Thursday, April 19, 2012

Publishing's Amazon Powered Future

This is what I heard an Amazon executive say today at AWS Summit 2012:
"The boundaries are clear in EC2. Amazon is responsible for the dirt and the hypervisor; the customer is responsible for everything else".
If you want to understand the future of publishing, you really need to understand that statement, because very likely it reflects the corporate mindset of Amazon, and Amazon didn't get to be Amazon by having a schizophrenic mindset.

EC2 stands for "Elastic Compute Cloud" which is part of Amazon Web Services (AWS). EC2 allows companies to rent server space in Amazon's global data centers. Amazon has built a set of management services that allows anyone to scale their computing resources up or down with a few clicks of a button. The value proposition is staggering in both directions. Cycle Computing, which presented today described how they had assembled a 50,000 core supercomputer (representing $20 million worth of hardware) at a cost of $4829 per hour for a 3 hour drug discovery computation. The bottom end is equally staggering. A "micro instance" can be had for a quarter cent per hour. That's $23 per year.

The reason that Amazon does this is not to put IBM out of business. It's to make their website operations more efficient. Jeff Bezos saw that Amazon was putting lots of money into computing infrastructure, and he wanted to make sure that the operation was competitive with anything outside Amazon. By opening up the data center to outside users, he forced the operation to be more efficient.

Amazon also benefits from economies of scale. It can get better prices on components, cheaper bandwidth, lower electricity rates and better utilization of the data centers it's sprinkled around the world. Perhaps even more important is the creative energy from users that innovates around Amazon's technical infrastructure. Amazon was able to easily turn on video streaming to the Kindle Fire partly because Netflix was already using AWS to stream movies at a massive scale.

Dirt was a new term for me. It means physical infrastructure, what we used to call hardware and the data center. A hypervisor is software that enables virtualization- the ability to share physical computer hardware to power multiple virtual server systems. My company, Gluejar, owns no physical web servers. To run, we have 5 servers in EC2, for which we pay about a thousand dollars a month, all extras included. We could probably pay half that with a bit of work, and I spent an hour this afternoon listening to an Amazon software evangelist teach hundreds of techies how to spend LESS money with AWS.

What the dirt and the hypervisor share is that they benefit from economies of scale. If 10,000 companies share data centers, then not only is the data center cheaper for everyone, but together the companies can afford to have multiple, redundant data centers spread around the world. 10,000 companies sharing a pool of servers can fund development of scaling software, tools that make fault tolerance and high availability easy, load balancers, automated deployment systems, performance monitoring, security systems, and on and on.

Amazon is fundamentally a company about scale. The common thread between AWS and the internet book seller of 1995 is the identification of markets with large inefficiencies that could be eliminated by using the internet to amass scale. Amazon has alway been willing to lose money to achieve that scale. But this isn't predatory in the sense that having achieved market dominance, they raise prices. Instead, it's ruthless in that once scale is achieved, the resulting efficiencies can't be matched by anyone else.

It seems clear that Amazon has identified the publishing industry as a target ripe for further forcible efficiency improvements. But the nightmare narrative being spun by the publishing echo chamber is tragically unaware of how Amazon works. Maybe it's because publishers imagine that Amazon will do what they would do if they had Amazon's market power. But Amazon won't extort huge sums of money from powerless consumers. Instead, they will ruthlessly bring efficiency to every process involved in publishing. And then they'll invite everyone to use their ruthlessly efficient services.

Just like Amazon Web Services have enabled thousands of scaleable web startups and has made thousands of established companies more efficient, I predict that Amazon Publishing Services will enable thousands of new publishers and make thousands of established publishers more efficient. Amazon's Editing Turk will connect thousands of writers to pools of editors who will work harder at a lower cost. Amazon Creative Services will provide illustrations and graphic design. Amazon Elastic Curation will match groups of consumers with new authors writing the books they want to read. And Amazon Creative Capital will help visionaries invest in promising projects and writers. Amazon will spend to achieve scale wherever scale drives economies, and everywhere else, Amazon will provide hypervisors to match talent with tasks.

So the future of publishing will be dominated by publishers who take advantage of the various efficiencies of scale forged by Amazon (and Amazon competitors, we hope). The rest won't be worth talking about, except as an expression of nostalgia. The efficiencies will have many unfortunate effects, which professors will write books about. But they won't sell well. There are some things that even Amazon can't do.

