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Chair:   The next person on is Michael Bauwens of peer-to-peer fame. Somebody who I really made a personal invite to come over here. As I said, he lives in the "Hills of Thailand". Is that correct? So it was quite an expedition to come over. So, please welcome Michael Bauwens of the Peer-to-Peer Foundation. Thank you, Michael.

Michel:   Thank you. The slide that you see there is basically an overview of what we cover. As you will see, I am not sure you can read it but the green things are the deep changes that we are going through today. You will see that there are changes in ways of knowing, there are the changes in the way you are feeling. I just read a book about young generations in Dutch which says that said sharing is a default mentality amongst the digital natives [the book is called the 'Einstein Generation']. This is one example of how the value systems are changing. Actually, what I want to talk about today is really the changes that are taking place when there is a new mode of production emerging in our society. Basically, what I am saying is that there is a new way of producing value which I call peer production. It is basically the self-aggregation of people through social relationships. If you are familiar with Benkler's book, The Wealth of Networks, you will know what I am talking about.   

I was just talking about a friend I met in the Amsterdam called James Burke. He is with a project called Roomware. This is just a bunch of young people. When they go to a party, they basically want to point their mobile phone and share music and pictures during the party using a randomizer so that everybody can share in the fun and share in constructing the party. There are thousands of projects of young people doing things, inventing things, having social innovation that is happening outside of the boundaries of the corporations. I can guarantee you that this group of young people will be faster with their innovation than 200 paid engineers in Philips. This kind of dynamic is something that we are seeing more and more.

Basically, we are inventing new ways of doing things. What I want to focus on really is on the business models that are involved. I talked for about five minutes briefly yesterday, I think. I said I believe in something called the law of asymmetrical  competition. Basically, what it says is that when a company producing a closed proprietary knowledge refuses any participation from its users and does not create any common value, when it is facing a for-benefit institution like the Mozilla Foundation or the Wikimedia Foundation which is linked to a community producing common value like the Wikipedia or the Linux, that eventually, there will always be a point where that community will make a better product than the corporation.   

If you derive from that the second law which is, two for-profit companies competing with each other with one opening up to participation using open licenses and producing some form of common value, it will be more competitive than the company not doing it. If you believe that is true, then what you get is a little bit of what you see on this slide which is that basically we are moving to an economy where I think, in the United States, only 23% of the people are involved in material production and producing material stuff, so we are clearly the dominant on the immaterial field. If in this immaterial field the place of for benefit production is augmenting, then we can see a good case for growth of peer production.   

Most people think that peer production will be limited to knowledge production to content to free software. But, basically, I think that is a mistake because everything that needs to be produced physically needs to be designed first. Designing a car is essentially not so different from collaborating on free software. One of the pages, if you go to P2PFoundation.net, is called P2P design. It is basically about open design for physical production.   

For example, let us talk about the car. Most people probably know the Oscar Project which, I think is not going well. Last year in Amsterdam, there was an open-sourced car concept model shown at the automobile exhibition, called the Common. One of my associates talked with those people and they said they were very close to negotiating a deal for the production of their design and that they expected production to take place in 2011.   

The thing about peer production is that, as a company, and I can say that as I've have been an entrepreneur for 20 years and I was a strategy director in a large telco, you always innovate relatively, to be better as the competition but, if you do that as a community, let us say the Firefox community, you are always innovating for absolute quality. You want to make the best possible browser. Instead of a product which you freeze at some point, especially if you have no competition, you have a permanent process of innovation. That means that whenever you have an open design community starting a process, and it can take 5,10, or maybe 15 years but, there will always be a point where the open source fridge that they produce will be better, more environmental friendly, more modular, more longer lasting than any design that can be produced by a private company.   

This is a slide that tries to explain the business model. We can do two things. We can define open and closed as a proprietary format, and we can define free and paid. That gives you four quadrants which you can see there. Basically, what everybody knows here is the paid and closed, right? You make something, you have a patent or copyright on it, and then you sell it. This is the classic business model. This is the one that is most on the mind by contemporary developments. In the age where information, knowledge can be copied infinitely at a very low marginal cost, it will be increasingly difficult to protect that information, to protect your designs, to protect your patents. We can see that with free software. We can see that with music, whether they use the law or technology as the DRM, it will be increasingly difficult to stop the undermining of proprietary knowledge.   

Think about the middle ages. Some of the first inventors of the textile machine were killed. But, it was inevitable. Eventually, the textile machinery became an important model because it was more efficient and more productive. Basically, this model is facing two main competitors. The one is closed and free. That is what the book of Chris Anderson is about. It just came out. I have not read it yet. But basically, whenever you are dealing with knowledge, you are competing with somebody. If that other party decides to give its primary commodity to knowledge for free, they will undermine your proprietary  business model. What you do then is you are forced to free up your primary commodity and build a portfolio of secondary services around it. That is something very familiar in the publishing field and in the media field.   

The other competition that you will face is people using open proprietary codes. The same effect is actually free if you like. Free as in free speech and also free as in free beer. These people, of course as the Linux model, will build secondary practices around the free open content. The third one, but it is also competing with you, is the totally open and free alternatives. Think about couchsurfing.com. Some people call it the adventure economy. Couch surfing, I do not know if you have kids who use it, is basically a way to find lodging in the whole world. You want to go to Chiang Mai, if you type it in, you will find about 20 people offering free lodging. You can read their reputation. You can write to them and ask them if you can have lodging and they will look at your reputation. All of this process is entirely without money. It is an exchange. It is a civil exchange of value by civil society which is of course also, in some sectors, counting as a competing modality.   

