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October 26, 2007

Tomorrow's world

"It's like 1994," Richard Bartle, the longest-serving virtual world creator, said this week. We were at the Virtual Worlds Forum. Sure enough: most of the panels were about how businesses could make money! in virtual worlds! Substitute Web! and Bartle was right.

"Virtual worlds are poised to revolutionize today's Web ecommerce," one speaker said enthusiastically. "They will restore to ecommerce the social and recreational aspect of shopping, the central element in the real world, which was stripped away when retailers went online."

There's gold in them thar cartoon hills.

But which hills? Second Life is, to be sure, the virtual world du jour, and it provides the most obviously exploitable platform for businesses. But in 1994 so did CompuServe. It was only three years later – ten years ago last month – that it had shrunk sufficiently for AOL to buy it as revenge. In turn, AOL is itself shrinking – its subscription revenues for the quarter ending June 30, 2007 were half those in the same quarter in 2006.

If there is one thing we know about Internet communities it's that they keep reforming in new technologies, often with many of the same people. Today's kids bop from world to world in groups, every few months. The people I've known on CIX or the WELL turn up on IRC, LiveJournal, Facebook, and IM. Sometimes you flee, as Corey Bridges said of social networks, because your friends list has become "crufted" up with people you don't like. You take your real friends somewhere else until mutatis mutandem. In the older text-based conferencing systems, same pattern: public conferences filled with too many annoying people joined sent old-timers to gated communities like mailing lists or closed conferences. And so it goes.

In a post pointed at by the VWF blog Metaversed's Nick Wilson defines social virtual worlds and concludes that there are only eight of them – the rest are not yet available to the general public, children's worlds, or simply development platforms. "The virtual worlds space," he concludes, "is not as large as many people think."

Probably anyone who's tried to come to grips with Second Life, number one on Wilson's list, without the benefit of friends to go there with knows that. Many parts of SL are resoundingly empty much of the time, and it seems inarguable that most of SL's millions of registered users try it out a few times and then leave their avatars as records in the database. Nonetheless, companies keep experimenting and find the results valuable. A batch of Italian IBMers even used the world to stage a strike last month. Naturally it crashed IBM's SL Business Center: the 1,850 strikers were spread around seven IBM locations, but you can only put about 50 avatars on an island before server lag starts to get you. Strikes: the original denial-of-service attacks.

But questioning whether there's a whole lot of there there is a nice reminder that in another sense, it's 1999. Perfect World, a Chinese virtual world, went public at the end of July, and is currently valued at $1.6 billion. It is, of course, losing money. Meanwhile Microsoft has invested $240 million of the change rattling around the back of its sofas in Facebook to become its exclusive "advertising partner", giving that company an overall value of $515 billion. That should do nicely to ensure that Google or Yahoo! doesn't buy it outright, anyway. Rupert Murdoch bought MySpace only two years ago for $580 million – which sounds like a steal by comparison if it weren't for the fact that Murdoch has made many online plays and they've all so far been wrong.

Two big issues seem to be dominating discussions about "the virtual world space". One: how to make money. Two: how and whether to make world interoperable, so when you get tired of one you can pick up your avatar and reputation and take them somewhere new. It was in discussing this latter point that Bridges made the comment noted above: after a while in a particular world shedding that world's character might be the one thing you really want to do. In real life, wherever you go, there you are. Freely exploring your possible selves is what Richard Bartle had in mind when he wrote the first MUD.

The first of those is, of course, the pesky thing only a venture capitalist or a journalist would ask. So far, in general game worlds make their money on subscriptions, and social worlds make their money selling non-existent items like land and maintenance fees thereupon (actually, says Linden Labs, "server resources"). But Asia seems already to be moving toward free play with the real money coming from in-game item sales: 80 million Koreans are buying products in and from Cyworld.

But the two questions are related. If your avatar only functions in a single world, the argument goes, that makes virtual worlds closed environments like the ones CompuServe and AOL failed with. That is of course true – but only after someone comes up with an open platform everyone can use. Unlike the Internet at large, though, it's hard to see who would benefit enough from building one to actually do it.

Wendy M. Grossman’s Web site has an extensive archive of her books, articles, and music, and an archive of all the earlier columns in this series. Readers are welcome to post here, at net.wars home, at her personal blog, or by email to netwars@skeptic.demon.co.uk (but please turn off HTML).

