even junk mail is a part, however reprehensible, of the Internet’s economy, let us proceed to Linux. After all software, in particular large operating-system software occupying up to six CD-ROMs when distributed off-line, is undeniably an economic good [7]. And Linux with its loosely organised community of developer-users, and its no-charge policy, undeniably has an economic logic that seems, at first, new.



Something for nothing?

Linus Torvalds did not release Linux source code free of charge to the world as a lark, or because he was naive, but because it was a “natural decision within the community that [he] felt [he] wanted to be a part of” [8] Any economic logic of this community – the Internet – has to be found somewhere in that “natural decision”. It is found in whatever it was that motivated Torvalds, like so many others on the Net, to act as he did and produce without direct monetary payment.

Of course, it is the motivation behind people’s patterns of consumption and, what is more relevant in the case of Linux, production that forms the marrow of economics. Such motivation is usually expressed in terms of curves of supply and demand, measured by costs and prices in dollars and cents. Figuring out what motivates, leave alone measuring it, is much tougher when price tags don’t exist. It is simpler to just assume that motivations only exist when prices are attached, and not attempt to find economic reason in actions motivated by things other than money; simpler, therefore, just to assume as we often do that the Internet has no economic logic at all.

This is wrong. The best portions of our lives usually do come without price tags on them; that they’re the best parts imply that they have value to us, even if they don’t cost money. The pricelessness here doesn’t matter much, not unless you’re trying to build an economic model for love, friendship and fresh air. But you don’t need to be an economist to know that all of these things do involve motives, and perhaps also the matching of (ordinal) demand and supply, even if demand curves are not easily measured without price tags. Economics may not often need to be used in an environment where valuables are free, but that doesn’t necessarily mean it can’t be so used. And any economic logic of the Internet has to have come to terms with the difficulty of measuring such value.


Being on the Internet is not quite like being in love (though some would argue about that) – but it brings with it the same sheen of pricelessness. On the Internet, through much of its past, the bulk of its present and the best of its foreseeable future, prices often don’t matter at all. People don’t seem to want to pay – or charge – for the most popular goods and services that breed on the Internet. Not only is information usually free on the Net, it even wants to be free, so they say [9].

But “free” is the wrong word: like love, information, however free in terms of hard cash, is extremely valuable. So it makes sense to assume that the 3 million people on the Internet who publish matters of their interest on their home pages on the Web, and the several million who contribute to communities in the form of newsgroups and mailing-lists, and of course anyone who every writes free software, believe they’re getting something out of it for themselves. They are clearly not getting cash; their “payment” might be the contributions from others that balance their own work, or something as intangible as the satisfaction of having their words read by millions around the world.

While writing my weekly newspaper column on the information society [10], I was distributing an e- mail version free of charge on the Internet. A subscription to the e-mail column was available to anyone who asked, and a number of rather well known people began to receive the column each week. My readers often responded with useful comments; I often wondered whether people would pay for a readership like this. Many readers add to your reputation, they make good contacts, helping you out in various ways. Simply by reading what you write, they add value to it – an endorsement, of sorts. So who should pay whom – the reader for the work written, or the writer for the work read? [11]

Even those who have never studied economics have an idea of its basic principles: that prices rise with scarcity and fall in a glut, that they are settled when what consumers will pay matches what producers can charge. These principles obviously work, as can be seen in day-to-day life. But that’s the “real world” of things you can drop on your toe. Will they work in a knowledge economy? After all, this is where you frequently don’t really know what the “thing” is that you’re buying or selling, or clearly when it is that you’re doing it, or, as in the case of my column, even whether you’re buying – or selling. Contrary to what many doomsayers and hype-mongers suggest, it always seemed to me that the basic principles of economics would work in an economy of knowledge, information and expertise. They are, after all, not only logical on the surface but also practically proven over centuries – a powerful combination. Even if the Internet appeared to behave strangely in how it handled value, there was no reason to believe that, if it had an economic model of its own, this would contradict the economic principles that have generally worked.

However, if Paul Samuelson’s textbook definition of economics as the “study of how societies use scarce resources to produce valuable commodities and distribute them among different people” [12] remains as valid now as ever, almost all the terms in there need reexamination. This is because of the same peculiar economic behaviour of the Net that suggests it has developed its own model, the economic model of the information age.