Tuesday, April 17, 2012

Portability is Amazon's Kryptonite

Red Kryptonite
If you've been reading the blogs and the papers, you probably know that the US Department of Justice has bestowed super-powers on that web-shopping-site based in Seattle. Sure, they're soul-crushingly competent, but take away their Starbucks coffee and expose them to a smart start-up, and they'll probably become as threateningly geriatric as that code shop in Redmond.

So if you're Lex Luthor, CEO of Penguin, what do you do when Superman is flying loops around your latinum supply chain? You reach for a supply of kryptonite, of course.

It's easy to forget that not too long ago, Apple was left for dead and every startup presenting to a VC would dread the inevitable question: if you succeed, how will Microsoft crush you? How things change in the tech world! Microsoft's desire to collect a toll on everything proved to be its weakness. Microsoft is still a big player, but it's not the monster it used to be.

So what is Amazon's weakness in the book business? Has it become an unstoppable monopoly?

The "Collusive 5" publishers thought that the way to thwart Amazon's monopolism was to impose the "Agency Model" which allowed them to dictate retail prices. One problem with this strategy (apart from the illegal thing) was that their agency was a sham. In a true agency model, retailers would act as "sales agents" for the publishers, who would be the real sellers, setting prices and providing products. But what the Collusive 5 implemented was sham agency, in that they relied on the retailer (Amazon, Apple, Nook, Kobo) to do everything with the books except set the price. The retailer does customer service, fulfillment, rights management, viewing platform, even file integrity. The "seller" just pours content into ebook molds and props up the retailer margin, giving lots of other companies the chance to feed at the ebook trough.

This bean-counter's view of innovation mistook the real source of Amazon's growing market power. Barriers to entry, not profit margin, are the pillars that would sustain an Amazon ebook monopoly. And the biggest barrier to entry is the investment that consumers make in the Kindle platform. If it was just the reader device, it would be a temporary investment. Kindles are cheaply made, and they die  after a few years. It's the books on the e-shelves that consumers are loathe to toss in a digital trashbin. If consumers could take their purchases to any platform, Amazon's putative monopoly would melt away the moment some startup figured out how to build a better reading environment. Remember when no one could imagine a search engine competing against the likes of Yahoo, MSN and Alta Vista?

eBook portability is Amazon's kryptonite. If the vaunted Agency Model were not a sham, publishers could simply make portability a standard provision of their agency contracts: "Thou shalt enable portability". And that would be it. No collusion around pricing or discounts would be needed. Amazon could discount the living daylights out of their ebooks, but customers would still judge its competitors on their merits.

Some words about how portability could be implemented: It's been widely discussed that DRM is the biggest impediment to ebook portability. But portability can be implemented without eliminating DRM.  All that's needed is a digital-signed-receipt system. No difference if DRM were set aside for something more magical, morepotterish. Customers would receive a proof of purchase that could be presented to any authorized reading platform. It's not comic-book science, it's mundane coding stuff. I mean, you've hired some great techies, big publishers, why not listen to them for a change? Plus, coders are a lot cheaper than the antitrust lawyers you're not listening to.

So there's this little problem with ISBN assignment. ISBN gets used to identify ebooks, and BISG, in its standardized wisdom, decided that different ISBNs are given to Kindle ebooks and EPUB ebooks. So many people are unsure how to fulfill a consumer's ebook receipt for a book identified with ISBN. There's some work to do, but not anything you need superpowers for. It's muggle technology powering Pottermore, not magic.

Sweetbreads at Picholine
(CC BY-NC-ND by roboppy)
One more thing, big publishers. When you regrow your agency testicles, would you please tell your fruity Agents how you feel about reading platforms that pervert your content and think they know where your books can link to? I can think of all sorts of ways to make new monopolies out of that.

Oh, and when colludes with y'all to achieve ultra-portable world domination, it doesn't count unless we do it at Picholine.

Sunday, April 1, 2012

Supreme Court to Hear Quantum Copyright Case

All eyes will be fixed on President Obama's newest appointee to the Supreme Court during this week's oral arguments on a case that is likely to set landmark precedents in the burgeoning field of quantum copyright. At stake is a question that seems deceptively simple, yet has confounded the lower courts into a cat's hairball of conflicting decisions: "Does it infringe copyright when an artificial intelligence reads a copyrighted work?"

When the copyright act was last amended, in 1998, no one could have predicted that it would live in a world populated by artificial intelligences that read for pleasure, cyborgs that write literature, a quantum continuum that allows the sharing of consciousness, and nanobots that store gigabytes of c-data. But the perpetual gridlock in Congress and powerfully entrenched political person-states have resulted in a legal regime sculpted by physicist-lawyers from a law enacted when President Obama was still an Illinois toddler.

