Data – Products Vs Services

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A common misconception involving data and creative content has led to a huge mess that affects many areas of society. A huge economy has been built around it. Legislation has been written, perhaps inaccurately, based on it. Whether you are the non-commercial file-sharer using that path of least resistance to access data or the content distributor who’s service may be falsely advertised and overpriced, this fundamental understanding is the difference between being seen as a thief and being recognized for being innovative and efficient.


I am disheartened to still see so many writers, legislators, businesses, consumers, and even a lot of self-proclaimed pirates failing to grasp this concept while speaking of issues surrounding intellectual properties (particularly copyright) and the internet. This concept is so fundamental, obvious and with such far reaching applications that it really deserves and requires one to stop and examine it closely. To take for granted that we already understand this as common knowledge is to risk never exploring modern solutions to modern problems.

The dilemma is that while data is inherently free, the prevailing paradigm says that it is correct to seek to place limits on access to data. While this goes against the inherent nature of data, it is both impractical and not plausible to place limits on any data once it has been made available to the public. I propose that instead of repeating the same approach and failing to find results which are beneficial to all relevant parties, we instead should work to change our paradigm and begin seeking solutions in the realm of possibilities that are only presented by the premise that data is free.

I am by no means the first person to make such a proposition, but every now and again, common knowledge betrays us and it takes a person with a lot of time on their hands to reexamine what we’ve taken for granted. My only goal here is only to help you understand what, I believe, are apparent fundamentals regarding the nature of data. What you do with this understanding is up to you. While my presentation of this concept is not meant to be directly applied to empirical scrutiny, by all means, I encourage people to discuss, scrutinize and experiment with this concept, whether it be in controlled studies or out in the real world. Let me know what you discover.

Data is not a product!

If I told you data is not purchased, would you be inclined to disagree with me?
If I insisted that data is not purchased, would you concede to ask “then, what ispurchased? What am I paying for?”

Specifically, data vehicles, direct access to data and data licensing are purchased. This is what you are paying for.

You have, most likely, purchased access to data at some point. Perhaps you found a song you like listed on iTunes and decided to “buy” this song. You probably first had to agree that by purchasing access to said data, you will only use it under some set of end user licensing terms. Upon accessing the data, your computer reads the data and builds a local copy of that data.

While you certainly paid to access the data and agreed to licensing terms, you did not purchase the data.

To understand this concept better, here’s is a not-so-technical look at what happens when you purchase access to a song on iTunes:

Let’s say the data is written as 12345.
Your machine accesses the iTunes file server and reads “12345″, then proceeds to write “12345″ on it’s own hard disk drive. Your media player can then process “12345″ and output the sounds you recognize as a familiar song. *For a more technically accurate description you’ll have to research it yourself.*

Please note that no property has changed possession from one party to another. This is confusing when you are being told that you have purchased a song. In reality, your computer built the song for you!

Data is Independent

To illustrate this point, consider that it is entirely possible to write the same data sequence “12345″ on one’s machine without accessing the internet. While the data sequence for a song is, in reality, much more complex than “12345″, this possibility still serves to illustrate that data is not bound to any individual or entity. This scenario involves only one party. In both this and the purchasing scenario, “product” or, more accurately, data is not removed from iTunes inventory.

For those of you finding all this talk of data to be confusing, do not fear. A very accurate comparison using more familiar terms is to say that this is like building a simple shed in your backyard. Upon looking over your neighbor’s fence for the first time, you realize that, by shear coincidence, you’ve built your shed to the exact same specifications! You now have matching sheds.

Q: Did you steal your neighbor’s shed?
A: No! What kind of an accusation is that? Your neighbor still has his shed and you have yours.

Q: If you had seen his shed first and decided to build a copy, would this be stealing your neighbor’s shed?
A: Again, no. Not only does your neighbor still have his shed, but you paid for the tools, resources and labor involved in building your shed in your own yard. Because it’s youryard, you are free to keep a shed there just as you’re free to tear it down and install a swimming pool.

Suppose you don’t have a good enough view of your neighbors shed and need to get closer. You tell your neighbor that you want to build a copy of his shed and your neighbor agrees that you can come onto his property, examine his shed and build your own copy if you give him $20. You don’t find this very neighborly, but agree to pay, proceed to examine the shed and build your own copy.

Q: Did you just purchase your neighbor’s shed?
A: You know you didn’t! You have the receipt for materials and the sore thumb where you whacked it with a hammer while building it yourself as proof. Looking over the fence, you can see that your neighbor still has his shed and can state with confidence that you did not buy your neighbor’s shed.

Whether it is your backyard or your hard drive, it is up to you how you want to arrange it or build on it. Everything on your hard drive was built using your computer’s own resources, regardless of whether it peaked over a neighbor’s fence first.

A Source of Misconception

You have probably purchased some form of a data vehicle at some point in time (CD, DVD, NES cartridge). You invited friends over “to watch the movie you bought.” The DVD you purchased gave you access to the data it contained, but you did not purchase the data. In this case, you agreed to a set of licensing terms and gained convenient way to access the data, just as you did in the iTunes example.

Unfortunately, this has led many people to take for granted that purchasing a DVD (data vehicle) is synonymous with purchasing a movie (data). All that was purchased, was the data vehicle, not the content the data produces. I’m confident that any copyright lawyer would agree with this statement the moment you try to use that data in a way that his client, the copyright owner, doesn’t approve of.