The Internet looks like an infant microcosm of the wider knowledge economy expected of the future, and it does predict an awful lot of problems for applying basic economic principles. In an environment where it costs next to nothing to duplicate a product, exactly what is scarce? A Ferrari F40 would presumably be cheaper if it cost under a dollar to make a perfect copy. What on the Net is a resource, what a commodity? What, indeed, is valuable, when everything’s free? What does distribution mean, when one-to-one on-line sessions with a celebrity can only be monopolies, while software such as Linux can multiply like flies? Who, for that matter, are the people when nobody need have an identifiable address and when, famously, on the Internet nobody knows that you’re a dog?

If Linus Torvalds was thinking about economic models for knowledge, instead of programming an operating system, he might have passed through some of these points. Linux could be (and was) copied indefinitely and widely at negligible costs: clearly the program itself, the raw lines of machine-readable source code, were not scarce, and hence were of low value. The resource, the value may have been in the very fact that Linux was widely available and could be freely modified: indeed, Torvalds now says “Making Linux freely available is the single best decision I’ve ever made.”

The Sunday Times of India is the world’s sixth largest-selling newspaper. It is part of the Times of India group [13], whose newspapers sell, in various editions, some 3 million copies every day across India. The whole operation, particularly the coordination of advertising and editorial, depends on RespNet. This internal network won the Times a listing in ComputerWorld magazine’s selection of the world’s best corporate users of information technology. RespNet runs on Linux, and other similar free software got off the Net.

Raj Mathur, who set up Linux on RespNet, agrees with Torvalds when the latter says, “people who are entirely willing to pay for the product and support find that the Linux way of doing things is often superior to ‘real’ commercial support.” This is thanks to the large community of other developers and users who share problems and solutions, and provide constant, sometimes daily improvements to the system. The developer-users (the Linux incarnation of Toffler’s producer-consumers, or prosumers) naturally include operators of networks similar to RespNet. So many of them can provide separately assistance that might not be available if they were all working together in a software company – as Linux Inc – where they would be produces of the software but not consumers. This shifting base of tens of thousands of developers-users worldwide working on Linux means that the Times of India would have a tough time figuring out whom to pay, if it wanted to, so it’s just as well that the support from these developers is free.

The fact that on the Internet people go looking for other people, and Linux developers look for others like them, is just one instance of the immediacy of much of the trade that takes place on the Net. When you post your message to rec.pets.cats, or create a home page – whether personal or full of your hobbies and work – you are continuously involved in trade. Other cat-lovers trade your message with theirs, visitors to your home-page trade your content with their responses, or perhaps the satisfaction of knowing that you’re popular enough to get a few thousand people discovering you each week. Even when you don’t charge for what you create, you’re selling it, because you’re using your work to buy the work of others – in a discussion group – or to buy the satisfaction of popularity – through your Web site.

What is most important about this immediacy of the implicit trades that go on all the time on the Net is its impact on notions of value. Unlike the “real world”, where things tend to have a value, as expressed in a price-tag, that is sluggish in response to change and relatively static across its individual consumers, on the Net everything is under constant reevaluation. Without the intermediary of money, there are always two sides to every transaction, every transaction is potentially unique, rather than being based on a value derived through numerous similar trades between others – i.e. the price-tag.

Continuing to alternate between examples from the worlds of free software and USENET – to reiterate their equivalence in economic terms – we can see the two-sided nature of trade in this hypothetical example about cats. You may value the participants in rec.pets.cats enough to post a long note on the nomadic habits of your tom. In a different context – when the same participants are quarreling over the relative abilities of breeds to catch mice – you may not find it worthwhile contributing, because the topic bores you. And you may be far less generous in your contributions to rec.pets.dogs. You value the discussion on dogs, and catching mice, much less than a discussion on tomcats, so you’re not willing to make a contribution. This would be “selling” your writing cheap; but when you get feedback on tomcats in exchange for your post, it’s the right price.

This example may seem somewhat contrived, but only because decisions on when and where to post a message or participate in on-line discussions are taken all the time, so often that they’re barely noticed as actual decisions. In a knowledge economy, however, the decision to write and freely distribute your note on cats rather than dogs is no less an economic one than is the decision to order Chinese take-out instead of pizza in the “real world”. Both are a question of resources allocation – your time and effort in one case, your money (which actually represents your time and effort) in another.