Basically, if you look at this model, what I am saying is the upper right quadrant is what we have now the most precarious in the future. We will have to look this as a business, the two on the upper left and down right, if you want to make a business. I also make a difference, which I explained very shortly yesterday, and I want to explain it again in a little more detail now. There are three major economic streams that are coming out of peer production and the first is a sharing economy. Look at YouTube. Look at Google. Those companies are no longer producing value by themselves. What they are doing is enabling and empowering sharing to occur, sharing documents in case of Google, and sharing videos in case of YouTube. The motivational people writing documents that you can find in Google, 98% of the documents on Google are not institutional documents. They are written by civil society,a very large percentage of users generate  the content. Most of these people are not doing it for sale. They are producing not for the exchange value. They are producing use value. The model of the sharing economy is that of third party propriety platforms enabling the sharing and lifting of the tension.   

Second example of a business model is a commons model, whereby a community-driven process is creating value, the common value. Think about Wikipedia and Linux as the main examples. Around that, is created  an ecology of businesses adding value. The reason behind that is you cannot sell abundance. The market is about tension between supply and demand. Therefore, if you have something which you can copy for free, it is not going to create the market. But, it is creating a vast opportunity to create added value around the commons. The model we have in the commons economy is not a double model between community and company. It is a triple model.    We have on the one hand the community mostly self-managing it's production of value. We have a new set of institutions which I call for-benefit institutions. Think about the WikiMedia Foundation, the Apache Foundation, Etc., the Mozilla Foundation. These are not for-profit companies. As you see, for example, Wikipedia could make billions of dollars selling advertisements. They are not going to do it. It is not in their interest. Craig's List refuses advertising. The Mozilla Foundation is the same but it is a little different. The Mozilla Foundation makes money by selling the space to Google search, which funds their for benefit infrastructure. Basically, the community of producers at large is not in there for profit. So, we have three players. We have the community. We have the for-benefit institution managing the infrastructure. And, we have ecology of businesses around it.   

I think the key problem for business is how we manage openness and closedness. The basic idea here is that openness creates value but it does not capture it. In order to have market value, you need to capture some form of added value of scarce value. That is the whole thing. You can see that in the competition between MySpace and FaceBook. When MySpace got taken over by Murdoch, whole new kind of measures were introduced to stop the sharing on MySpace and you saw that the growth curve was diminishing. When FaceBook opened up, you saw the fantastic growth of FaceBook happening. Apple, the epitome of the closed company, under pressure of the hacking community, is opening up partially its development to API's. That is the kind of tension that every company is going to face.   

Another problem is what do you do with the dynamic of the community? Profit sharing usually does not work. If the community is there, from a wide variety of motivations and not primarily for profit motivation, paying some people and not others, usually creates what we call crowding out. In other words, if I see that you are getting money for voluntary effort and I am not getting money, then I stop volunteering. Most companies, and I think I mentioned that, like IBM when I spoke with somebody at the company they told me they saved 90% of the software infrastructure costs using Linux. 10% of that savings are sent back to the Linux community but not as profit sharing, as benefit sharing. In other words, it is a general support for the infrastructure of sharing in the commons rather than sharing money with individuals. That preserves the voluntary dynamic in the community.   

This is happening more and more. For example, when I say that peer production is also very important for physical production, I would say two things. One thing is that, typically, you would say capitalism is about entrepreneurship. But, capitalism and entrepreneurship are diverging more and more. The example you could use is the BitTorrent. Bram Cohen had no money. He used a series of credit cards and he produced the most important, most valuable software that we use today for multimedia distribution on the Internet. So what happens, and we can see that in the Web 2.0, is that you do not need capital to start because that is a design process. It is just brains working together with other brains. Capital only comes in, not in the beginning but, at the end. It is when you have success. It is when the users are breaking down your servers, that you need capital. More and more we see entrepreneurs that are creating value by self-aggregating capital.   

I actually already said that. This is a business model. This is another important element. This is the kind of modeling that is done by a man called Xavier Comtesse. He is Swiss. He shows that the evolution is from a corporation towards increased participation. You have passive consumption and you go self-service or do-it-yourself. Co-design up to co-creation. Something is missing there. Basically, what I think is missing is the power of the community. So what I am proposing is to enrich his model by a model of community involvement. What you see there, and I will not have time to go into it but, there is a whole variety of new business models that are emerging not on the side of the polarity of the institution, but on the polarity of the community. It is very important because I think that this is what the new business models are about.   

Classic business is about, I am an institution or corporation, I see atomized individuals organized as a 'mass', and I would practice mass marketing to sell to those consumers. I think the new model is recognizing that the users and consumers are always already connected in various peer groups that they are doing all kinds of self-aggregated activities and value production amongst themselves. Therefore, I will position myself on the side of these communities and see what they need.   

For example, in China, we have these group-buying companies that are very powerful there. As far as I understand it, they are not going to a company and ask what they are selling and then looking for consumers. But, what they are doing is they change the polarity around. They are talking to the consumers and saying "what do you need?" then, with that knowledge, they go negotiate with companies and asking them for discounts for the community. Basically, the model I think will be a model whereby a tribal economy is emerging, whereby businesses are emerging that know from inside-out the needs of a particular community and that creates services around that.    I just want to say a little about the relation between peer-to-peer and the market. It is a pretty clear that peer production can only exist when there is a surplus and abundance in the existing world. In other words, peer-to-peer is depending on the market. There is no doubt about it. But on the other hand, the market is increasingly depending on peer-to-peer or on peer production. Remember, you are all in this business. I had a web company in 2000. The crisis happened. Everybody was saying it is the end of the Internet. There will be no more innovation for a few years. What happened? The opposite, the innovation did not stop without the companies but it increased and it accelerated. That shows that, actually, the results are reversed.   

In other words, innovation is more and more social. It is an emerging property of the network. This is a form of innovation which is more and more prevalent that it is the communites, the exchanges and the sharing within communities that lead to innovation, which are then captured. In the book from Eric Von Hippel, The Democratization of Innovation, he mentions Gatorade, the sports bra, the mountain bike. He describes the sports industry, kite surfing, as all industries where the community lead user innovation is primary and captured by commercial companies after the fact.   

