Forget about DRM and legal action to prevent piracy — there is a better way: Superdistribution harnesses basic human drives to save money and make money. It’s more powerful than copy protection, more powerful than ethical arguments, and more powerful even than fear of legal prosecution.
A recent article points out that in 2003 around one third of all installed software on PC’s was pirated. Probably an even higher percentage of digital music was pirated.
Piracy comes about because people like to get things as cheaply as possible. When calculating the “cost” of getting something, we need to consider not just the pricetag but also the rest of the transaction-cost — for example the cost in time to locate something, download it, potentially pirate and crack it, etc. To combat piracy, we need to bring the total cost (including all transaction costs) of paying for digital products down to roughly equal or less than than the total cost of pirating those same items. One way to accomplish this is too keep lowering prices of goods. But there are price-points below which sellers lose their margins and thus cannot pass. The problem arises when the total transaction cost of piracy is still less than the lowest commercially-viable total transaction cost to purchase a digital product legitimately. In such a situation piracy flourishes because sellers simply cannot compete by lowering prices any further. So what is a seller to do in that case?
Fortunately there is a solution: Sellers can effectively lower the total transaction cost of purchasing versus pirating by using superdistribution. Superdistribution enables “peer-to-peer” marketing and selling. The concept is simple. I buy a product from Seller X and pay price Y for it. But I can then promote it to my friends and if one of them buys it, I get a commission that reduces my price Y for my copy. If they then further distribute the product to their friends and so on down the line to some number of levels, I get further comissions (fractional by social distance of each purchaser from me). This is sometimes called “network marketing” and is fully legal in the USA so long as no up-front fees are charged to parties before they can become resellers and start earning commissions (at least this was the law last time I checked — but do your own research to be safe if you are planning to go into business doing this!). In other words, you don’t have to buy a product before you can resell it to others and earn commissions — you can resell it and earn commissions even if you yourself don’t own it.
In any case, legal subtleties aside, the concept is what matters here. Superdistribution reduces the buyer’s total transaction cost, and even enables them to potentially get their product for free or even make a profit if enough downline sales result from their referrals. The catch is that it only works in cases where the product is easily superdistributable, and the customer has good enough connections to easily find downline buyers. Finally, it only makes sense in cases where the market is not already saturated — where there are still lots of potential buyers who haven’t bought the product yet.
Superdistribution, if done properly, will virtually eliminate piracy. The reason is simple. If you buy a product wouldn’t you rather get a lower price or get it free or even make money, if you could? Because superdistributing a product has this potential, but giving it away for free does not, parties who buy products are more likely to then superdistribute them than they are to simply give them away for free to their friends. Now what about the case where a party does not buy a product? Superdistribution wins there too because even non-buyers can act as resellers — in other words, they can make even greater profits than buyers because they didn’t even spend anything. So in short, if a suitable superdistribution mechanism is provided, people will use it to resell digital products they download and/or buy rather than giving them away to others for free. This is really the solution to the music industry’s woes — it is far more effective than any form of digital rights management or legal action. By enabling non-pirates to benefit financially compared to pirates, non-piracy can naturally be brought about for the majority of cases.
I already just buy music in iTunes and the Apple Music Store instead of pirating it, because the total cost of transactions is lower than the cost of piracy. It simply takes too much time and effort to locate good quality pirated tracks for entire albums that I want. As well as being illegal and unethical, piracy just takes too much work for me to bother with it. But that’s not the case for everyone — there are many people who either have more time, are more efficient pirates, or who have more access to a broader selection of pirated goods than I do — perhaps for them it is worth saving $.99 per song to pirate. Those people are the problem that the music industry and other digital copyright holders have to deal with — not yuppies like myself who can afford to buy music and for whom the convenience of doing so is worth the price. Superdistribution really would give those people for whom piracy is the cheaper option a new reason not to be pirates. It would also give people like me who are not pirates an incentive to expend extra effor to help market and sell music I buy to others.
And that brings me to the subject of marketing. Superdistribution doesn’t just solve the problem of distribution, it solves the problem of marketing of digital products by making viral marketing pay. Not only do superdistributors reduce piracy, they also can externalize their marketing costs by enabling their customers to benefit financially by becoming network marketers along their relationships. Marketing via superdistribution along trusted social networks is ultimately a more effective way to market a digital product than any form of “in your face” marketing.
To make this really potent — suppose that the price for a digital product is discounted if you get it from an existing customer/superdistributor rather than if you buy directly from the retailer or a competing source? Then I would have an incentive to buy from my friends, rather than going direct to the source. This benefits the source in that it increases the willingness of people in social networks to consider offers from their friends, and makes it more likely that they will buy from their friends in the network rather than directly from competitors etc. Furthermore my bond to my friends is stronger than my bond to any particular brand or vendor — so vendors, by transforming social relationships into distribution channels, get stronger relationships with potential and existing customers than they could get by going directly.
So how might this all work? I would suggest that Apple start this off directly within iTunes. Any iTunes user should be able to superdistribute any song they have purchased, or even tracks they have not purchased but that are listed in the Apple Music Store, to any other iTunes user. This would take the form of sending a “referral” to that user via email, or better yet, via a built-in iTunes social networking tool. Apple would take care of tracking and awarding commissions and managing the payment and downloading of superdistributed tracks. The end users would simply reap the benefits. This would result in much improved sales for Apple, and an even more compelling reason to use iTunes for end-users. By enabling iTunes users to even superdistribute to non-iTunes users (via regular e-mail or via posting uniquely keyed offer URLs to their Web pages) then Apple could reach an even broader potential market and bring a lot of new customers to their store.
Superdistribution works not only for music of course, but for just about any type of digital product, and even for many types of physical products. But in the case of digital products it is ideally-suited. It is so well-suited that I believe there is a business opportunity for an independent superdistribution portal — a site where users could get accounts in which to act as buyers and sellers of superdistributed products from a range of vendors. By singing up to such a site anyone could engage in superdistribution with anyone, anywhere, rather than having to use different networks for doing superdistribution for different products and vendors. In such a site I would have a unified digital wallet — comissions earned from superdistributing product X from vendor A would come into this wallet and could then offset payments I may have made for product Y from vendor B — in other words, the benefit of superdistribution is able to encompass all my transactions. This independent superdistribution portal would also benefit the original vendors — it would provide them with a hosted OEM’d superdistribution infrastructure, at little to no cost to them, in exchange for a cut of any sales made through the system. I think this could be a very viable business. Anyone interested in building it with me? If we could make a working demo, I think I can get it funded.