Unlike noodles and bread, readers on Internet newsgroups don’t come with price-tags pinned on, so common-place decisions involving your on-line acts of production require that you figure out the relative values of what you get and what you give, all the time. Others are figuring out the worth of your contribution all the time, too. Life on the Internet is like a perpetual auction with ideas instead of money.

That note on your tomcat probably does not deserve the glorious title of idea; certainly the warm feeling that you got in exchange for posting it – when people responded positively and flocked to your homepage to see pictures of your cat – couldn’t possibly be classed with “real ideas” (such as the one to black out the Web in protest against the CDA [14]). Still, for the sake of convenience the subjects of trade on the Net can be categorised as idea (goods and services) and reputation (which when enhanced causes all those warm, satisfied feelings, and more tangible benefits too).

Ideas are sold for other ideas or an enhanced reputation; reputations are enhanced among buyers of ideas, and reputations are themselved bought and sold all the time for other reputations, as we shall see later. The basic difference is that reputation (or attention) is, like money, a proxy. It is not produced or consumed in itself, but is a by-product of underlying production of actual goods (“ideas” in our binary terminology).



Two sides to a trade

Unlike the markets of the “real world”, where trade is denominated in some form of money, on the Net every trade of ideas and reputations is a direct, equal exchange, in forms derivative of barter. This means that not only are there two sides to every trade as far as the transaction of exchanging one thing for another goes – which also applies to trades involving money – there are also two points of view in any exchange, two conceptions of where the value lies. (In a monetary transaction, by definition, both parties see the value as fixed by the price.)

As the poster of notes on tomcats, the value of your posting something is in throwing your note into the cooking-pot of participatory discussion that is rec.pets.cats and seeing what comes out. As the author of a page on cats, what you value in exchange for your words and photographs is the visits and comments of others. On the other hand, as a participant on rec.pets.cats I value your post for its humour and what it tells me to expect when my kitten grows up; as a visitor to your Web page I learn about cats and enjoy pretty pictures.

When I buy your book about cats, it’s clear that I am the consumer, you the producer. On the Net, this clear black-and-white distinction disappears; any exchange can be seen as two simultaneous transactions, with interchanging roles for producer and consumer. In one transaction, you are buying feedback to your ideas about cats; in the other, I am buying those ideas. In the “real world” this would happen in a very roundabout manner, through at least two exchanges: in one, I pay for your book in cash; in the next, you send me a cheque for my response. This does not happen very often! (The exception is in the academic world, where neither of us would get money from the Journal of Cat Studies for our contributions; instead our employers would pay us to think about cats.)

As soon as you see that every message posted and every Web site visited is an act of trade – as is the reading or publishing of a paper in an academic journal – any pretense at an inherent value of economic goods through a price-tag is lost.

In a barter exchange the value of nothing is absolute. Both parties to a barter have to provide something of value to the other; this something is not a universally or even widely accepted intermediary such as money. There can be no formal price-tags, as an evaluation must take place on the spot at the time of exchange. When you barter you are, in general, not likely to exchange your produce for another’s in order to make a further exchange with that. Unlike the money you receive when you sell something – which you value only in its ability to be exchanged for yet another thing – in a barter transaction you normally yourself use, and obviously value, what you receive.

When the contribution of each side to a barter is used directly by the other, it further blurs the distinction between buyer and seller. In the “real world” barter did not, of course, take place between buyer and seller but between two producer-consumers in one transaction. When I trade my grain for your chicken, there’s no buyer or seller, although one of us may be hungrier than or have different tastes from the other. On the Internet, say in the Linux world, where it may seem at first that there’s a clear buyer (the Times of India) and an equally clear, if aggregate seller (the Linux developer community) there is, in fact, little such distinction.

Just as the existence of the thousands of independent Linux developers are valuable to the newspaper because they are also users of the product – and may face similar problems – other Linux developers welcome the Times of India because how it faces its problems could help them as Linux users. As Torvalds says, ” [t]here are lots of advantages in a free system, the obvious one being that it allows more developers to work on [Linux], and extend [Linux].” However, “even more important” is that making Linux free brought “in one fell swoop … a lot of people who used it” – not just reporting problems, but playing a crucial role in the further development of the system. Torvalds notes that a single person or organisation “doesn’t even think of all the uses a large user community would have for a general-purpose system” – so the large user base of Linux was “actually … a larger bonus than the developer base.”