We have dialectic between both. I think there is a problem, which I call the crisis of value which is a following. We are producing more and more use value as communities and as citizens. But, only a marginal part of that use value is captured by monetization. If I had a slide for that, I wouldshow the following. The growth of use value on YouTube is 100 million per day, growing exponentially. But, the growth of the advertising is like this, growing only linearly, and the gap between the creation of use value and the monetization of it is increasing every day. More and more young people choose for passionate production. If you talk to young people, which I regularly do when I go to Amsterdam, "yes, they work." They work for Microsoft, they work for different companies. But, what they really want to do is have a meaningful activity.   

They usually work around projects. In between projects, they want to do their passionate production. This is increasingly so. They define their identity through their engagements in their common projects. They do not say "I work for Microsoft." They say "I work on RoomWare" which is the free software project they are working on. I think this creates a precarity in our society. A precariousness because we do not have a mechanism for funding this common value production even though the market increasingly profits from it. This creates a serious problem.       

In Europe, we have a partial answer for that which is what we call transitional labor market theory. Basically, what we are doing in Europe is creating all kinds of mechanisms that make it easier for people to transit from job to job. Because now, by the time you are 35, you have I think 13 jobs in average. They are trying to smooth out the transitions. What I am saying is that it is actually between the transitions that we are most productive. It is in between the jobs that we actually do the most innovative work.   

I said we are talking about conflicts. So this is a slide I did not produce it. I have the source of it on my slide show. Basically, this shows a new dynamic which is exists between communities and institutions. Again, they are different in YouTube, for example, in the sharing communities where the people who share on YouTube are individual-oriented. They want to share their creative expression. They do not have strong links with each other and, therefore, they are depending on a third party. That does not mean they have no power because the power eventually is the power to leave. And the companies are struggling between the openness that creates value and the closing down that captures the value. But if they close down too much, the user community will be tempted to change and to opt out. We either have a user revolt, which we had in Digg, FaceBook, or we have what we call a forking which is a departure of the user population from that particular site to another one.   

There is a price to pay, however, since people invest in this social network, they put their pictures there and their friends. So, if you are really invested in YouTube or any other social network site, you have a price to pay. This creates a particular social tension between community and corporation. We could call the class struggle of the knowledge society. There are differential interests there. The community wants total openness. We want the social graph. We want to be able to own our identity, to control it, to control our privacy, to move from one network to another. The problem for a company is that if they allow total openness, they are afraid that they lose the control over the scarcity and cannot have a business model because, of course, if you open up totally, then any other competitor can take that value and market it as well. This is a difficult tension that we have in this sharing economy.   

An answer, and this is something that we are working on with the P2P Foundation, is that some people within the sharing community will take a commons-oriented approach and actually produce their own infrastructures. One of the things we do is we monitor all of the communities which decide, for example, "Why do we not make our own video sharing communities and why instead of a centralized server part, why do we not use a distributed even server-less system?" because, basically, what creates the need for proprietary  platforms and the need for capital is the fact that you need a centralized service.   

Can we design around that and actually create true peer-to-peer infrastructures that do not need propriety or platforms? It really depends on each case that we are working on. Most people, if they are happy with a proprietary platform, will not want to make the effort to create an alternative. Basically, this new situation, this new dynamic, creates all kinds of social tensions around different things like who owns the platform, how open and free is it, how much sharing is possible? This is an important issue. Where is the power in a distributed network? In other words, you cannot see it. But, it is usually in the invisible architectures. Why can we not remix in YouTube? It is in the design. Therefore, it is very important to have value-conscious design where the value's diversity and autonomy are actually included in the design itself.   

Another example is ownership of the content. I am not sure it is still that way, but it used to be when you entered your video on YouTube you basically signed away all your rights. I think they have changed it somehow, but I am not sure about the details. This is a kind of recurring problem that when you enter a proprietary site, you lose your rights to your content. Revenue sharing is another issue. How do you solve that? It is not easy. For example, YouTube made 2 billion dollars. It did not give any money back to the millions of people who have created the value. As I said, profit sharing is, obviously, not the good solution because that might actually harm the sharing that takes place. So, how do that?   

I am not sure how much time I still have, but I will conclude with a more political statement which is the following: there is undoubtedly, not just the business aspect of peer-to-peer, but also a political aspect. Here is my five cents worth  of analysis of what is wrong with the world, it is very simple. We have a world today which combines the worst of both worlds. We live in pseudo-abundance, false abundance. We think that we have infinite nature. Therefore, we have an infinite growth machine functioning within a finite environment. I personally do not think that will last very long.   

The second thing we do is we think we need to create artificial scarcities in the immaterial world so that we can create a market in it. Basically, the proposition, of course is just to turn that around. Let us have an economy which recognizes natural limits and let us have an immaterial field of sharing in culture and knowledge where the natural flow, the infinite flow, and the infinite replicability of information and culture are recognized. This political aspect is not my invention.   

If you would look at P2PFoundation.net, we basically recognize three emerging paradigms, three emerging social movements in the world. They are growing everywhere, from spirituality to business to politics and to the following: open and free. It is easy to explain because if you want to peer-produce, if you want to create value through self-aggregation, through sharing and cooperation, what do you need? You need raw material. If that raw material is not open and free, you cannot work together. This creates, in almost every field, free software, open source, open access publishing, open education text books, open reiki, open yoga, open [inaudible]. It creates a wide variety of social initiatives in every field, stressing the need for open and free raw material. The second aspect is participation, which is basically "how can we design social systems?" And the third one would have been commons-oriented output. That is it.   

Chair:    I really want to ask you some questions. I will probably need to limit myself to one because that is just so incredibly important and needs so much reflection. Can you relate what you said to the telecom's industry? I know it is an exceptionally hard question. I believe you can do it.

