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Internet Governance 5 May 2014

Let a Thousand Flowers Bloom.fm

Michael Kende
By Michael KendeFormer Chief Economist, Internet Society
Konstantinos Komaitis
Konstantinos KomaitisSenior Director, Policy Development and Strategy

A recent misunderstanding at the NETMundial Internet Governance conference in Brazil focused on the meaning of the phrase ‘permissionless innovation’.

‘Permissionless innovation’ is a key technical principle that has guided the Internet’s development and evolution ever since its inception. As Jari Arkko, chair of the Internet Engineering Task Force (IETF) has argued: “Most of the applications in the Internet are the results of grass-roots innovation, start-ups, and research labs. No permit had to be applied, no new network had to be built, and no commercial negotiation with other parties was needed […]”.

At NETMundial, some chose to interpret this long-standing phrase to advocate innovation without any form of permission – imagine some sort of digital anarchy — for instance, without regards for existing intellectual property rights to recorded music or movies. As the Internet Society’s Chief Technology Office, Leslie Daigle pointed out at the time: “[Permissionless innovation] is about fostering innovation, not prompting anarchy”.

This is a significant detail.

Because, the fact is that ‘permissionless innovation’ is about the freedom to experiment and test the limits of human imagination. As Konstantinos Komaitis, Policy Advisor at the Internet Society suggested on another blog post: “It is about allowing people to think, to create, to build, to construct, to structure and to assemble any idea, thought or theory and turn it into the new Google, Facebook, Spotify or Netflix.”

While the immediate issue was resolved at NETMundial, a more recent announcement raises the more profound question of what does ‘permissioned innovation’ look like. On 1 May 2014, the Guardian reported that Bloom.fm, a streaming music service in the UK, shut down after its main investor pulled the plug. The services had accumulated more than 1.1 million users in the UK in just over a year, and licensing deals with major record labels, but could not cover the resulting payments. The CEO noted in particular that ‘massive scale’ is required to justify a business case.

Thus, even with permission from the record labels, the resulting economies of scale led to entry barriers that Bloom.fm could not surmount, and its main investor could not countenance. While Bloom.fm had what, in almost any commercial pursuit would be considered an excellent start – an impressive 1.1 million customers in 16 months – other innovative startups never even reach the launch stage.

In “Copyright and Innovation: The Untold Story”, US scholar Michael Carrier argued that extensive litigation – whether threatened or pursued – focused on companies using digital content has been detrimental to investment and entrepreneurship. The result is that investors are not willing to invest in this area due to legal and economic uncertainty, which in turns reduces the number of startups and innovation.

As described in the term ‘permissionless innovation’, the Internet removes barriers to entry – technical or otherwise – allowing Jeff Bezos to start Amazon in his garage in Washington, Mark Zuckerberg to start Facebook in his dorm at Harvard, and Larry Page and Sergey Brin to start Google in their lab at Stanford. ‘Permissionless innovation’ produces a significant economic effect and creates the conditions for additional points of entry and access.

Digital music – whether streamed or downloaded – requires no physical inventory like Amazon books; no network of friends and family like Facebook; and no ‘secret sauce’ like the PageRank algorithm that propelled Google. Why should permission to sell digital bits not scale with the size of the seller?

In 2012, global revenues of recorded music increased for the first time since 1998, based on the increase in online distributed music. Thus, there is a market for online music, and no reason to restrict the market to just a few large players. With innovative new business models, the industry should be able to bloom.

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Disclaimer: Viewpoints expressed in this post are those of the author and may or may not reflect official Internet Society positions.

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