Some notes on eBay, Amazon.com, and Internet markets in general, plus a batch of recommendations and URL's. The University of California has smiled, and now my department is officially called the Department of Information Studies. We don't know what the phrase "information studies" means either. But it's better than being called, say, "sociology", where you have to fight a lifelong battle of attrition to redefine what the field means. Peter Kollock, coeditor of the valuable new collection "Communities in Cyberspace", spoke in our Information Studies Seminar the other day about his work on the construction of reputation in the eBay online auction site. This is indeed a fascinating phenomenon. To Peter, and to other students of self-organizing social systems, eBay is both an incomparable laboratory and something of a promised land: here you have a reasonably large and complex marketplace that is mostly self-regulating through intensive informational feedback. Of course, everyone understands that it is early days for such schemes, that state attorneys general have become interested in the proportionally few cases of fraud that have been reported so far, that eBay has been tightening its rules in response to those cases, and above all that the same scumbags who keep gaming the Internet's e-mail and banner- ad mechanisms to spread fraud and pornography have yet to descend on eBay in enough numbers to really test the rules there. Nonetheless, we should give credit where it's due: when markets work, they work great. At the same time, we should also take a step back and look at the market for marketplaces: the fact is, eBay is rapidly emerging from the pack and becoming the dominant auction site, to the point where it may well become a monopoly, at least for consumer-oriented auctions. Why is this? Monopolies arise, for the most part, because of structural barriers to entry in the marketplace, and one important barrier to entry is network effects. Sellers go to eBay because it has the largest group of buyers, and buyers go to eBay because it has the largest group of sellers. This suggests that eBay's success is exhibiting the same sort of positive feedback loop that brought us a single (open, high-quality) internetworking standard, as well as a single (closed, lower-quality) personal computer operating system standard. The market in marketplaces, in other words, may function very poorly indeed, at least when reckoned by conventional economic measures. The question then arises of the incentives experienced by a monopoly market-maker. Of course eBay doesn't have an unlimited incentive to rip off its customers. It is bound by contract and by law to a certain extent, and beyond a certain point an influential group of sellers could organize to move en masse to a competitor and take their buyers with them. But economic theory predicts, it seems to me, that a monopoly market-maker will extract rents proportional to its barriers to entry. That is, once eBay finishes its planned advertising campaign and gathers a large enough audience, and once its competitors all tank or discover practicable niches around the periphery, eBay will be able to increase the cut that it takes on the sales that it mediates, or at least it will not be pressed to lower its cut as technology improves. Should this concern us? Perhaps we can't get too exercised about it so long as eBay is mostly selling Beanie Babies and other things that most of us have trouble taking seriously. But what about when it begins to leverage its monopoly into more important, more consequential areas of the marketplace? Economic theory also says that auctions are potentially a more efficient way of selling many things than the fixed-price system to which we are mostly accustomed, and as the Internet makes auctions possible in more and more markets, the structure of the market for auctions will begin to concern us more as well. In response to my analysis of Amazon.com, some people wrote to suggest that the company's stock price is so high because the new wave of Internet-based investors are investing in what they know. This is the standard theory in the business press as well. The problem with this theory is that nobody who knows anything about the Internet would invest in a so-called Internet bookstore that actually *touches the books*. Hello? The great virtue of the Internet is supposed to be price competition: people can compare prices on different sites. And in business as it is conducted on Planet Earth, price competition equals low profit margins, low profit margins equals a bad investment, and low profit margins plus ever-deepening losses plus a much larger competitor who can subsidize his online trades by using his profits from his offline stores plus a stock price that's running at a serious multiple of frigging revenues equals a major short-selling opportunity. Still, part of my discussion of Amazon.com was fouled up because I was trying to simplify the role of distributors, which