Michel:    Actually, Lee asked me some questions about the telecom. I used to be the e-business strategy manager or Belgacom five years ago. I told him that I was no longer the expert he thought I was. But, my answer would be the following: the basic problem is about abundance and scarcity. You cannot have a market when you have abundance, therefore, the telcos will never build fiber because they can make money only once while they are building it. Once you have it, there is such an overflow and such an abundance that you cannot market it after that. I think one of the answers I gave you is you cannot absolutely expect the telcos to ever build a fiber infrastructure. They will never do it. It is just totally counter the institutional and commercial interest that they have.   

So how do you do that? I think Brough Turner, I am not sure I pronounced the name right, gave kind of an answer to that. We have three models of production now. It is very important to know that. We have the private way, companies building and selling. We have the public way, centralized planning, public provisioning. But, we also have the direct social aggregation, the peer production, way. The wireless commons is an example of civil society taking up itself the task of building bottom-up through distributed capital this kind of task.

Chair:   We need to do lunch tomorrow. Please thank Michael Bauwens.

Transcript below from Mark's keynote at the inagural eComm 2008. The corresponding slides can be found here.

Chair:   We are now moving off the lightning talks and we're moving to a 20-minute key note. We are moving to a trio of talks based around design. We have Frog Design, we have Bug Labs, we have Yuvee and we have Mark Rolston, who is the Chief Creative Officer of the legendary Frog Design. And I think that Mark is going to be speaking about what problems that we are here to solve, what the value proposition is for consumers and what the drivers are. So please welcome Mark.

Mark Rolston:   Thank you. So, I think that I am going to slow things down a little bit at least. I got 20 minutes to burn here and I probably do not have 20 minutes material. [Laughing]  I was telling Lee [Dryburgh] I feel like a little bit like a fish out of water with some of these topics [previous talks]. What I bring is more of a message from a user experience perspective in a little less industry specific look at things. But perhaps that's something important today.

First of all, rule of thumb in what I have to say. Change is inevitable and it is an important idea to us and that is the business we are in. We are either an enabler, a catalyst or at times, a provocateur on this basic idea with industries. The two important parts of this idea are changed in what largely I hear everyone talking about today is in terms of making things better. But there is another kind of change which is different. I want to talk a little bit about that. And the way to frame that story up a little bit is to first talk about maybe the life of the product or "it". This is the singularity that I am referring to. And this mental model that is so critical in a product's success and the life span of a product.

So, if we start in the beginning of a product's life, there are some sort of inspiration. Something gets it going. It comes from nothing and becomes something. We are not sure what it is, what is "it."  I want to dwell on this word "it" because I think that that is a critical idea in the minds of consumers.

A new model emerges when we have that. We may not know quite what it is at that point. The author of that may give it a name but the public does not know quite what to think about it. And over time, it becomes "it", a way that a single word might express the common understanding of what this thing is in an industry. Even then, it may undergo some evolution. It may change course. It may actually bifurcate. It may become multiple things. And even better, it may come in collision with another market with its own perception of what it is. What is interesting about that is quite often, more often than not, this product in many of these industries, I am going to come around with this industry, is still beholden to that original mental model, that original "it."  The way the world thinks of it and it ends up being a box. It ends up of being a limiting conceptual boundary for what it is. So change becomes beholden to this singularity. Almost likely, the astrophysical phenomenon, it is sucking in every attempt to escape out of that reality.

I will give you an example. I will try to be a little bit more concrete here. The car. Do not take me to task for the genealogy here. I took some exceptions. But the automobile, it starts with a basic model hundred years ago or more than that. Even through all of the innovation, what we call innovation with the automobile, it still is basically, even with a number of iterations, and this is just one manufacturer,  the number of iterations that we have created still basically is the same thing. The way we buy it, the way we use it, the value proposition and the way that people understand this product is still the same thing. So, that leaves me to this industry. Sublime statement here. We unfortunately, are trying to apply that kind of thinking to a model like this.

I want to introduce this idea and where this might be going. We have the telephone. I am going to focus on the handset itself. I know that a lot of folks have been talking about the services behind it but I want to talk about what the users gets and the way they focus their attention on what "it" is. And, that is often through the device that they hold in their hands. The physical and functional expressive reality and not all of the business behind that.

That telephone, while simple in its initial incarnation is actually beholden to a lot of functions. We sort of plugged in all these different things; all of a sudden "it" is now challenged by a lot of different players and a lot of different mental models. Those things are born out of other realities or other sources for what these mental models, you might say interface, the market approach, the technical realities, the boundaries. Just the thinking that defines these products. And all of the sudden, the phone is incredibly challenged. And those things all come from different corners of the world that you might say. And again, you could look at these six ways to a hundred but hopefully this gets the basic idea across.

In the end with this happening, the phone ceases to be a phone. It ceases to be the "it" that it was originally born with. Why is that?  What we are facing here is that software is allowing for the product's ever shifting identity. That original product, the thing that we hold becomes almost a non-object to this dynamic reality that sits within that. It is almost just like a hole in the world, a portal that allows something dynamic to come through. "It" can essentially be anything you want it to be. And that, in a way that we normally think about products is really challenging. We want to design something with a sort of singular identity where everybody says that this is what it is supposed to be and what happens when "it" becomes some anything that you want it to be?

So, we move from a literal, from a design perspective, from a product creation challenge. Something where the form, and function, the story is easy to tell, it is literal. You can almost look at something as an alien from another planet and over some exercise,grok what it was suppose to be doing for that culture, for those people, to a more abstract relationship between form and function.

The physical object of course looses its functional identity. What it is instead, as I said is a portal. The physical object does not become meaningless, it takes on new roles. Here, it is fashion and it is self-identity. Like what people have been talking about portals, this physical object becomes another part of my outfit or my dress but it is not what it was. In that, it was at one point an expressive way of identifying what it does. At this point, it is not, it is instead something that is just part of my outfit. What it does is a dynamic reality beneath that. So, what are the drivers of this change?  Technology easily,democratization of these tools, these types of platforms allow folks like us in a direct idea relationship and folks like you to move more quickly from idea to execution for the concept itself is that much closer to the execution. And therefore, the opportunity to make a radical change to escape that sort of singularity is much easier.

