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

375 Pages·2005·2.3 MB·English

by  Bruce Abramson

economics/business/computer science
Disentangling the technological, legal, and economic
threads of the story, Abramson argues that the key to
the entire information economy—understanding the past “Digital Phoenixis a brilliant explanation of the law, economics, and technology
and preparing for the future—lies in our approach to behind the information technology revolution—in my view, the best book on
intellectual property and idea markets. The critical this topic on the market.”
challenge of the information age, he says, is to motivate —Robert Litan, Vice President, Research and Policy, Ewing Marion Kauffman
the creation and dissemination of ideas. After discussing Foundation
relevant issues in intellectual property and antitrust
law, the economics of competition, and artificial intelligence “Bruce Abramson has produced a road map for the information revolution that
and software engineering, Abramson tells the information nimbly weaves together insights about the relationships among technology, T
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economy’s formative histories: the Microsoft antitrust law, economics, and politics. He’s a fantastic storyteller, capturing the details M
trial, the open-source movement, and (in a chapter called and significance of such important moments as the Microsoft antitrust case, IT P
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“The Computer Ate My Industry”) the advent of digital the Napster phenomenon, and the battles over free software, while retaining s
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music. Finally, he looks toward the future, examining the swashbuckling flavor of each of these digital adventures.” M
a Why the Information Economy Collapsed
some ways that intellectual-property reform could power —Jonathan Zittrain, Berkman Center for Internet and Society, Harvard ssa ig
c and How It Will Rise Again
economic growth and showing how the information Law School hu it
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eecmopnloomymy ewniltl, rseoschiaeptye, tahned w pauybsl iwce p tohliincky —abhoouwt b tuhsein ess, “The Microsoft antitrust trial, the ascent of Linux, the rise and fall of Napster— tts In l Bruce Abramson
information economy, in fact, can make us all rich, as Abramson not only masterfully retells each of these foundational stories of the stitute Ph While we were waiting for the Internet to make us rich—
consumers and producers, if not as investors. digital economy, he explains why they mattered, how they fit into the ‘New o o
f T back when we thought all we had to do was to buy lottery
Economy,’ and what they portend for the next information technology boom. e e
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m of technology, law, and economics. It unfolded through
wanitdh Cthaern feagciuel tMieesl loofn t.h Hei sU cnoivnesruslittiyn go fa Snodu ltehgearln p Craaclitfiocren,ia “tBhreu cinef oArbmraamtiosno ne choanso wmryit.t Hene alono iknst ebreeysotnindg tahned 1 9hi9g0hsly c ayccclee sosf ihbylep es taonryd of bridge, M Mopiecnro-ssoouftr’cse m paronjiepcutlsa tliioken Loifn suoxf, tawnadr eth mroaurgkhe ttsh,e t hfirleo-usghharing 4/7/05
based in Washington, D.C., focuses on issues related to a A
disillusionment to explain what is really important in this story: the reconfiguring ss b adventures that Napster enabled. Linux and Napster in
the digital economy. a
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of the information flows that form the basis of social, political, and economic hu a particular exploited newly enabled business models to make
lsitfaek. eAs rienv hooluwt iiot nt uisrn isn otuhte. ”making, and Abramson’s book helps to clarify the setts 02 mso isntfroornmg aotpiopno ssihtiaornin fgro cmhe eanpt raenndc heeads yin; tbeortehs tssy isntteemnts omne ptre-
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—Steven Weber, Professor of Political Science and Director of the Institute of •2 n serving their own profits. These scenarios set the stage
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International Studies, University of California, Berkeley, author of The Success ttp for the future of the information economy, a future
of Open Source :// in which each new technology will threaten powerful
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itp incumbents—who will, in turn, fight to retard this
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Author photo by Jamaica Szeliga 0-262-01217-0 du (continued on back flap)
Digital Phoenix

Digital Phoenix
Why the Information Economy Collapsed and
How It Will Rise Again
Bruce Abramson
The MIT Press
Cambridge, Massachusetts
London, England
© 2005 Bruce Abramson
All rights reserved. No part of this book may be reproduced in any form by any
electronic or mechanical means (including photocopying, recording, or informa-
tion storage and retrieval) without permission in writing from the publisher.
Trademarks, brands, and names mentioned in this book are the property of their
respective owners.
MIT Press books may be purchased at special quantity discounts for business or
sales promotional use. For information, please email <special_sales@mitpress.
mit.edu> or write to Special Sales Department, The MIT Press, 5 Cambridge
Center, Cambridge, MA 02142.
This book was set in Sabon by SNP Best-set Typesetter Ltd., Hong Kong and
was printed and bound in the United States of America.
Library of Congress Cataloging-in-Publication Data
Abramson, Bruce.
Digital phoenix : why the information economy collapsed and how it will rise
again / Bruce Abramson.
p. cm.
Includes bibliographical references and index.
ISBN 0-262-01217-0 (alk. paper)
1. Information technology—Economic aspects. 2. Internet—Economic aspects.
I. Title.
HC79.I55A27 2005
303.48¢33—dc22
2005042804
10 9 8 7 6 5 4 3 2 1
In loving memory of my grandparents.
Though they might not have grokked, they certainly would have
kvelled.

Contents
Acknowledgments ix
Prologue xi
1 Net Assets 1
2 Progress of Science and Useful Arts 27
3 Competition and Its Discontents 51
4 The Artificial Science 81
5 Mortal Combat 111
6 Fresh from the Source 171
7 The Computer Ate My Industry 203
8 Down the Rabbit Hole 241
9 Sand in the Vaseline 273
Epilogue 309
Notes 323
Index 349

Acknowledgments
If anyone you know has ever written a book, you know that authors
require a certain amount of indulgence. They also require at least a few
proofreaders to remind them that discretion is often the better part of
valor. Though the list of those who have endured my brainstorming is
too long to enumerate, I would like to thank the smaller list of friends
and colleagues who read portions of earlier drafts and helped me get the
final manuscript into place: Joe Bernstein, Jeff Itell, Cathy Johnston,
and Miranda Xafa. Several anonymous reviewers also provided useful
feedback.
I would also like to thank Charles River Associates Incorporated,
where I was a consultant from 1998 to 2000, a Principal from 2000
to 2003, and which I recently rejoined as a consultant. CRA is a world-
class economic consulting firm that respects academic-style analytic
thinking while providing its clients with valuable expertise and advice.
More to the point, my affiliation with CRA gave me the privilege of
getting to know some of the world’s best industrial organization econo-
mists and antitrust specialists.
That said though, every idea and opinion expressed in this book is
mine and is not to be construed or deemed the opinion or position of
CRA or any of its employees, officers, directors, or consultants. Nor, for
that matter, should anyone attribute any of my ideas to any organiza-
tion, any individual collaborator, or any client with whom I may have
worked in the past or may work in the future.
The expressions of my ideas are also original. In some cases, I found
previous authors who already said what I wanted to say in ways better
than I could say it. In those cases, I quoted the previous authors—always