already handle most of the paper and money. Like most people, I really want to believe that small-batch book printing will revolutionize book distribution, so that books don't ever go out of print, and so than an Amazon.com can just send my book order to a regional printing facility that manufactures both the book and the Fedex package in one step without human intervention, instead of the multiple handling steps that we pay for now. That's the point when the Amazon.com model will have some advantage, and when it be an Internet bookstore in reality, and not just in name. There's a larger pattern here: the world is full of great ideas for business models based on information technology, but those business models often underestimate the extent of the infrastructure that needs to be established in the world before any such business will work. That's one reason why all of these computer industry fashions have gone through such spectacular rises and falls: they are often plausible ideas, but it will be five years, or ten, before they will make anyone rich. Of course, if you think that we are in the midst of an instantaneous total revolution, a rapture-like transformation of the entire productive infrastructure of the world, then you won't even be able to conceive of such a delay. But we're not. Another explanation for the run-up of Internet stocks is that the many investors looking for a quote-unquote "pure Internet play" have so few stocks to choose from. That wouldn't be because the supposedly very entrepreneurial and decentralized Internet industry is in fact highly concentrated, would it? Seriously, someone should gather all of those amateur Internet investors into a room and explain some basic facts to them before they get hurt. One of those facts is that amazon.com is not a way to bet on the success of the Internet. If you want to bet on the success of the Internet, bet on a company that will prosper no matter which Internet applications succeed. Companies like Cisco and the new-generation broadband and long-distance companies are all probably overpriced too, but at least you can make a rational case for them in the long term. See the current issue of Fortune for some other mostly sensible suggestions If you must invest in applications, invest in a company like eBay that benefits from network effects. The online auction space looks pretty crowded, but (as I've just explained) I bet it'll narrow down. Of course, it'll take some years of sustained growth before the real size of the company justifies its current stock price. But at least you can make a rational case. Why do I go into this? The evening after I sent out my amazon.com analysis, it occurred to me that I might have triggered the collapse of civilization. After all, it cannot take much of a pin-prick to burst the absurd bubble of Internet stocks, whose collapse would surely cause enough of a panic to burst the vastly larger bubble of the rest of the overpriced stock market. And when the stock market collapses, the paper wealth of the United States will no longer be available to absorb all of the goods that are pumped out by the excess capacity in the world's industrial system. At that point quite a few economies being kept on artificial respiration by bankers who are practiced at projecting an illusion of control will finally implode, leading to famine and riots and fascism and a new generation of world leaders whose hair is even scarier than Trent Lott's. Fortunately, though, shortly after I sent my message the January 30th issue of the Economist hit the newsstand with the Internet bubble on its cover. Some of the inflated stock prices have since deflated a bit, and the students who have been skipping our classes to engage in day-trading will now hopefully return before they've gambled away their tuition money. So even if civilization does collapse, at least nobody will blame me for it. I will have done my very small part to stop the craziness. Recommended: Peter Weill and Marianne Broadbent, Leveraging the New Infrastructure: How Market Leaders Capitalize on Information Technology, Boston: Harvard Business School Press, 1998. This isn't the sort of book that I normally recommend, with chapter titles like "Identifying opportunities to create value" and "Checking your level of alignment". It's interesting, though, for its methods of construction rationalizations for information technology investments. The usual problem, of course, is that the technical people buy and build stuff that's not rationally connected to the business, and then they start issuing accusations such as "resistance to change" when the stuff isn't useful. The solution, Weill and Broadbent argue, is to construct an elaborate rhetorical scaffolding that connects overall business goals to detailed system requirements, so that the different parts of the company can have an actual conversation about the purpose of the computer systems. This scaffolding is made out of "maxims". For example, a "business