The ecosystem is driving that. In other words, a product does not exist in isolation anymore. We have a lot of discussions about this today. This I think is one of the most fascinating things and as a design consultancy, one of the most difficult aspects. There is less and less opportunity to create that sort of singular statement that almost a mixture of political, emotional, fashion statement in this one gesture. Folks, we have been around since 1969 and we very practiced to that. But the new reality in making products is a much more systemic challenge.

Form and input, I think that for whatever reason, there has been a culmination of these radical ideas that for many years just floated around in Power Points in the back rooms of large companies and small. They were tossed around inside the design firms but they never went anywhere. But one or two products managed to escape and that leads to the next two points.

Competitive landscape, just at the time that that was hitting critical mass, you have some players getting weaker and some new players are entering the market namely this one.

This is a shot of the opening sales day in New York for the iPhone. And when customers demonstrate a willingness to accept these new models in the industry dog piles, then you have this opportunity to truly move from the current model or the current singularity to something new. And that is the opportunity in front of us. "It" is changing. "It" is becoming something else. This industry has an opportunity to seize that moment and to define something new.

Chair:   Any questions?

Audience:   So, when you are looking something like the iPhone which has grown tremendously, what is "it"? What do you see the "it" is?

Mark Rolston:   I think that if we over simply the story, it is the new computer, you might say. "The PC is dead, long live the PC" or you could throw in "The phone is dead, long live the phone."  But the two were colliding. Apple's essentially, if you watched to SDK release last week, they essentially pulled - some of our folks inside called the Windows '95 moment. They unified this development platform, they have opened it up and I think that the iPhone, you are going to quickly see, is going to move away from being phone to being sort of ubiquitous, mobile portal into your life. Telephony may actually be a very minor feature in sort of the net use that occurs on the phone. I might even say that it might even end up sub 10% if you measure across the customers. They are going to be doing everything that they do on PCs today. And what has been so beautiful about the PC is that it is agnostic. It does not give a crap on what you do with it. You do what you want to do on that. An invention, a need and even random or just whimsical desire can be expressed on that device and there is no business model to get in the way. And I think that the iPhone just jumped into that pond and we are going to see a lot of interesting invention.

Chair:   Mark, were you here when I opened up today?

Mark Rolston:   No.

Chair:   Because, you have actually echoed what I said about the telephone is dead. You have echoed many things. So that was cool. Can you comment on Android?  Any general comments on Android?

Mark Rolston:   Android takes what one company is doing as a provocateur and makes it wide. Android is the antidote of what Apple has presented. Apple is going to go off and do that on their own but the whole world cannot get behind that model. The last time that they did that, we had Microsoft becoming a giant gorilla and Apple actually I think will be a lot less friendly as a Gorilla than even Microsoft. And so, I think that Android is a fantastic antidote to end up. We are actually doing a lot of development with android so we are incredibly behind it.

To add, what is really fascinating about that and I cannot name people, but a lot of players who have no business in this industry, they are not about communications and not about telephony but they are just about consumer features and consumer products in a broad sense are using that and some normalization of platforms to jump in and make products that are going to fly right in the face of people like Samsung, Motorola and the carriers. It is a fantastic time. You are going to see that real soon.

Chair:   So, it means that the phone is no longer a phone and the television is no longer a television. That is just a terrible battle. We talk about convergence but that is where we do not know what the damn thing is or what it wants to be because it can be potentially everything and voice becomes secondary anyway.

It is a computer, the iPhone anyway. So we are still calling a phone. Do you think that in twenty years time we will be talking about telephones?

Mark Rolston:   We might use the word but the word would have ceased to become what it meant. We may use it just to describe it in its form factor.

Chair:   What if you spend most of your time shopping on or looking up information and the only place of telephony...
 
Mark Rolston:   Again, the word becomes sort of a meaningless carrier to that. We may come up with another word. That actually is a brand challenge and that the [inaudible] to how that is accepted. I do not think that it is something you plan on or can talk about with any accuracy. It is like fashion.

Audience:   A question from the back since you are talking about fashion. We are still talking about "it," right?  There is just this thing that I have got in my pocket or the guy  [James Body] has got and all these things that he is going to security with.

What do you see as the future of wearable computers and everyone's got this bluetooth thing. When are we going to become borgs to some extent because everyone got this little bluetooth devices in their pockets. It seems to me that people at some point are going to stop wanting to carry these things and just wear clothing or something that even more of a statement, I guess.

Mark Rolston:   I think that is easily true. But that is far enough out there. That would be a talk with the futurist rather than a designer and I am what you call a near futurist, you might say. So, I am focused on what we can actually accomplish within a reasonable amount of time. I think absolutely that a lot of sociological change has to happen. We still identify with a point of contact even with devices just like with humans. So holding something in our hands, is very meaningful even if its meaning that I try to imply is actually being driven by lots of outside forces and outside systems. There is an infliction point there, that singularity that we like to have in our hands and we will define as a single thing even though it represents many things.

Audience:   I am from UK and the average number of mobile devices and subscriptions per person is 1.6. That is an interesting number because it is going up. And I think that in Italy, the number I think is above 2. Most people I see with iPhones have at least one other phone as well. And I am so quite interested in what you are thinking about. The fact that people will have multiple devices, in my belief is because they are cheap, they are differentiated and so you might have an iPhone but you will have a phone as well perhaps.

Mark Rolston:   Sure, I think that two ways to answer that is, one, iPhone is a baby. It is not what it will become and I am not here to defend the iPhone. I think that the point is that looking at the phone as just phone is what is about to change or what is about to blow up. So people may own multiples but each of those may represent different modulations of that dynamic reality. That sort of hole and space that is possible or they may actually intentionally from a fashionable perspective and I say fashion in a broad way, narrow their functionality. If you look at what Apple did with the iPod, sorry about that Apple again example, but they narrowed the offering there to tell a simpler story. And that in essence is sort of a fashionable way of addressing the product's identity. It is not a technically bound thing or it is not a market thing but it is the way of crystallizing the value that they want to define in that product. And I think that people having multiple handsets is a similar type of phenomenon.