Of course Linux is far from being the only software product that blurs the producer-consumer divide. Much software – even the kind sold by companies for money – is now highly dependent on user feedback. This feedback is not just to give the producer information on market needs – which is not normally thought of as something consumers can barter with – but for testing and sometimes fixing technical problems with programs. Netscape has had a public campaign to encourage users to find bugs in their code – which were traditionally, and expectedly, scanned for and fixed within software companies. So “real world” companies also often buy from their customers even as they sell.

(When it starts giving its source code away free, Netscape will encourage users to fix bugs too, and in general to become developers. It will become a company grown even closer buying from its customers than most.)



Can you eat goodwill?

Perhaps you will agree that when you next post a note on cats, you’re not giving away something for nothing. But what you get in return is often pretty intangible stuff – satisfaction, participation in discussion and even answers to cat-related questions are all very well, and may be fair exchange for your own little notes, but don’t seem substantial enough to make much of an economy. As for Linux – it’s fine to talk about a large base of user-developers all helping one another, but what has all this brought Linus Torvalds? Although Linux did get vastly improved by the continuing efforts of others, none of this would have happened without Torvalds’s original version, released free. Assuming that he’s not interested in Linux as a hobby, he’s got to make a living somehow. Doesn’t he seem to have just thrown away a great product for nothing?

First, let’s see what intangible “payment” Linux brought. In the circles that might matter to Torvalds’s career, he’s a sort of god. Most of the technology of the Internet, including tools such as Linux, HTML (the language of the Web) and the Web server Apache (with 45% of the total market, enough for Bill Gates to call it Microsoft’s “biggest competitor” [15]) have been developed and distributed without payment. As government and academic participation declined as a proportion of the total Internet developer community, most recent “free” technology has not been subsidised, either. The main thing people like Torvalds get in exchange for their work is an enhanced reputation. So there are, in fact, lots of Net gods.


Net gods get hungry, though, and reputation doesn’t buy pizzas. So what does Torvalds do? As it turns out, he was still in the University of Helsinki (in October 1996, when I first interviewed him; he’s now with an American company where “it’s actually in [his] contract that [to do] Linux part-time”). “Doing Linux hasn’t officially been part of my job description, but that’s what I’ve been doing,” he says. His reputation helped – as Torvalds says, “in a sense I do get my pizzas paid for by Linux indirectly.”

Was this an academic sense, perhaps? Is Linux, then, just another of those apparently free things that has actually been paid for by an academic institution, or by a government? Not quite. Torvalds remained in the University out of choice, not necessity. Linux has paid back, because the reputation it’s earned him is a convertible commodity. “Yes, you can trade in your reputation for money,” says Torvalds, ” [so] I don’t exactly expect to go hungry if I decide to leave the University. ‘Resume: Linux’ looks pretty good in many places.”



Is reputation a convertible currency?

Suppose you live in a world where people trade chicken and grain and cloth – a very basic economy indeed! Suddenly one day some strangers appear, and offer to sell you a car; you want it, but “Sorry,” says one of the strangers, “we don’t take payment in chicken; gold, greenbacks or plastic only.” What do you do? It’s not hard to figure out that you have to find some way to convert your chicken into the sort of commodities acceptable to car dealers. You have to find someone willing to give you gold for your chicken, or someone who’ll give you something you can trade in yet again for gold, and so on. As long as your chicken is, directly or indirectly, convertible into gold, you can buy that car.

What holds for chicken in a primitive barter economy holds also for intangibles such as ideas and reputation in the part of the economy that operates on the Internet [16]. And some of these intangibles, in the right circumstances, can certainly be converted into the sort of money that buys cars, leave alone pizzas to keep hunger away. This may not apply to your reputation as a cat enthusiast, though; it may not apply to all software developers all the time, either.

In the primitive barter economy, trade is limited to basic commodities with only the occasional car thrown in, Not everyone will want to buy cars, however rich they may be in grain and cloth. Much of their earnings will go back into buying more basic commodities; only some of it will be converted into car-buying things like gold. Then again, only some people at some times will be able to find the right sequences of trades to convert chicken into gold, which may depend on context and the general demand for such unusual things in the economy.

On the Internet – indeed in any knowledge economy – it is not necessary for everything to be immediately traded into “real world” money. If a significant part of your needs are for information products themselves, you do not need to trade in your intangible earnings from the products you create for hard cash, because you can use those intangibles to “buy” the information you want. So you don’t have to worry about converting the warm feelings you get from visits to your cat Web page into dollars, because for your information needs, and your activities on the Net, the “reputation capital” you make will probably do.

