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The Fast Interview: Author Matt Mason on how the pirating of intellectual property can be a good thing.

We live in an age of piracy. Intellectual property can no longer be locked up in the corporate castle. Instead, it flows as freely as trade winds--and can be plundered in the form of illegal downloads or cheap knockoffs produced offshore. Businesses face a new dilemma: are pirates a threat to be battled or innovators to be emulated? Should you compete with pirates at their own game? In the book The Pirate's Dilemma, Matt Mason shows how piracy has become a new business model and argues that youth culture is pushing the world towards a more democratic model of capitalism. Mason, who is 29, tells us what we can learn from pirate radio, video game hackers, and why being pirated is a whole lot better than being ignored.

Why is piracy becoming such an economic force?

The human being is a copying machine. It's how we learn to talk and learn social norms. We organize ourselves as a society by imitating what the rest of society does. Piracy has been with us throughout history. The problem now is we have the ultimate copying machine--the Internet. Things can be copied so fast that no one can even determine the original anymore.

Is piracy ever healthy in spawning innovation or creating a market?

Absolutely. Sometimes it creates a more efficient market -- digital distribution is a much more efficient way to deliver music than CDs and that's why people switched to it without the music industry wanting them to. A lot of people think my argument is that all piracy is great, which isn't really the argument. The argument in the book is piracy can actually be a market signal. It really highlights market failures in many ways.

Microsoft, for example, is alarmed that Vista isn't being pirated very much.

This is an interesting thing with piracy -- it's become a new kind of rating system. It concerns people within Microsoft that people weren't pirating Vista; they're continuing to pirate XP. These are important metrics because it tells you something about your customers.

To rip off Stephen Covey, what are the habits of highly effective pirates?

An entrepreneur looks for a gap in the market; pirates look for a gap outside the market. They go to the taboo area, and that's where they set up shop. The second thing they do is create a vehicle or platform, and that medium is also a message. A $5 DVD highlights that gap outside the market and says to the consumer, "This is a good idea. Why can't you get this legally?" The third and most important thing pirates do is harness the power of their audience. If the audience decides that what they're offering is of value to society and is more efficient than the legal, established way of doing it, fighting in the courts no longer works. You won't be able to stop it. You'll be as likely to win that as the war on drugs or prohibition.

What do you when somebody starts ripping you off?

The pirate's dilemma is a dilemma because there's more than one answer to this question, and there are a lot of questions you have to ask. If you're Colgate-Palmolive and somebody starts copying your toothpaste at a factory in China and it's toxic, well, that's a no-brainer. You've got to fight that with everything you've got. It's an example of people producing inferior, illegal products that don't offer any value to anybody and that's when you fight piracy. The time when you need to look at piracy again is when it's adding value in some way. When Edison started recoding musicians on plastic disks, live musicians did not like this. They saw it as the death of their business. Obviously, that wasn't the case. Edison and the live musicians came to an agreement and the record industry was born.

What's an example of a company that responded effectively to piracy?

In the book, I talk about Nike and this very famous shoe, the Air Force One. It was launched in 1982, and it's been kept alive by the hip-hop generations' love for its simple iconic design. Well, this didn't stop a 22-year-old hip-hop DJ from Tokyo called Nigo from making his own version of the Air Force One. He had a fashion brand called Bathing Ape and took the Air Force One, ripped off the swoosh, and added a shooting star logo and released them in limited quantities for around $300 and these became really popular. Bathing Ape is now a multimillion dollar brand all over the world. Although there was a definite case for infringement, Nike didn't sue him. They competed with him in the marketplace. They saw the way he was using garish textures and colors they hadn't experimented with, and they decided to do the same. There's no point in trying to sue somebody if they help you sell more of the original. Bathing Ape is doing really well and Nike actually bought shares in Bathing Ape. They invested in them.

What's an example of a company that botched its response to piracy?

Can I use the music industry or is that too obvious? It's just crazy. The thing that frustrates me about the music business is it's been 10 years and these guys still don't get it.

You worked as a pirate DJ in the UK and saw how pirate stations took unknown artists and pushed them to get to the top of the charts. What's the lesson for business?

Pirate radio stations are some of the most effective pirates in the world. They're so effective that the commercial radio industry and the UK government let it happen. Commercial radio uses pirates to find new music, new deejays, and new artists. It's supposedly bad for the record industry because people aren't getting paid royalties for pirate radio. Well, the kind of music that gets played on pirate radio isn't the kind that's played on commercial radio. All the major labels sign the tracks that are hottest on the pirates and release them nationally and advertise on the pirates. The lesson here for other industries is, sometimes it's better not to follow the laws to the letter. Maybe you should let a few things slide.