Audience:   I guess the question over here to your left. Could Nokia pull this off?  Nokia having 40% of whatever or the market.

Mark Rolston:   Nokia certainly could pull it off. But I think Nokia with their platforms is a little too subscribed to an agnostic take on value. And, that is not how you give birth to a market that is how you follow-up. And so, the market is too young right now and what you need is a lot of high value and highly contextual applications that say, "This is the way to go" and what I have seen so far in the touch platform that they are developing and the existing platform is that the experience is shabby. It is kind of cobbled together and the market is growing out of that. It looks like the technology underneath and it should not. This is too late for that. Those things will be challenged.

The agnosticism is a great growth stage but you cannot end up there so Nokia needs to grow out of that. I think that they have the capacity to but they are also slaved to the success of that early platform. All the developers are going to bitch and whine if they try and move the direction that I am suggesting.

Microsoft faces that, right?  That many PC platforms, that many variations of the PC, that many application developers, it is hard for Microsoft to make a bold escape from their own destiny. Nokia is a smaller version of that, easily.

Chair:   Thank you very much Mark.

Transcript below from Jonathan's opening keynote at the inagural eComm 2008. The corresponding slides can be found here. As a side note the complete comference video and audio is pretty much ready to go but a few minor niggles are holding it up.

Chair:    We are going to start this conference with Jonathan Christensen who is the general manager of audio and video at Skype. Jonathan is going to kindly warm this conference up by speaking about the history of IP communications over the past 10 years. So, I would like you to welcome Jonathan please.

(Applause)

Jonathan:    Thank you. So, I am going to try and give the 30-minute version of his 15-minute intro. I am Jonathan and I have been with Skype for about 2 years. I lead up our audio-video research and development that is spread across a couple of continents and a lot of time zones. I'm building world class software that we hope for next generation communications. I am just going to give a little bit of an overview to talk about the last 10 years from my perspective. The things that I have seen, the major inflection points in Voice over IP and then hopefully try to move in to the "what's next?" stuff'.

A lot of people get credit for the first VoIP instance. But I think that around the industry, most people give credit to VocalTec and their Internet phone for being the first usable network-based Voice over IP client and this was a desktop phenomenon. Then came a lot of people rushing into the market once the concept was proven, to build gateways. And, we are going to talk about these in a little bit. Then, there were some carriers that came along and they established the gateways and POPs and they connected it to the PSTN and they created a market for moving VoIP minutes around.

And along with that, there are a bunch of other lower level innovations that started happening. Companies like Global IP Sound building next generation Codecs that were Internet aware that offered wide band and that did interesting things like that, sort of changing the nature of the communications a little bit.

And some use cases started to gell, first there was this PC to PC, this kind of the ham radio users. Jeff Pulver, a name that is sort of synonymous with Voice over IP and the whole VoIP revolution was a ham radio operator in his youth. He clung on to this idea when he first saw it and he saw that there was something really interesting here.

The next use case that really drove the early days of VoIP was tandem trunking. I would go into some detail about tandem trunking and what is interesting and what is not so interesting about it.

Along with that a couple of mainstream apps emerged, you had Netmeeting from Microsoft - how many people in the audience ever used Netmeeting? How many people in the audience have ever used Skype? Well, Netmeeting was first introduced in the late 90's. It went through three revs and it was last updated in 1999. I was involved in that work at Microsoft. Amazingly, that application is still widely deployed and used especially inside large organizations today without a single update to the basic application in almost a decade.

The other use case that started to emerge was two-staged dialing. This is a notion that you call a number, usually an 800 number, you enter a pin and it gives you access to the network to make cheap calls. Most of that was built on top of VoIP infrastructure because at the middle of the call, we could use as tandem trunking and you could avoid a bunch of the cost. So how this worked in the early days is, if you are on the West Coast here and you wanted to make a call to the East Coast, your call would be connected to a class 5 switch or line side switch and that call would be routed to a tandem switch - and this is an over simplification of course - and the call would go over TDM, a traditional network to another tandem switch to class 5 switch and the phone on the East Coast would ring.

VoIP tandem switching replaced that center part with VoIP gateways. And the interesting thing about this is that it really was the death of physical distance. But much more than that, it became the death of the business model behind distance. You have some bandwidth efficency and that was kind of interesting. The local exchange carrier could avoid the LD carriers along haul lines and that was kind of interesting. The incumbent long distance player could then avoid the termination fees at the LEC because the call did not arrive over long distance or telephony service but it arrived over an information service that was unregulated and this is a sort of regulatory trick. And what we really saw was a whole era of arbitrage and many would say inferior service.

Suddenly, you are transcoding or re-encoding using the network that maybe was not suited for real time communications and all sorts of things like that. Vagarious of the network that were introducing inferior qualities.

Most of the time, these offerings were offered under alternative brands. Some of the big guys did not want to marginalize their brand. You could hear a pin drop or their brand had been around for a couple of decades and in some cases, 100 years. And, they did not want that to be associated with these services so they came up with wacky names and wacky marketing schemes and prepaid calling cards and what not. So, those services were marginally interesting if you were trying to save money and if you are a college kid or that kind of thing.

So moving on, the introduction of consumer VoIP really happened when Jeff Pulver and some other industry luminaries started getting together and thinking about what they could do here. In the early inspirations this "minex" thing that Jeff got together was the idea that minutes were commodities and they could be traded. He was a trader at Cantor Fitzgerald early in his career. He thought, "Hey! There is something here that we could build this trading desk for these minutes and we could get something going there." He met Jeffrey Citron in that process and he was also toying with a thing called Free World Dial-up. How many people are familiar with Free World Dial-up? Pretty much, that is remarkable. I was a user. I had a one-port gateway installed and people made calls over my Seattle local line and those calls were flat rate billed. So I did not get billed for them and other people out of LATA [Local Access and Transport Area] got free calls on my infrastructure. It is a pretty interesting little application but did not really scale. It was hard to set up and what not.