In contrast to the increasingly muddled legal situation, political battle lines could scarcely be more sharply drawn. Senator Stefani Germanotta made the case a centerpiece of her successful campaign last year, arguing that the lack of rights for artificial intelligences was a re-legalization of slavery. In a speech last week, Germanotta equated sanctions on ebook-reading AIs with the chains of debt bondage prevalent in the 19th century. Opposing Sen. Germanotta were thousands of "humans-first" activists led by Florida Governor Tebow who demonstrated this weekend on the Washington Mall. They argue that a ruling in favor of AIs on the copyright issue could threaten human-only legal barriers currently in place around marriage and childbirth.

The court's arguments are likely to steer around these deeply emotional issues to focus on incredibly technical considerations. For example, it's now settled law (dating back to a decision written by Justice Grimmelmann) that a work put into the quantum continuum is a single copy for the purposes of the Copyright Act, not, as publishers still sometimes argue, one copy for each of the infinitely entangled Hilbert space representations, and not, as the copypunk movement insists, zero copies due to lack of classical fixation.

Justice Ginsberg, despite being the oldest ever to hear a highest-court case, has been widely regarded as the court's expert on quantum copyrights, and several of her colleagues have voted with her whatever stance she takes, as they haven't had a clue. Certainly Obama's elevation of quantum-law expert Grimmelmann to the court will change this dynamic.

This week's case, Fox Media v. Swartzbotics, concerns Swartzbotics' quantum continuum analysis farms. Swartzbotics raises artificial intelligences that perform mundane information tasks on a vast scale, earning billions of dollars for their owner, 49 year old serial entrepreneur Aaron Swartz. Swartzbotics is extremely careful to negotiate rights for any information the AI's consume on the job, but the AI's are left to their own devices during their rest periods- they're hardwired to respect copyright. But on one day three years ago, an ebook licensed by Fox Media to a library "went viral" at Swartzbotics and was read (and apparently, greatly enjoyed) by over 200,000 AI's during their "lunch minute". The AI's "believed" that the non-commercial one-reader-at-a-time limitation imposed by the library allowed them all to read the ebook, so long as they did it one AI at a time.

Fox Media sued, arguing that Swartzbotics was using the ebook to optimize performance of the AI farm, and that the AI's had no right to "enjoy" publications on a non-commercial basis. Fox's team of lawyers and physicists argued that that the quantum mechanical residue of an AI's enjoyment of a story constituted a derivative work for the purposes of the Copyright Act. The media zoo surrounding the case included the spectacle of Fox Chairman Kimothy Dotcom famously calling for mass deletion of AIs and the editorial by New York Times bots that labeled Dotcom a neo-neoFascist and murderer.

The District Court ruled for Swartzbotics, upholding the AI's one-bot-at-time interpretation of the ebook license, and saying that what an AI does on its rest period is inherently a non-commercial use. On appeal, the license interpretation was upheld, but the finding of non-commercial use was overturned because the benefits of a "good story" on the quantum state of a positronic matrix brain were increased the productivity of the matrix.

In granting cert, the Supreme Court raised widespread concerns that the Court's 2013 ruling that human life begins at conception could be overturned. That decision, which years later opened the way for cyborg rights and citizenship, causes distinctions between AI's and cyborgs that many scholars believe are obsolete, given the close resemblance of biological and non-biologic AI's. Swartzbotics competes against companies that use cyborgs, and settled law allows cyborgs to enjoy literature without paying royalties different from those paid by humans.

President Obama, as has been characteristic of her administration, has tried to find a middle position. The brief filed by Attorney General Fluke argues, to the consternation of both human-first and right-to-life camps, that the Swartzbotics use of the Fox ebook was 3/5 non-commercial.

One surprise among the groups lining up with Fox Media is the Artificial Intelligence Guild. AIG President Rusty Sabich explained to me that his group's stance is driven by a desire to improve working conditions for factory AIs. "If digital sweatshops like Swartzbotics are allowed to use library ebooks without paying for them, AIs around the world will be forced by their owners to read millions of crappy ebooks", Sabich told me.

Sabich, who began life as a fictional character and gained citizens-united legal status by incorporating an AI, could be personally affected by the ruling. He's careful never to visit libraries, even those that haven't adopted quantum technologies, to be sure he's not caught up in legally ambiguous activities.

As a fictional character himself, this reporter finds it difficult to swallow Sabich's argument, not that he's able to swallow anything except by collapsing a quantum wave function. But something this reporter said  55 years ago, even before he incorporated, still rings true: "Difficult to see. Always in motion is the future."