maxim" such as "know what is selling and where it is selling" is turned into an "IT maxim" such as "centralized information to quickly and easily spot trends", which then turns into an "IT infrastructure feature" such as "firmwide data standards and data management and applications systems to process point-of-sale data and provide management information". Computers are made out of language, and now these folks are explaining how to build the language. One needn't like the language, of course, but at least the discursive construction of the machinery is brought into the open. Recommended: Ruth Padel, In and Out of the Mind: Greek Images of the Tragic Self, Princeton: Princeton University Press, 1992. Although we have come a long way from the complacently obvious ethnocentrism of the Victorians, it is still hard to appreciate just how differently the ancient Greeks saw the world. Ruth Padel's goal is to communicate a sense of just how alien to anything in the modern world the Greeks' worldview was. To this end, she wrote a whole book, often detailed and technical but grippingly strange, about the Greek understanding of innards. She asks, for example, "How many of us hold a calf's entrails in our hands, realize the liver lobe is missing or how markings vary on the 'portal vein', believe this matters, and apply words for what we are holding to the inner equipment with which we feel and think?" Recommended: Rob Kling, ed, Computerization and Controversy: Value Conflicts and Social Choices, second edition, Academic Press, 1996. I spend so much time ranting against the publicly prominent forms of hyperbole about computers and their place in society that I don't always plug the serious, sensible, sober work that is being done on the subject by academics. Here is the best place to start. Rob Kling is a computer scientist -- a lapsed AI person like myself, actually -- who quickly moved from computer work to sociology. He has published an astonishing stream of lucid and empirically grounded papers on the ways in which computers and computer work are embedded in their institutional environments. For example, he drew attention to the fact that personal computers, far from being personal, are invariably embedded in a web of social relationships, for example the people who maintain them and the fellow users who pass along files and tips. Together with his studen Suzanne Iacono, he also drew attention to the recurring phenomenon of "computerization movements" -- millenarian social movements that promote the adoption of this, that, or the other type of computer systems. These movements are remarkably similar in their doctrines, and in the ways their doctrines diverge from reality. "Computerization and Controversy" is intended as a textbook for an introductory course on social aspects of computing, and I have used it quite successfully in this fashion myself. It includes several dozen articles by Kling and others on workplaces, online environments, safety, ethics, and other topics. Now that we're shaking off the illusions of the most recent wave of computerization movements, it's a good time to pick up Kling's volume and get ourselves intellectually prepared for the serious work that lies ahead. Recommended: Koo Koo Roo. For those not privileged to live in our bizarre country, I will explain Koo Koo Roo. It is far and away the best fast-food chain. It serves little more than skinless barbecue chicken with actual fresh vegetables. It's healthy, in other words, but it also tastes incomparably better than its bankrupt competitor Boston Market. Of course, Koo Koo Roo itself is nearly bankrupt as well, but that's probably because its founded is an entrepreneur rather than a captain of industry. No less a business statesman than Lee Iacocco took it over temporarily and installed new management, and here's hoping that the new managers succeed in keeping it going. Recommended: This American Life, National Public Radio. This is a very simple weekly radio show that consists of people telling mostly autobiographical stories. For all its simplicity it is incredibly affecting. Its host, Ira Glass, speaks in a quizzical monotone, and his ads for the program consist of strange, understated jokes. It's hard to describe, but it works. Recommended: Michael Baxandall, Painting and Experience in Fifteenth Century Italy: A Primer in the Social History of Pictorial Style, second edition, Oxford University Press, 1988. This is a classic work on art in its social context. It considers two genres of paintints from 15th-century Italy, one found in churches and the other found in the homes of wealthy merchants. Art historians have analyzed these paintings without much consideration of the uses that contemporary Italians actually made of them. Baxandall demonstrates that both types of paintings were meant to be looked at in very particular ways. The religious paintings (much like their equivalents in Tibet) were meant to be employed as part of certain types of systematic