The Komodo was an interesting device, the first little ATA that enabled this Free World Dialup scenario. Jan Fandriato built this little company and I like to joke that it turned any perfectly good analog phone into an inferior IP handset. Cisco acquired Komodo and really did a lot to validate the market. Suddenly, people were like, "What just happened?" Out of this mix, out of this soup, Vonage was born and the Voice over Broadband revolution began.

Vonage really set the early pace. They had lots and lots of cash, they were extremely aggressive and they went to market direct to the consumer. The long distance players entered to get into local service markets with unregulated services. We saw offerings like this cropping up. And then the MSO's, the cable companies responded. Generally, all of the people who entered into this arena were the people who did not have anything to lose. They did not have something to cannibalize.

So what did we get out of all this? Well, we got these attractive pricing plans I guess, these bundles, great savings - maybe I am not sure. New features, well you have call log, voice mail and a whole bunch of stuff that I think does not have much to do with the fact that it was Voice over IP. And many of these features existed before these services were launched. Still, it is a question like, what really happened here? My hypothesis is that for and as Lee [Dryburgh] said, it is a sort of foregone conclusion that the phone is dead. This is another foot in the grave, another beginning to the end. So the incumbents of course come in and they matched the prices and they start up a price war and they do that on TDM and some mash up with some web stuff if you want it. The landline telephony game becomes cheap, boring, stagnant and at the same time losing the mobile.

A couple of years ago I called my mom. She has had the same phone number since I was little kid. I got the recording, "This phone has been disconnected." And I thought, "What happened?" We have had this phone number since I was a little kid. So I wrote her an email and she responded and said, "What do I need that for? The only phone I use anymore is my mobile phone." When your mom moves into that segment, things are changing for sure. I think that that is a good sign that the commoditization of that market is total and complete at this point. And I think that the other thing to look at is, where is the next wave of innovation is going to come from?

I will go into some more of that but one of the interesting things that came out of this, it was not really by design, was VoIP export networks that started to crop up. People would order a couple of Vonage sets or choose your provider. And they would put one in a box and they would send it overseas and those two sets would be set up with the same numbers. So suddenly, you have phones ringing in India on a Silicon Valley number, right? And, they could call their relatives and create these ad hoc networks within a community and essentially export the numbers.

This is important because this is really one of the final nails in the death of distance, right? Not only does it destroy distance with the Internet being the pipe that is carrying this traffic but it also totally fragments the numbers. The numbering plans have really been used by the operators to discriminate both on price, politically and geo-physically. All of those things are just part of the old world and the numbering plan is a big part of keeping it all together. This again is further deteriorating the traditional voice business.

In 2003, I was leaving Microsoft, I was standing on a piece of land in California that I was thinking about moving to and I got a call from Jeff Pulver. I had called him in a beautiful sunny afternoon. I totally remember it. And he said, "Hello Jonathan. What is up?" This is like June of 2003. I said, "Jeff, we have to build a client that is super lightweight and simple and just works. It gets over the NAT traversal issues. It just works. People can just download this thing and make it work." And Jeff said, "Well you know, Free World Dialup works and the clients are getting better all the time and there are third party providers who are billions." I said, "Jeff, Jeff, Jeff, look, it is way too hard to use. We just need to build the client that works."

A few weeks later, a friend of mine, Allan Duric who was working at Global IP Sound at that time got me an early beta account, pre-release account of Skype and the lights went on. And that was in the summer of 2003. By Fall VON, there were 500,000 registrations. I was in Boston and everybody was talking about Skype. And most people were pretty angry about it especially the "SIP die-hards". Skype had made some early noise about, "Oh well, we do not use SIP because we do not need to and that really ticked off people who have been working in this space for a while.

Let us switch gears a little bit and talk about IM as the foundation of this next wave. In 1999, I was in Helsinki or Stockholm or some place like that, I was working for Microsoft at the time, I was on the MSN network and I was talking to a customer on the East Coast and one of our support people in Redmond. I was chatting. It was the middle of the night and we are having this three-way conversation on multi-chat. And just at that moment, it dawned on me that aside from being funny, I Am therefore IP, IM is the run away next generation signaling infrastructure. We were all talking at that time about what is the next signaling infrastructure. Is it AIN [Advanced Intelligent Network]? From my job perspective at the time, how is Microsoft going to participate in that next generation? What are the softswitch guys are doing so on and so forth? But here, I was having a conversation with people all around the globe. I was having that through NATs and firewalls and it worked. I was having it in real time and it was widely deployed already.

At the intersection of VoIP and IM in 2003, Skype appeared. And adding to that voice and visual sharing and rich communications, pictures, all of the other things - web links all of the other things that you want to share in a real time session is really the foundation for next generation rich communications.

How did this all come together? Well, in the summer of 2003, the solution was really 99% complete. And I think that this is why people at the Fall VON show were upset when there was so much overwhelming hype about the introduction of Skype. Because they were all saying, "Hey Vocal Tech did this years ago and we have chat in our IM client and so on and so forth. There was a robust audio stack, multi-media PC's were well-penetrated, broadband penetration was on the rise and by that point, well penetrated enough around the world to be a platform for this.

The P2P file sharing network had introduced new paradigms for low cost infrastructure. The NAT traversal techniques were well-known at that point. Maybe not deployed, but well-known. For example, in most of the voice chat scenarios of the incumbent IM players, voice chat failed 30-40-50-60% of the time if there was a NAT in the picture. And so, people did not use it, right? If it fails 2% at the time, you are not going to try it again.

The IM networks were well deployed for sure. All that Skype did was that they closed the loop. They added the other 2% at the top and they made this thing work. One simple little application, good formula, the users really liked it as I said; the industry was sort of confounded and by fall of 2003, there were 500,000 downloads and this thing was on an incredible trajectory.