“The cyberspace ‘earnings’ I get from Linux,” says Torvalds, “come in the format of having a network of people that know me and trust me, and that I can depend on in return. And that kind of network of trust comes in very handy not only in cyberspace.” As for converting intangible earnings from the Net, he notes that “the good thing about reputations … is that you still have them even though you traded them in. Have your cake and eat it too!”

In 1990, Colin (Col) Needham was a research engineer for “a major US computing company which has a large industrial research facility in the UK.” [17] What on earth was he doing developing the Internet Movies Database, which quickly became perhaps the most comprehensive source of data on films anywhere? [18]

“I started the database as a fun activity back in 1990,” says Needham. “There was already a list of actress filmographies being posted” – by the Net’s ubiquitous hobbyists who don’t want to charge for the work they do – “to [the USENET newsgroup] rec.arts.movies and I added to that by creating a companion actors list just for a little bit of fun combining movies and computing.”

I never believed that people could do so much work just for “fun”. Yet it’s the most common reason I have always seen for anything of value produced on the Net. Some of these people, including Needham and Torvalds, spend several hours a day, forgetting to sleep, writing programs and creating articles and Web pages. Fun?

For close to three years, I have been publishing frequent articles on the Internet, analysing the Indian telecom and broadcasting markets. Unlike the weekly column that inspired this book, my analyses are published on-line only, and don’t even get the fees Indian newspapers pay. True, I enjoy doing this, as I have enjoyed my prolific posts to various discussion groups over the years, but none of this has been just fun. But I have to admit that it takes a while to get to more substantial reasons for the Internet’s huge productivity. After all, few people think of economics while developing free resources on the Net, and since they’re not getting paid for it, the first answer that pops up to the question “why am I doing this?” is Fun.

But there’s more. “The original motivation,” says Needham later, “and [the] sustained motivation right through to today was just to put something back into the Internet community in one small way … [it’s just that] over the years it turned into a bigger way!” Now that’s more like it. Putting something back into the Net seemed not much clearer than “fun” at first, but it is at least a sign that there is something Needham, like all of us, took out of the Net in the first place.


There is, here, the first glimpse of a process of give and take, by which people do lots of work on their creations which are distributed not for nothing, but in exchange for things of value. People “put it” to the Internet because they realise that they “take out” from it. Although the connection between giving and taking seems tenuous at best, it is in fact crucial. Because whatever resources there are on the Net for you to take out, without payment, were all put in by others without payment; the Net’s resources that you consume were produced by others for similar reasons – in exchange for what they consumed, and so on. So the economy of the Net begins to look like a vast tribal cooking-pot, surging with production to match consumption, simply because everyone understands – instinctively, perhaps – that trade need not occur in single transactions of barter, and that one product can be exchanged for millions at a time. The cooking-pot keeps boiling because people keep putting in things as they themselves, and others, take things out.

Torvalds points out, “I get the other informational products for free regardless of whether I do Linux or not.” True. But although nobody knows all the time whether your contribution is exceeded by your consumption, everyone knows that if all the contributions stopped together there’d be nothing for anyone: the fire would go out. And that wouldn’t be fun at all.

Needham was a film buff, and had reason to put back into the section of the Internet that fed his interest in films. He had no plans to trade in the reputation capital the IMDb earned him for money, at first, because he had a job and was using his “reputation earnings” as brownie points, of sorts, in the on-line world of film. His intangible wealth was being used as a ticket to the consumption of intangibles, similar to the chicken-breeder’s spending on grain and cloth, but not cars, in the primitive barter economy.

In contrast, Rob Hartill, who developed the software for the Web version of the IMDb, and has maintained the Web version since its inception, is a self-described “computer junkie”. Indeed, he’s better known now one of the core developers of the free Web server, Apache [19]. As for movies, he says, “I like watching films when I get the chance, but I don’t take it seriously; no video collection, no LD player, no movie books.” [20] He didn’t have much reason to put anything into the Internet – at least, not into its movie-loving parts. Nor could the reputation of having worked on the “greatest possible entity” that Needham sees as the IMDb be much good to Hartill; why should a computer junkie care about what film buffs think of him?