October 19, 2007

Money talks

One of the fun things about making predictions is that, as every year-end psychic knows, you can generally count on people to remember only the successful ones. For them to remember the unsuccessful ones the prediction has to be really outrageous. And even then it may not matter – people do remember Ed Yardeni's prediction that the Year 2000 would bring global doom and chaos, but he is, astonishingly, still working.

Most predictions don't involve putting your money where your mouth is. But buying companies does. This week, eBay announced it was taking a $1.43 billion one-off charge on Skype, which it acquired just a little over two years ago for $2.6 billion, half cash and half stock. I think it's pretty meaningless to talk about how much a deal is worth when it's a staight stock swap: stock costs the acquiring company comparatively little, for one thing, and for another, stock deals are always inflated to ensure that the company being bought up doesn't get shafted if the stock goes down. You can buy a lot more stuff in boom times – say, 1999 – than after sane valuations return. Just ask Time-Warner.

In this case, though, eBay paid half cash (and of course its stock has gone up a good bit since then) and the writedown it took this week is known as a goodwill impairment charge. Goodwill is the set of intangible assets – branding, intellectual property, good customer and employee relations – that a company brings with it when it's acquired. It's hard to value directly; in practice it's the difference between the acquired company's tangible assets (physical plant, inventory, receivables) and the price the buyer paid. The inflated valuations of the dot-com boom have left behind an SEC requirement that goodwill must be assessed annually and charged off if its fair value differs too much from the value the company is carrying for it. eBay's charge, therefore, is an admission that the company overpaid for Skype.

The charge turns eBay's profitable quarter into an overall loss. Bear in mind that of all the Internet businesses eBay is the only one I'm aware of that has been profitable throughout: as a weird, new business in 1995, as an established Internet name taking off during the boom, and as a mainstream phenomenon ever since. It's not like Amazon.com, which lost money for years before finally turning black, or AOL, which was always going to struggle once the conditions that sent it skywards changed, or Yahoo!, whose volatility reflects that of advertising spend. eBay has always had a solid business model, for a simple reason: the more you buy on eBay the more you buy on eBay.

In an economic downturn, people turn to eBay to get stuff cheaper or turn the unwanted items in their attics into money. In an upturn, people turn to eBay to flesh out their collections of antique Tasmanian Zorks. Of course, over time the stock has gone down as well as up, but the business has remained solid. As it does, even now. So does Skype's: according to eBay's SEC filing, Skype has continued to grow in all geographical areas, and its net revenues nearly doubled in the past year on an increase in accounts of 81 percent.

Two years after the acquisition, Skype's usefulness to eBay is less clear. Of course, there's the diversification argument: I am frequently told that the hardest thing for a technology company is coming up with its second product. Google, for all the embellishments it's added to its search engine, basically has one core product that produces revenues: text-based, contextual advertising. But if diversification is why eBay bought Skype, it might as well have bought the perfectly profitable kind of thing Warren Buffett is famous for buying: brick, carpeting, and paint. ("Try to contain your excitement," he wrote dryly to his shareholders in 2001.)

At the time, I thought owning Skype would enable eBay to increase the interconnectedness of its user community. This was much what the companies themselves said : eBay would be able to offer, essentially, premium call services, and Skype would help buyers and sellers communicate.

In fact, that hasn't happened: people do not have Skype options to enable on their eBay accounts that would allow other users to make direct contact with questions, and you do not see Skype buttons, whether talk or chat, under buyers' or sellers' names, next to "email the seller". The number one way that buyers and sellers communicate is email, both inside eBay's secured Web platform and outside it once communication has been established. And this despite the fact that systems allowing live telephone callbacks from or real-time chats with a live customer service representative have been well established for a long time, and are built into many of the bigger ecommerce sites. PayPal, which eBay acquired in 2002 for $1.5 billion, has been much more successfully integrated into eBay's core business.

The good news in all this is that financial analysts covering the Internet seem to have matured. No one is writing that eBay is doomed, or that VoIP is all hype, though some are arguing that Skype may still become roadkill. It seems unlikely: Skype's revenues are robustly increasing and after all, it does have pretty smart owners.

