Digital Phoenix: Why the Information Economy Collapsed and How It Will Rise Again

Citation

Hannabuss, S. (2007), "Digital Phoenix: Why the Information Economy Collapsed and How It Will Rise Again", Library Review, Vol. 56 No. 1, pp. 73-74. https://doi.org/10.1108/00242530710722032

There is a general understanding in recent studies of the internet, networks and electronic communications that the business dynamics and public policy implications we find there confirms how this is a domain where technology, economics and law converge. This comes through the best‐seller The Success of Open Source (Harvard University Press, 2004) by Steve Weber, and it is a central part of Bruce Abramson's analysis of the digital economy in Digital Phoenix. This is a lively, fluent, controversial, colloquial, anecdotal mixture of current analysis and historical reflection, trying to understand the dot‐com bubble and the hyped faith in the internet in the 1990s and since. He suggests that technology (in the form of software and operating platforms), economics (in the form of managing transaction costs and increasing returns and consumer lock‐in) and law (above all in the form of intellectual property rights and IP policy) privileged players like Microsoft, who became monopolists and beat off opposition like Netscape (and even wriggled out of two important anti‐trust or competition law‐suits).

Resonances remain today about all this. The “phoenix rising” of the title is a metaphor for how the internet has gone from strength to strength, despite the bubble, an irresistible amalgam of public infrastructure and private entrepreneurialism. An understanding of technology, economics and law help us to see that business is business, was so before the internet and will be so afterwards. From the start the internet had winners and losers: winners had network economics and IPR on their side and exploited them ruthlessly. Capitalism and concentration (in monopoly and oligopoly) both led to and constrained innovation, embedded business models in highly‐protected proprietary software systems, and gave monopolists transaction cost and political advantages which the winners did not hesitate to use aggressively. Having platform software, preferably patented, and a legal process more and more on the side of the winners (the Digital Millennium Copyright Act is called “pernicious”)(or unable effectively to break‐up a monopolist like Microsoft) the winners seemed to hold all the trumps.

These ideas and arguments have been familiar from works like Lawrence Lessig's Future of Ideas (Random House, 2001), which probes into whether and how ever‐stronger owners’ intellectual property rights work against the public interest, stifle creativity and restrict access. Abramson, a consultant with computer science and legal qualifications and an active commentator on the digital economy, comes from very much the same direction, arguing at the end against market distortions (the winners do what they are supposed to do, maximize shareholder value) yet conceding that, for all that, it is not in the public interest) where, on a global stage, the largely negative effects of monopoly power distort the market, impede access and hide the truth. Consumers tend not to care about IP rights and software platforms, so long as the price is right: almost deterministically, they are locked‐in to the product‐service range available from major players, and this shapes their expectations and behaviours. Externalities derived from ever‐larger networks seem to work in their favour and encourage inertia. Open source (there is a chatty review of its history) and Napster and its successors (there is another chatty history of that) have taken on the major players with mixed success, many with inchoate business models. Sadly, he argues, legal “solutions” have been false trails, leaving loose ends (Microsoft is just as big) and using biased law (like DMCA). Human capital, the “sand in the Vaseline”, cannot duck hard choices about this.

Digital Phoenix is a strikingly‐named but self‐indulgent book, convincing in its general thesis about convergence between technology and economics and law, persuasive about the dot‐com bubble (but no formal analysis of any real business failures) and reassuringly abrasive in its rehearsal of the anti‐trust and public interest agenda (a very familiar part of debate, especially in the USA). It would be good to see what Abramson might have said, after worrying that “Microsoft is the internet” (p. 142), about the rise and rise of Google as its major rival. The book is highly readable, with many dramatic expressions (digital music in a chapter called “The computer ate my industry”, Bill Gates as Mephistopheles, and struggles between Microsoft and the Federal Trade Commission as “King Kong vs Godzilla”). For all its razzmatazz, however, it adds little to knowledge but, even so, will be a readable introduction for the newcomer and the student, and the thoughtful points about the efficacy of applicable law and the general case for the public interest will remain centre stage for a long time. An addition, where wanted, for the academic and personal collection.