Of course, the work Hartill was extremely computer-related. “I loved the idea of database being available to jog my memory and generally just be there to play with,” he says, so “fun” was important for him too! “For me, the Web was a new media [sic] that hadn’t been exploited for anything interesting,” so Hartill was, naturally enough, willing to develop an interesting application with a lot of effort, in order to give it away. Someone had put the new medium of the Web into the Net, Hartill felt obliged to put in something himself. “I was looking for things to do with the Web … and I just happened to have the [movies] database sitting in my filespace.” So his involvement with movies was coincindential; what Hartill was putting into the Net concerned his area of work and interest, programming for the Web. Indeed, “if it hadn’t been the IMDb,” says Hartill, “I’d have burnt my eyes out with some other programming project I’m sure.”

Hartill, unlike Torvalds, then decided to cash in on the reputation capital his contribution to the IMDb earned him, perhaps answering those who asked “ask why on earth I spent so much time working on [IMDb] for no apparent gain.” He went to work at Los Alamos National Laboratories. “My boss at Los Alamos hired me on the basis of what he’d seen of the IMDb” – which was pretty famous, and very popular, by that time. Hartill’s contribution to it was well known, so “I didn’t have an interview or even talk to [Los Alamos] on the phone before meeting him on my first day [at work].”

But the IMDb, to use Needham’s words, “snowballed.” It has now grown so big, that Needham is working on it full-time, as are Hartill and several others with whom they formed a company. IMDb is still free, and still relies on inputs from readers – like the original version, based on the content of rec.movies.reviews. The motivation to develop it further, according to Needham, is not very different from what it was originally – “it’s seeing what the database has become and means to hundreds of thousands of users and the challenges of taking it forward which motivate me.” However, the fact that Needham and Hartill have formed a company to work on the database full-time means that IMDb has to be their source of real income. It is not enough for IMDb to earn intangibles such as reputation to meet their needs for intangible information products on the Net; Needham and Hartill now need their work to make some real money, tradable in the economy outside the Net. As Needham adds parenthetically, “of course I now have [the] added motivation that if we fail then my wife and kids starve too.” Reputation capital can help earn tangible monetary returns: IMDb now takes paid advertising.



Cooking-pot markets

One can attempt to estimate the monetary value of the static resources of the Internet. This could be extended to software systems such as Linux, even though this not truly a static resource as much of its value lies in the organisation of its developer community, rather than any single copy of the operating system software.

For instance, calculating that since Linux users have, on average, much fancier hardware than Windows users and could therefore pay more for the software, the 5 million-odd estimated installed base of Linux is worth some $500 million in annual revenues. (This sort of valuation is faulty, as not everyone who uses free sofware would buy a full price version; however, the Business Software Alliance uses the same method to calculate losses through software piracy, where the same caveat applies.) The Apache Web server if paid for in cash ought to have revenues exceeding $500 million, given its commanding technical and market lead over regular commercial software.

Such valuations may be imprecise and controversial – I could using similar estimates give a figure of at least $50 billion as the notional revenues of “free” resources on the Net – but at least they can be reasonably attempted using statistical valuation methods not altogether unfamiliar to analysts of brickspace markets. Using the Net, though, has made it quite clear that the real worth is in dynamic resources, the communities of people that make up much of the value of even the “static” software on- line. The worth of dynamic resources is exceedingly hard to quantify, particularly since, like communities in the “real world”, they are riven with intangibles. Try calculating the worth in dollars of, say, your neighbourhood watch community; or your old-boys’/girls’ network; or simply the folk you hang out with to discuss politics (perhaps even economics!). Not easy, maybe impossible.

Yet a rough estimate of the importance of dynamic resources is possible: just figure out how much of your energy on the Net is spent in interacting with other people – through discussion groups, interactive Web sites or sites where you give feedback, on-line chat, e-mail – and compare this with the time spent simply reading static Web pages. Until recently on the Net it was universally the case that people spent most of their time interacting with others; now with the explosion of new content, and new people who are still finding their way around, the ratio may not be so high, but I expect that it will always be, in the long run, the Net’s dynamic resources that are most valuable.

If dynamic resources are the most difficult to evaluate, they are also the most intangible to trade in. Yet whenever you post to rec.pets.cats this is what you’re doing: trading in dynamic resources, in your post- of-the-moment that is valuable temporarily, while your value remains. The workings of this system of trade stem from the same motivation of “fun” present when Colin Needham developed the Internet Movies Database – which, built upon newsgroup discussions, is half-dynamic. It is Needham’s need to “put back” into the Net after having “taken out” so much that drives most trade in dynamic resources. It is the cooking-pot market of a seemingly altruistic value-in-giving norm that drives the economy of interacting people.