Wendy M. Grossman’s Web site has an extensive archive of her books, articles, and music, and an archive of all the earlier columns in this series. Readers are welcome to post here, at net.wars home, at her personal blog, or by email to netwars@skeptic.demon.co.uk (but please turn off HTML).

October 12, 2007

The permission-based society

It was Edward Hasbrouck who drew my attention to a bit of rulemaking being proposed by the Transportation Security Agency. Under current rules, if you want to travel on a plane out of, around, into, or over the US you buy a ticket and show up at the airport, where the airline compares your name and other corroborative details to the no-fly list the TSA maintains. Assuming you're allowed onto the flight, unbeknownst to you, all this information has to be sent to the TSA within 15 minutes of takeoff (before, if it's a US flight, after if it's an international flight heading for the US).

Under the new rules, the information will have to arrive at the TSA 72 hours before the flight takes off – after all, most people have finalised their travel plans by that time, and only 7 to 10 percent of itineraries change after that – and the TSA has to send back an OK to the airline before you can be issued a boarding pass.

There's a whole lot more detail in the Notice of Proposed Rulemaking, but that's the gist. (They'll be accepting comments until October 22, if you would like to say anything about these proposals before they're finalised.)

There are lots of negative things to say about these proposals – the logistical difficulties for the travel industry, the inadequacy of the mathematical model behind this (which at the public hearing the ACLU's Barry Steinhardt compared to trying to find a needle in a haystack by pouring more hay on the stack), and the privacy invasiveness inherent in having the airlines collect the many pieces of data the government wants and, not unnaturally, retaining copies while forwarding it on to the TSA. But let's concentrate on one: the profound alteration such a scheme will make to American society at large. The default answer to the question of whether you had the right to travel anywhere, certainly within the confines of the US, has always been "Yes". These rules will change it to "No".

(The right to travel overseas has, at times, been more fraught. The folk scene, for example, can cite several examples of musicians who were denied passports by the US State Department in the 1950s and early 1960s because of their left-wing political beliefs. It's not really clear to me why the US wanted to keep people whose views it disapproved of within its borders but some rather hasty marriages took place in order to solve some of these immigration problems, though everyone's friends again now and it's fresh passports all round.)

Hasbrouck, Steinhardt, and EFF founder John Gilmore, who sued the government over the right to travel anonymously within the US, have all argued that the key issue here is the right to assemble guaranteed in the First Amendment. If you can't travel, you can't assemble. And if you have to ask permission to travel, your right of assembly is subject to disruption at any time. The secrecy with which the TSA surrounds its decision-making doesn't help.

Nor does the amount of personal data the TSA is collecting from airline passenger name records. The Identity Project's recent report on the subject highlights that these records may include considerable detail: what books the passenger is carrying, what answer you give when asked where you've been or are going, names and phone numbers given as emergency contacts, and so on. Despite the data protection laws, it isn't always easy to find out what information is being stored; when I made such a request of US Airways last year, the company refused to show me my PNR from a recent flight and gave as the reason: "Security." Civilisation as we know it is at risk if I find out what they think they know about me? We really are in trouble.

In Britain, the chief objections to the ID card and, more important, the underlying database, have of course been legion, but they have generally focused on the logistical problems of implementing it (huge cost, complex IT project, bound to fail) and its general privacy-invasiveness. But another thing the ID card – especially the high-tech, biometric, all-singing, all-dancing kind – will do is create a framework that could support a permission-based society in which the ID card's interaction with systems is what determines what you're allowed to do, where you're allowed to go, and what purchases you're allowed to make. There was a novel that depicted a society like this: Ira Levin's This Perfect Day, in which these functions were all controlled by scanner bracelets and scanners everywhere that lit up green to allow or red to deny permission. The inhabitants of that society were kept drugged, so they wouldn't protest the ubiquitous controls. We seem to be accepting the beginnings of this kind of life stone, cold sober.

American children play a schoolyard game called "Mother, May I?" It's one of those games suitable for any number of kids, and it involves a ritual of asking permission before executing a command. It's a fine game, but surely it isn't how we want to live.

Wendy M. Grossman’s Web site has an extensive archive of her books, articles, and music, and an archive of all the earlier columns in this series. Readers are welcome to post here, at net.wars home, at her personal blog, or by email to netwars@skeptic.demon.co.uk (but please turn off HTML).

