-- Bill Gates during speech at University of Washington
-- Steve Ballmer, 2009 http://www.osnews.com/story/21035
Imagine this thought experiment. Imagine there was a 100% fool proof copy protection scheme in China, and the only way to acquire Microsoft Office would be to buy it. Try to imagine how many people, who make $1000 in a year would then cough up the $495 to buy it?
Its not hard to imagine because there is no manufactured good in China that commands a 'half annual salary' value proposition that is not critical to a person's survival. And Microsoft Office isn't that item.
There is an exemplar that there is a $6M value for Word based on the $2 CDs that sell, so its not 'valueless.' And there are benefits to owning a legitimate copy over a pirated copy. Further, the cost of producing a pirated product (box, CD, getting started guide, etc) is less than $2 so there actually a real-goods sort of economic value analysis possible as well.
So all we really know is that the number is >= $2 and < $495. And in information economics this poses an interesting challenge. How do you capture the maximum value for your information? Microsoft later introduced a plan where Office for this market was significantly less expensive than it was for the US and European markets . That increased the value they extracted for office out of those markets tremendously. It was more than 10x that $1.50 price at $29/CD. And they captured a lot of value for it, millions and millions of dollars. But not billions of dollars.
Many have argued that much of NetFlix's streaming revenue has come from previous BitTorrent users . Prior to NetFlix you could say BitTorrent was a "$xB" problem where $x is the money that has been re-captured by offering an alternative with an acceptable price.
But to understand how that works you have to think about what gives information value, its much more market driven that fiat driven. Sony can say "Its worth $X to own this movie" but if nobody buys it and it is heavily pirated they guessed wrong. Since the replication cost is nearly $0 they really are guessing at consumer value. Lots of DVDs sell for $9.99 or $4.99. At that price I won't even bother looking for a torrent, I'll just get the DVD. Its a market, it has different mechanisms that drive it.
> Since the replication cost is nearly $0
> they really are guessing at consumer value.
The variable costs might be close to $0, but the decision to create the DVD still costs something.
I started writing my experiences with this up but stopped when I went to work for Google on the advice of my lawyer. Its a discouraging thing to write/talk about because without context people think its crazy, so slowly over time, as context develops, and "real world" examples get played out, the notion that information can have its own set of economic principles becomes less foreign because it sure as heck isn't behaving like it "should" if it was bound by the old rules.
Anyway, three ways I've seen so far to add value to information is that its timely, its rare, or its distilled. An example of timely information would be stock trades, very valuable right at the time they happen to high frequency traders, less and less as it gets older until its basically worthless 15 minutes old. Continuing with the stock market 'rare' or 'precious' information might be insider information about a company, it has value because it creates context that others can't see, which gives it a value proportional to the advantage it conveys, and lastly distilled value. Remember our stock market trades? Well they were very valuable 20 milliseconds after they happened, worthless after 15 minutes, but when kept over the course of time new data can be distilled from that old information (like maybe a stock always rises in the third quarter). I discovered at a conference that the intelligence agencies call this last one the 'Mosaic effect' where any single piece of information is useless but together they allow new data to emerge.
Artistic creation however is always the "best" information in terms of value. It can create value greatly out of proportion to the cost to produce it.
Anyway, like I said, I've been thinking about this stuff for 15 years. :-)
That argument ceases to hold in the case of BitTorrent, where the distributors aren't trying to maximize their profit (or make any at all).