If it occured in brickspace, my cooking-pot model would require fairly altruistic participants. A real tribal communal cooking-pot works on a pretty different model, of barter and division of labour (I provide the chicken, you the goat, she the berries, together we share the spiced stew). In our hypothetical tribe, however, people give what they have into the pot with no guarantee that they’re getting a fair exchange, which smacks of altruism.

But on the Net, a cooking-pot market is far from altruistic, or it wouldn’t work. This is thanks to the major cause for the erosion of value on the Internet – the problem of infinity [21]. Because it takes as much effort to distribute one copy of an original creation as a million – and because the costs are distributed across millions of people – you never lose from letting your product free in the cooking-pot, as long as you are compensated for its creation. You are not giving away something for nothing. You are giving away a million copies of something, for at least one copy of at least one other thing. Since those millions cost you nothing you lose nothing. Nor need there be a notional loss of potential earnings, because those million copies are not inherently valuable – the very fact of them being a million, and theoretically a billion or more – makes them worthless. Your effort is limited to creating one – the original – copy of your product. You are happy to receive something of value in exchange for that one creation.

What a miracle, then, that you receive not one thing of value in exchange – indeed there is no explicit act of exchange at all – but millions of unique goods made by others! Of course, you only receive “worthless” copies; but since you only need have one copy of each original product, every one of them can have value for you. It is this assymetry unique to the infinitely reproducing Internet that makes the cooking-pot a viable economic model, which it would not be in the long run in any brickspace tribal commune.

With a cooking-pot made of iron, what comes out is little more than what went in – albeit processed by fire – so a limited quantity must be shared by the entire community. This usually leads either to systems of private property and explicit barter exchanges, or to the much analysed “Tragedy of the Commons.” [22]

The Internet cooking-pots (in the plural, as it turns out, an examination of which is beyond the scope of this paper) are quite different, naturally. They take in whatever is produced, and give out their entire contents to whoever wants to consume. The digital cooking-pot is obviously a vast cloning machine, dishing out not single morsels but clones of the entire pot. But seen one at a time, every potful of clones is valuable to the consumer as the original products that went in.

The key here is the value placed on diversity [23], so that multiple copies of a single product add little value – marginal utility is near zero – but single copies of multiple products are, to a single user, of immense value. If a sufficient number of people put in free goods, the cooking pot clones them for everyone, so that everyone gets far more value than was put in.

An explicit monetary transaction – a sale of a software product – is based on what is increasingly an economic fallacy that each single copy of a product has marginal value. In contrast, the cooking-pot market rightly allocates resources on the basis of where consumers see value to be, in each distinct product.



A calculus of reputation

A crucial component of the cooking-pot market model is reputation, the counterpoint to ideas. Just as money does not make an economy without concrete goods and services, reputation or attention cannot make an economy [24] without valuable goods and services, which I have called “ideas”, being produced, consumed and traded.

Like money, reputation is a currency, i.e. a proxy, which greases the wheels of the economy. Monetary currency allows producers to sell to any consumer, without waiting for the right one to offer a needed product in barter exchange. Reputation encourages producers to seed the cooking-pot by providing immediate gratification to those who aren’t prepared to pull things out of the pot just yet, or find nothing of great interest there, and keeps the fire lit.

Money also provides an index of value that aids an understanding not just of individual goods (or their producers), but the entire economy. Reputation, similarly, is a measure of the value placed upon certain producer-consumers – and their products – by others. The flow and interaction of reputation is a measure of the health of the entire cooking-pot economy.

Unlike money, reputation is not fixed, nor does it come in the form of single numerical values. It may not even be cardinal. Moreover, while a monetary value in the form of price is the result of matching demand and supply over time, reputation is more hazy. In the common English sense, it is equivalent to price, having come about through the combination of multiple personal attestations (the equivalent of single money transactions).

Money wouldn’t be the same without technology to determine prices. Insufficient flow of information required for evaluation, and insufficient technology to cope with the information, has always been responsible for the fact that the same thing often have the same price across all markets.

The management of reputation is far too inefficient today to be a useful aspect of a working economy. Its semantics are poorly understood; moreover, there is nothing remotely akin to the technology that determines prices based on individual transactions in the monetary economy.