October 5, 2007

Back to high skool

"Do you have a Facebook page?" one of my friends asked last week. Suppressing the desire to say, "Why? You never talk to me anyway," I simply said: "No." I have a Web site, a personal blog, all the journalism I do; I participate in at least six online communities, two IRC channels, and have email and four IM clients open on my desktop at all times. When people say "Facebook", "LinkedIn", or "MySpace" I sound like a little kid being forced to wear a sweater: "Do I have to…?" I mean, what percentage of my computer needs to belong to other people?

Besides, all these social networks really miss the point. They want you to say who your friends are, for a very small value of the word "friend". Hey, guys, these aren't friends; these are people I happen to know. They're only friends in the sense that if you meet someone in Kyrzgystan that you once worked with 15 years ago in London that you couldn't stand you fall upon them with glad cries of delight just because they aren't a stranger who can't speak English and are unarmed.

Starting with seven AIM buddies Facebook could find, the system started throwing up the names of people it thought I might know. And yes, some of those names are definitely familiar. So I added a few of them, randomly chosen. Two minutes later, an IM: "Did you ask to be my friend on Facebook?" The only sane person.

Then the system offers me "friends of friends".

This is not what I need: more tenuous connections to people to whom I'll have something to say once every five years. And that's why these social networks are wrong. You shouldn't be able to specify friends. You should be able to specify *enemies*. And the specification should be public. Keep your friends close – and your enemies closer.

Calling these things "social networks" makes them sound much grander and more grown-up than they really are. What they are is high school. With cliques and mysteriously popular people who are total jerks and mysteriously unpopular people to whom everyone is mean who are really nice and honorable. (Well, my school was never like that, or maybe I was too disconnected to notice, but all the TV writers seem to have gone to schools that were. I was unpopular, and there was no mystery about it: I was raised by wolves.) High school relationships are all about knowing who is enemies with whom. You can recover if, by mistake, you say something disparaging about someone to their best friend. You can't recover if you tell your friend's best friend's secret to that best friend's sworn enemy.

Your only chance there is that the enemy will pick you up as a friend; the rest are lost to you. My enemy's enemy is my friend: now there's a powerful basis for a friendship. And on a properly constructed social network, that prospective friend would be clearly visible to you.

But under the saccharine rule of Facebook, my friend's friend isn't my enemy (which would be useful to know). In a lot of cases it's someone I've never met. And given that half the people labeled as "friends" aren't really friends at all (you know who you are not), it's probably someone I wouldn't even like if I did meet them.

Plus, some of the people who I really do know best don't want to be public about it (well, would you?), so I can't tag them as friends, because then other people will see them in my list and might start asking questions. How helpful is that? Why isn't there a "secret friends" option? Have the people who run Facebook never heard of adultery?

I also have two "friends" who are just people I clicked on by mistake and sent the request before I realized. And they accepted? Is this like negative feedback on eBay, where you don't dare say anything bad about a delinquent seller because they might retaliate by trashing your hard-earned 100 percent positive reputation? Or are they "But he was my friend on Facebook for years, and he seemed like such a nice, normal guy – I can't believe it" people?

But, you know, I'm socially gregarious. Pleasant to a fault. Sweet. Kind. Gentle. Good. The kind of person anyone would want to have in their inbook. Or inbox. Whatever. Like Bugs Bunny. As long as they didn't actually know me in high school, I don't see why they shouldn't pretend to be my friend. It does seem to me curious, though, that so many of the digerati are not more embarrassed to admit they have a Facebook page. I mean, it's pathetic, all this trying to look cool and keep up with the teenagers. Clearly, anyone who would openly claim as a friend someone on Facebook is someone I do not want to admit to knowing. Groucho would never friend me on Facebook.

And the actual friend who asked me to join? Fuhgeddaboudit. He's got a common name and a habit of not specifying any details. He could be any of about 200 people. Should I friend them all, just to see?

Wendy M. Grossman’s Web site has an extensive archive of her books, articles, and music, and an archive of all the earlier columns in this series. Readers are welcome to post here, at net.wars home, at her personal blog, or by email to netwars@skeptic.demon.co.uk (but please turn off HTML).