Today, 276 million registered users, 30 million of which were in the last quarter of 2007. We have global appeal in reach, reliable PSTN interconnect. We have lots and lots of devices supported. Things like PSP's and N800's and cordless phones and all sorts of devices and more on the works. We're profitable. And so, I would say that we have entered the era of rich PC based Internet communications. This is a time when we are finally seeing the vision of the original SIP founders of multimodal rich communications being deployed to user's desktop in a usable, cheap, most of the time free, way. This includes real time video, data, presence, text and wide band audio. Wide band audio today is more widely deployed than ever before and the majority of those minutes are happening on Skype.

We are also talking about a paradigm shift where the smart platform on the end point is what is driving innovation as Lee [Dryburgh] talked about versus things coming from the network or the provider in the core. So what is next? I think a big part of this and Lee also talked about this, is sorting out the mobile mess. So in my view, mobility is the last anchor to the old way. It is an incredible innovation to be able to pick up your phone and take it with you. And as a result, it is the fastest growth telecom service today. But the spectrum scarcity and the other issues make it a perfect world garden. In a lot of ways, it is back to the future. It is the good old days again, closed networks, device lock in, phones with these numbers, these pesky numbers, geographically oriented contract, honor some contracts. Basically, the old world.

But maybe there is some hope here. And for many, many reasons, the flat rate pricing, the auction of 700 [Mhz] bands spectrum and where open platform conditions apply. Maybe a new game is beginning here. And, this is really one of the most exciting times in the communications, I think. There are still lots and lots of hurdles. We have to make sure that these guys do not do things to discriminate against applications, that the principals of that neutrality continue to apply and we are vigilant about that as a community. But maybe, a new game is here.

So for the next 10 years, I think that there is the possibility that we will enter the era of rich Internet communications. Again, the same list as before, but add to that new mash ups of fixed mobile convergence of web-based communication and voice and video and other real time communications perfectly mashed together in ways that developers can recreate and mix and match applications. We will have freedom to these applications on a new platform that includes mobility.

And finally, I think that we all agree, I hope, in this room that there is a natural segmentation of competencies that emerges from these, one that the industry has been fighting against for quite sometime. But that network infrastructure and pipes and the competencies associated with rolling that out are different than the competencies around application, innovation at the edge of the network. Let us let those competencies lie where they are. Let us let them blossom where they are and move forward in that way.

So I think I kept within the time. If there any questions maybe we can do that.


Jonathan:    David if you if you ask me that question I will repeat it.

Audience:    The question is, how is the Skype-eBay relationship going?

Jonathan:    Okay the question is how is the Skype-eBay relationship going? From my perspective very well, we recently got a new CEO who is a medium term eBay guy. So today, with 276 million registered users, I think that there is less focus at eBay today on finding the place where eBay and Skype intersect on the web and mash-up to create a new application paradigm for eBay or communications paradigm for eBay and more focused on Skype growing its business and eBay growing its business. So can I answer your question?

Audience:    At one point, Skype was really the future or the leading edge that went into eBay. So, what are Skype's future plans? How is Skype going to grow its business?

Jonathan:    If you did not hear it the question was, after being rolled into eBay and now, kind of looking at the landscape, what are the future plans for Skype--

Audience:    Tell us all your secrets?

(Voice overlapped)

Jonathan:    I think that in some ways, we stalled. We got wrapped into the M&A [Merger & Acquisition]. There is almost always a period of integration that a lot of weird things are tried and some work and some don't, and there is defocus. We obviously had some management turn over and what not. For me personally, this is the most exciting period for Skype going forward. The projects that I am leading in my team and that we are working on for the next 2 years or 3 years I think are ground-breaking projects. And that sense of innovation and hard work and startupness is very much alive in the company. I cannot really talk about the specifics, the things that we are going to be rolling out but I am really serious when I say that I am personally excited about what we are working on. Like almost no time before my career.

Chair:    That sounds terribly exciting. If it is okay, we have time for one or two more questions if Jonathan is good?

Audience:    Hi Jonathan. This is Irv Shapiro from IfByPhone. As a voice application provider, we would like to provide highly scaleable applications on the Skype network. At the current time, we find it complex to interconnect to the Skype network at a high volume level with hundreds or hundreds of thousands of users. What is in the works to make it easier for those end points to blossom in the Skype network infrastructure?

Jonathan:    This is a topic that is near and dear to me. I participate in the discussions internally about platform versus application and I guess it is early to make any definitive announcements or anything like that. We are still grappling with the issues there. But I would say that it is a very logical next step for us that Skype will enable these kinds of interfaces. I think that our API and developer story thus far has been sort of interesting but not in the realm of the scaleable applications that you are talking about. I and many of us in the company really recognize that. We think that there are easy solutions but they take shift in mindset to be able to get those out to the community.

And, we have to be very careful as well. The last thing that we want to happen is something that is detrimental to the health of the network.

Chair:    One last question for Jonathan please. Any last questions?

Jonathan:    This one over here.

Audience:    (Inaudible)

Chair:    Can you repeat the question?

Jonathan:    The question was about the network outage in December and what we have done to fix that. I am not involved in the core team work around the P2P network and I do'nt have specific knowledge of the fixes but I do know that they isolated the problem. They have put that patch out to the network and they are confident that things would continue to scale.

I do not know how much you have read in the blogosphere about it but it was a very interesting event. It was sort of an event at the leading edge of peer-to-peer networking and computer science in many ways. This anomaly that was caused by the restart of a lot of computer simultaneously created vulnerability in the way that the core infrastructure the network is supported. And, it was just sort of this spiral. Once that it started, it got worse and worse and worse. As far as I know, we have addressed those issues and that anomaly and would not be affected by future scenarios like that one.

Chair:    Jonathan, thank you very much for coming. Thank you very much for opening. And, thank you very much for fielding very difficult questions. Please thank Jonathan.

(Applause)

Jonathan:   Thank you.