Payment is the real problem behind intellectual property piracy

What then, are possible payment models for the software and entertainment industries?

Software

Big IT vendors like IBM, Sun, and HP are already solving the payment problems presented by Open Source, though they may not recognize that they are doing so. I am referring to "on-demand computing", or, to use the name that I prefer, "utility computing". In this model, IT vendors (mostly hardware companies at present) deliver computing power in a utility fashion: Enterprise Consumer X gets the computing cycles when it needs them, rather than buying all of the hardware/software itself.

Importantly, customers in this model buy IT (including software) as a service, rather than as a standalone product. As such, customers do not really buy software at all - they buy a solution to their business problem. Whether the "guts" of that solution are open or closed source does not matter anymore. Customers will increasingly pay for value, delivered as a service: SP (service property) rather than IP (intellectual property).

A closely related model is the ASP model. Companies like Salesforce.com are already delivering this model, and doing exceptionally well. As with utility computing, in the ASP model software is delivered to the customer as a service, hosted on a central server by the vendor, and customers pay for the value they access over the network. Whether the software underpinning the service is IP or open source becomes irrelevant.

One additional benefit to customers, in either the utility or ASP models, is that they no longer need to worry about SCO-like lawsuits. Why? Because they would not actually be in possession of code in source or binary format. The vendor might still be in violation of IP infringement but the customer would not be. Given this benefit, let us hope that the Free Software Foundation does not short-sightedly "close the ASP loophole", as they are reportedly planning to do with version 3.0 of the GPL. Closing this so-called loophole would benefit proprietary interests like SCO; it would not advance the FSF's cause of freedom in code.

These two emerging models for software both enable software companies to continue to deliver value to customers and get paid for it. Many more models are possible but will not be discovered by fixating on forcing customers into outdated business models.

Entertainment

Interestingly, at least one obvious model for entertainment has already been suggested for software: the utility model. Each month, I pay money to the cable utility (for broadband and CATV access), the phone utility, and the electric utility. Why could I not also pay the entertainment utility?

The easiest way to administer this would be to add a flat rate to the ISP bill, perhaps US $5.95 per month. That sum would then be divvied up between the ISP and the entertainment industry, parceled out in a manner similar to the way ASCAP works. If the utility wanted to charge in a more accurate and granular fashion, the ISP could charge according to data usage. (To get really granular, one could also envision a pay-per-file methodology whereby each .mp3 or .mpg would be charged against a user's account. The technology for metering such usage is already available.)

This utility model would completely eliminate the piracy problem, because consumers simply could not evade the fees, absent burning the songs onto physical media and mailing them. To the extent that such an option is politically impossible for ISPs (because they would lose customers to non-compliant ISPs that do not charge the data fees), the ISPs could lobby Congress for legislation that mandates their compliance. My own feeling is that there would not be much customer churn; consumers generally are not going to chafe at the idea of paying (remember: it is the mode of payment that currently keeps most from paying, and not the idea of paying), and will not want to lose an email address simply in the name of piracy.

Another option is to allow users to bill downloads to their cellular phones. Again, the idea is to make payment seamless, so that the consumer is focused on enjoying the art and not the act of payment. If he's online, the user simply types in his phone number (with some additional added security to prevent unauthorized charging of downloads to a third-party account), and gets the music (with the cell phone company managing payment to the record or movie label on the back end). If he's offline but using his cell phone, I can envision Johnny sending Jane a download of Audioslave's newest "love song", routing it to her IP address for immediate download the next time she logs on to her computer.

Or perhaps the answer is much more mundane: advertising. It has worked for television - why not for MP3 and DIVX downloads?

Conclusion

This is not an exhaustive list of possible solutions to the payment problem inherent in Open Source software and digital media piracy. Smarter people than I will innovate these models. The point is that neither industry will ever discover these models by looking backward. Innovation around access to great new technology has outpaced innovation around payment for that technology, but this is a momentary lag, one that the software and entertainment industries will resolve by focusing on payment, rather than property. Let's look forward.