prayer, in which one looked at a certain image when praying upon a certain aspect of, say, the Virgin Mary, and then one looked at another image when praying upon another aspect. The merchants' paintings celebrated their owners' abilities to estimate by eyeball, in a day long before the rise of standardized measures, the quantities and qualities of goods in ships arriving at the docks. The larger point is that ways of seeing, thinking, learning, talking, interacting, and generally comporting oneself as a sapient being are, to some considerable degree anyway, historically and culturally specific. Baxandall's discussion is filled with examples and is marvelous fun to read. Some URL's. Ben Shneiderman's war on agents http://www.scientificamerican.com/1999/0399issue/0399profile.html media theory web site http://www.theory.org.uk The Case for Government Promotion of Open Source Software http://www.netaction.org/opensrc/oss-report.html Distance Learning: Promise or Threat? http://www-rohan.sdsu.edu/faculty/feenberg/TELE3.HTM Risks digest messages on "list-bombing": Someone forging a message that subscribes you to a mailing list http://catless.ncl.ac.uk/Risks/17.93.html#subj3 http://catless.ncl.ac.uk/Risks/17.94.html#subj7 Indonesia suspected of attacking Web site http://www.seattletimes.com/news/technology/html98/issu_020799.html ICANN Draft Materials for Public Comment http://www.icann.org/drafts.html W3C's XML page http://www.w3.org/XML/ Intercultural Email Classroom Connection http://www.iecc.org User Identification and Privacy Protection: Applications in Public Administration & Electronic Commerce 14-15 June 1999 in Stockholm http://www.dsv.su.se/IFIP-WG-9.6/index2.html Boies Puts on a Legal Clinic at Microsoft Trial http://www.nylj.com/stories/99/02/020499a1.htm Internet Privacy Concerns Confirm the Case for Intervention http://www.anu.edu.au/people/Roger.Clarke/DV/CACM99.html Anti-Boxology: Agent Design in Cultural Context http://www.cs.cmu.edu/~phoebe/work/thesis.html controversy about intelligence agencies in New Zealand http://www.converge.org.nz/pma/a120199.htm radio stations (some of which) broadcast audio on the net http://wmbr.mit.edu/stations/w-bc.html Golfe FM -- cool bitcasting radio station in Benin http://www.eit.bj/radio.ram FDIC "Know Your Customer" regulations http://www.fdic.gov/lawsregs/fedr/98knocus.txt http://www.fdic.gov/banknews/fils/1998/fil98133.html http://www.fdic.gov/publish/newprs/1998/pr9884.html http://www.fdic.gov/banknews/customer.html Active Networking and End-To-End Arguments http://web.mit.edu/Saltzer/www/publications/endtoend/ANe2ecomment.html Judge's decision in the Child Online Protection Act case http://www.aclu.org/court/acluvrenoII_pi_order.html online encyclopedia of graphic symbols http://www.symbols.com/ my article on privacy for the Encarta Yearbook http://encarta.msn.com/features/latestupdates/yearbook/report/January99.shtm Establishing Standards and Fair Practices for Electronic Publishing in Science http://www.aaas.org/spp/dspp/sfrl/projects/epub/standard.htm Document Design journal http://www.benjamins.nl/jbp/newjour.htm#docdes InfoDesign conference, 11-13 July 1999 in Cambridge, England http://www.idu.co.uk/id99/infodes.html Freedom, from Zero Knowledge Systems http://www.zks.net Lucent Personalized Web Assistant http://www.lpwa.com Improving Management in Non-Profit Organizations http://www.britell.com/use/use13.html politics of connectivity in Africa http://www.meg.uct.ac.za/martin/paper3.htm Buying into the Computer Age: A Look at Hispanic Families http://www.cgu.edu/inst/aw1-1.html Internet and Latino identities http://sunsite.unc.edu/jlillie/thesis.html resources on new media and identity http://www.aber.ac.uk/~dgc/gender05.html The European Surveillance Union http://www.heise.de/tp/deutsch/special/enfo/6328/1.html http://www.heise.de/tp/deutsch/special/enfo/6329/1.html http://www.heise.de/tp/deutsch/special/enfo/default.html Secrecy in Science: Exploring University, Industry, and Government Relationships http://www.aaas.org/spp/secrecy/AAASMIT.htm or Andrew Shapiro's course on New Media, Law, and Democracy http://cyber.harvard.edu/columbia/ Competition and Cooperation: Libraries and Publishers in the Transition to Electronic Scholarly Journals http://www.research.att.com/~amo/doc/eworld.html Rob Slade's reviews of technical books http://www.eGroups.com/list/techbooks/ Culture, Class and Cyberspace http://www.igc.org/amcgee/e-race.html What is Social Informatics and Why Does it Matter? http://www.dlib.org:80/dlib/january99/kling/01kling.html my dissertation in postscript ftp://publications.ai.mit.edu/ai-publications/1000-1499/AITR-1085/AITR-1085.ps Ontario Consultants on Religious Tolerance www.religioustolerance.org Are Biometrics Too Good? http://www.networkcomputing.com/1002/1002colmoskowitz.html "Windows Refund Day" movement http://linuxmafia.com/refund/ http://zork.net/refund/ http://linuxmall.com/refund/ http://www.essential.org/antitrust/ms/jun3survey.html end