Cody Willard: Embrace the ‘revolutionomics’ of the internet

The endgame of the internet is the total empowerment of the end user.

Because the internet has been built on open standards and the free flow of information, the 1.5bn people on this planet who have access to the web will continuously move to the places on the net that empower and liberate them the most. We users will constantly (and at an accelerated pace) move away from centres of control and toward self-empowerment.

And just as the tendency towards disorder in the universe cannot be controlled, nobody can stop the virtuous entropy of the internet revolution.

I have coined the term “revolutionomics” to describe this dynamic.

“Lock in”, “switching costs” and many other similar strategies that the world’s leading technology companies have built their business models on have no place in the end-user-powered networked world. Tech companies have long tried to lock their customers into proprietary standards, thus creating high switching costs for them. Control was yesterday’s business model. The model that increasingly works on the internet is to empower customers rather than control them.

Edward George Bulwer-Lytton, the English novelist and playwright, once wrote that the pen is mightier than the sword. That the internet revolution will be fought using words, software and open networks – and on such a massive scale – is precisely why its impact will be much bigger than any revolution this world has gone through. Every revolution that has succeeded in the long term, including the American Revolution, has been about shifting power away from central control.

As the costs for technology development in this networked future continue to collapse, the only differentiator becomes one of execution and strategy. Only those companies that design their systems from the ground up to empower the end-user have any chance of long-term success.

Look no further than what is going on in the media industry for what happens to those who fight the virtuous entropy.

Google, the fastest- growing company in the history of capitalism, and a stock that I have owned since it went public, focused on establishing itself as a de facto conduit for the world’s content for the first few years of its existence.

As its reputation for openness and empowerment of the end-user has grown, Google has reaped big rewards: its market capitalisation is more than $150bn.

No company has embraced the revolutionomic model as Google has. Others, such as Yahoo, Microsoft, Sun and Apple, still obsess with making sure you are locked into their systems. Want to forward your Yahoo mail to another account? Upgrade for $19.99 a year and Yahoo will “empower” you. Gmail empowers you to do that for free from the start.

The only thing Yahoo accomplishes in this model is to alienate its user base as the hundreds of millions of Yahoo mail users shift to alternative and empowering e-mail systems such as Gmail. In the process, Google makes lots of money selling advertisements as you retrieve your e-mail, making up for the revenue it forgoes by not charging users directly as Yahoo does. That is virtuous entropy in motion.

Want to listen to music you purchased from Apple on another MP3 player? Sorry, Apple and the music labels think it is more important to empower themselves than the end user. And people wonder why music sales are down double digits over the past few years. Hey labels, wake up and start monetising peer-to-peer and all other forms of open music distribution.

Sure enough – though it took a full decade after MP3 file trading first became mainstream – the music labels have begun to license the selling of open-standard MP3 songs on MySpace.com and elsewhere on the internet.

Anybody want to bet that we see music sales climb in 2007? It turns out people will pay for a good product delivered to them simply and in a form they can use on any system.

Years ago I trademarked the term “they can’t stop the revolution” as a catchphrase for the virtuous entropy of revolutionomics. And, indeed, that is exactly the point. Neither Yahoo, nor Apple, nor the music labels, nor the film studios can stop the empowerment of the individual.

Late last month I launched the RevolutioNetwork, a network of social video sites that includes BoomRevolution.com. Users have already uploaded and organised tens of thousands of copyrighted television, film and music clips on the site, as they have been empowered to do so by our open standards and guarantee that we won’t ever attempt to fight the revolution.

Within the next few months, television and film studios will follow in the record labels’ footsteps as they, too, recognise that it is easy and profitable to monetise the empowerment of their end users.

The content owners that have been fighting the revolution, including Disney and Warner Music Group, are, ironically enough, perfectly positioned for a golden age of profitability as their end-users have ever more access to the content on ever more devices. And the virtuous monetisation of distributing that content begins.

Cody Williard is a hedge fund manager at CL Williard Capital cody@clwillard.com