In a forthcoming paper I examine the calculus of reputation networks, especially as they would work in a cooking-pot market, and describe a possible technological solution to the problem of efficient reputation management.




The common assumption that the Net feels at home with free goods and vague trade because its population is averse to money, altruistic or slightly demented is wrong. It is becoming more obviously so as floods of “normal” people arrive from the world outside, and initiate themselves into the ways of the Net.

An economic model based on rational self-interest and the maximisation of utility requires the identification of what is useful – sources of value – as well as a method of expressing economic interaction. In the cooking-pot market model, it is seen that while scarcity creates value, but value is subjective, and may therefore be found in any information at all distributed on the Net.

The cooking-pot model provides a rational explanation for people’s motivations to produce and trade in goods and services, where a monetary incentive is lacking. It suggests that people do not only – or even largely – produce in order to improve their reputation, but as a more-than-fair payment for other goods – “ideas” – that they receive from the cooking-pot. The cooking-pot market is not barter, as it does not require individual transactions. It is based on the assumption that on the Net, you don’t lose when you duplicate, so every contributor gets much more than a fair return in the form of combined contributions of others.

Reputations, unlike ideas, have no inherent value; like money, they represent things of value, as proxies. Reputations are crucial to seed the cooking-pot and keep the fire lit, just as money is required to reduce the inefficiencies of pure barter markets. However, reputations require a calculus and technology for efficient working, just as money has its price-setting mechanisms today.

The cooking-pot model shows the possibility of immense value being generated through the continuous interaction of people at a numbing speed, with an unprecedented flexibility and aptitude towards intangible, ambiguously defined goods and services. The cooking-pot market already exists, it is an image of what the Internet has already evolved into, calmly and almost surreptitiously, over the past couple of decades.

The cooking-pot model is perhaps one way to find a rationale for the workings of the Internet – and on the Net, it finds expression everywhere.

About the author


About the author

Rishab Aiyer Ghosh (rishab@dxm.org) is Managing Editor for First Monday.





2 Rishab Aiyer Ghosh, 1994. “The rise of an information barter economy”, Electric Dreams, #37 (21 November), athttp://dxm.org/dreams/dreams37.html



http://www.genmagic.com/Internet/Tr ends

6 Rishab Aiyer Ghosh, 1995. “Implicit transactions need money you can give away”, Electric Dreams, #70 (21 August), at http://dxm.org/dreams/dreams70.html

7 see, e.g. Linux distributed by Red Hat Software, Inc – http://www.redhat.com

8 This, and other quotes from Torvalds, are from e-mail dialogues held with the author since October 1996. A consolidated version is published as an interview in this issue of First Monday.

9 Credited to John Perry Barlow.

10 Electric Dreams, http://dxm.org/dreams/

11 Rishab Aiyer Ghosh, 1995. “Paying your readers”, Electric Dreams, #67 (31 July), athttp://dxm.org/dreams/dreams67.html

12 Paul A. Samuelson and William D. Nordhaus, 1995. Economics. 15th ed. New York: McGraw-Hill.

13 http://www.timesofindia.com

14 Or the similar Blue Ribbon campaign, see http://www.eff.org/blueribbon.html

15 Tim Clark, 1996. “Gates: Explorer will be huge”, C-NET News (August 1), at http://www.news.com/News/Ite m/0,4,2009,00.html

16 Rishab Aiyer Ghosh, 1995. “Implicit transactions need money you can give away”, Electric Dreams, #70 (21 August), at http://dxm.org/dreams/dreams70.html

17 Needham’s quotes are from private correspondence on file with the author.

18 http://www.imdb.com/

19 http://www.apache.org

20 Hartill’s quotes are from private correspondence on file with the author.

21 Rishab Aiyer Ghosh, 1995. “The problem with infinity”, Electric Dreams, #63 (19 June), athttp://dxm.org/dreams/dreams63.html

22 Garrett Hardin, 1968. “The Tragedy of the Commons,” Science, Volume 162, pp. 1243-1248, and athttp://dieoff.org/page95.htm

23 Rishab Aiyer Ghosh, 1995. “Trade reborn through diversity”, Electric Dreams, #65 (10 July), athttp://dxm.org/dreams/dreams65.html

24 On the importance of attention, see Michael Goldhaber, 1997. “The Attention Economy: The Natural Economy of the Net”, First Monday, Volume 2, issue 4, http://www.firstmonday.org/issues/issue2_4/goldhaber/index.html

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