Data vs Content

It’s important to know that, by definition, data has no meaning until it is processed. Data is not even copyrighted. The output of processed data is what is copyrighted (songs, movies, games, books, etc.). It is, perhaps, misleading that this is commonly referred to as “creative content” when the meaning is more along the lines of “creative output.”


Content Distribution Services

This is where we can really see the mess caused by planning around a faulty premise.

It has already been established above that you are purchasing access to data or even purchasing the license to use the “content” or “output” of that processed data according to a set of terms and conditions. likewise, if you are someone that sells access to data or sells licensing then you are, hopefully, aware that you are providing a service. If you understand that you are in the business of selling a service as opposed to selling a product, then you will most likely use a completely different business strategy than a product retailer..

A company that sells a tangible product online must set a sale price per product. This price is based on factors such as the costs to manufacture or buy the product wholesale, to house it in inventory, labor costs, shipping, etc. Ultimately, you would probably settle on a price that covers your overhead and produces profits while still being in the price range your customers consider affordable.

A company that provides an online service, or any service oriented company for that matter, will normally calculate the appropriate price relative to different factors. In a service that provides access to data (the type of data that produces “creative content” when processed), customers should be charged based on the amount of access they will be provided for the purpose of reading & copying the database. Factors for the price include cost of hosting data, cost of distributing data (bandwidth), labor costs of building and maintaining the service, licensing fees and whether the price is affordable for customers while still yielding a profit.

The problem with advertising access-to-data as the sale-of-a-product is that it does not consider the appropriate factors for calculating price. It creates the illusion of having a product that can be sold an infinite number of times without the cost of having to restock inventory, because inventory is never diminished.

A Contradiction

Eminem’s lawyers argue that downloads should fall under the “licensing” agreements that cover physical releases such as CDs and vinyl records, but Universal Music Group says they are governed by “distribution” arrangements, which have lower royalty rates. Whereas an artist might split licensing royalties 50-50 with their label, under distribution rates they often earn less than 30%.

The artist Marshall Mathers aka Eminem sued Universal regarding iTunes selling access to his music for this very reason. Unfortunately for him and other artists, he lost the case.

This is one of the few times where a major label states that digital distribution is not to be treated the same as a physical retail product. However, this has not prevented digital distributors like iTunes from advertising and pricing their service as if they were selling a product.

What makes the iTunes Store such a hit? Over 13 million high-quality, DRM-free songs priced at just 69¢, 99¢, or $1.29 each. Visit the iTunes Store on your computer, iPod touch, iPhone, iPad, or Apple TV. Browse around and have a listen. Preview a song before you buy it and get recommendations based on music you love.

Now that the record company supplying iTunes with Mr. Mathers’s music and the court has assured us that iTunes is in fact a distribution service, not to be treated as physical product sales, does the above marketing jargon from the iTunes Store appear at all to be an accurate representation of the service they provide? You may have never stopped to consider it before, but now that you are an informed consumer, do you think the iTunes pricing and sales pitch accurately reflects the service provided?

If pricing is not relevant to the actual service being provided, this in turn means that either the service provider or the customer may be getting ripped off. Or, in a broader sense, it could mean they are both getting ripped off due to the distributor not being aware of additional services which could be offered that may better serve the needs of both the distributor and the customer.

This where, in conversation, I am often met with a response along the lines of “but iTunes and the RIAA, man, they will never stop marketing music as a product because they make way more money by doing that.”

Poppycock, I say. If it is in fact a fundamental truth that is demonstrable and has already been agreed upon by a major content supplier as well as the US court system to say that iTunes does not sale a product, then we the people are well within our right to pursue the proper legal routes for remedying the problem of false marketing, labeling, pricing or whatever the case would be at that point. It has happened before and it will happen again. They can make a cat bark no more than they can alter the nature of data.

A Fresh Starting Point

If the nature of data does in fact prove to be free, is demonstrable and is recognized as such, then solving such problems that were created by lacking this understanding becomes easier.

If you accept that data is free, you are accepting the fact that customers can not be completely limited to accessing that data from any single source because once the data is copied from a server like iTunes, it can then be copied from that customer’s computer by friends or strangers on the internet just the same.

In fact, copying data this way is not even illegal in my country, the USA. This is not to be confused with distributing the data non-commercially, but even this is defined as legal up to a specific retail amount. Most likely, this is because it is not feasible to seek to widely enforce limits on that which can’t be limited.

Title 17. 506 (a) Criminal Infringement.— (B) by the reproduction or distribution, including by electronic means, during any 180–day period, of 1 or more copies or phonorecords of 1 or more copyrighted works, which have a total retail value of more than $1,000;

Accepting that data is free means accepting that there is little real or legal means for your business to retain it’s position as the sole access point for data you intend to distribute to the public. If you want your data to be private, then don’t provide public access, period. But that is no option when you are in the business of providing public access to data.

The good news is that once you have gained the understanding that you offer a service, and not a product, you are now open to exploring options that were not available from the perspective of product retail. What are these options? How do you compete with free?

If you are a large trust controlling the majority of copyrighted content currently on the market, I will be glad to share solutions with you. I do, however, price my service as a product package containing solutions and you will have to agree to a few terms before making your purchase. The product wrapped service sells for $1 million per copyright that it is applied to. Yes, that is correct. You must purchase the same product for each copyright you intent to apply it to. ;)

Disguising a service as a product is unethical and impractical. It is time that we collectively establish our position on this matter. Let’s do it, now!

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