So Pirates are almost like a shadow R&D force?

It's crowdsourcing at its absolute best. You're starting to see that happening in other industries, too. In the video game industry, in the community of first-person shooter games especially, it's just accepted now that you can hack into games and change the code.

You describe how youth culture has itself become a commodity. Has rebellion become just another marketing shtick?

I say in the book that terrorists are the only people we take seriously as rebels anymore. Piracy has become a form of youth culture and I think that's the next thing that's going to get corporatized. I think it's good that the mainstream is going to figure out fairer and more efficient ways to distribute information.

In the book, you talk about how intellectual property theft helped lay the foundation of the American economy and how the word "Yankee" derives from Janke, the Dutch word for pirate. What would U.S. economic history look like if there had been no piracy?

If the U.S. were still paying all these license fees to the Europeans, it wouldn't have industrialized as quickly. It would be a banana republic. You'd probably be paying some kind license fee to the queen for the internal combustion engine or something. It would have been a place where you couldn't get a lot of stuff done and there would have been a lot of artificial barriers to entry. Looking back, it's clearly a good thing those barriers to entry were taken down -- and they were taken down by pirates.

And now we complain about China doing same thing?

There's so much about Chinese piracy in the media these days. But you don't hear anybody say, "hang on, this is how America did it." But it is. It's the same thing.

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6 Comments

  • Ron Shafii

    Piracy, though thought as evil, is now shaping all forms of media. Monolithic media companies have been hit the hardest because of their inability to adapt to a new business model. I used to pay for everything by either purchasing or renting it. Since enduring a cruddy economy over the last 7 years, I gave up and obtained it all off the net. I have seen it all. From people in SE asia and Eastern Europe reselling stolen software, music and videos to webmasters using piracy as a venue to make money from Google and Adbrite.

    When the average consumer hears the word piracy they immediately imagine Barbary Coast Pirates or nerds trading digital media on Peer to Peer networks.

    However, those days are long gone and trading has changed considerably. So much so that some media companies are trying to mimic the pirates at their own game. Whatever their attempt media companies still haven't learned their lesson. It's not to be a pirate to beat them at their game, it's to learn from them and their habits.

    The worst piracy could be stopped if intuitive lawyers and politicians wouldn't criminalize the citizens and would start criminalizing the companies that pay pirates. For example, rapidshare.com and filefactory.com are the most egregious money making pirates. They make their money from offering access to their servers and from advertising displayed on their sites from Google and Adbrite. A pirate will upload the files to their servers and retrieve a link from the webmaster. The link is then shared on many forums. For every download the pirate earns cash or points to be redeemed towards further access to the piracy servers. Downloaders (people vewing the link on the forum) who click on that link posted by the pirates will endure a barrage of advertising from a dozen major internet advertisers. So far the webmasters and advertisers have not had to endure the law. they hide behind loopholes in the internet copyright act and they play dumb to the idea that files on their servers are pirated. Meanwhile they make so many tens of thousands of dollars a week even rapidshare had to move switzerland from germany because they weren't paying their german income taxes. Filefactory is owneed by a guy in australia who uses an american attorney in San Francisco to protect him from american laws.

    Once the worst forms of piracy are stopped, media companies can take a look at what's left and easily discern what they should be offering to the digital customer. The magazine companies, for example, should change from a subscription model to a circulation model. Instead of getting their money from subscriptions they should get their money from advertisers by tracking the amount of users who download their free magazine from their website. Or instead of downloads they should have an online magazine version that dynamically changes the ads in pages to cater to the location of the customer just like google does with adwords. By offering digital media in different forms the media companies can learn what the real customer is willing to endure to view the material instead of instead of sitting on their thumbs and letting their revenue stream migrate to Russia or China.

    Lawsuits against the elderly because their grandkids used their computer one weekend is not the answer. In fact it just acts as a catalyst for the pirates to pursue another form of piracy that's untraceable.

  • Jay Tatum

    It's curious to me that piracy is so poorly defined and that the ethics of piracy isn't be copied! I have to say that comparing Covey's 7 Habits to Piracy missed the boat as much as the author claims the music industry did. I suspect that once one legitimizes one's piracy under the heading of free enterprise that the ethics of business are moot, Janke!

  • Mike Adam

    How would this play out in industries that involve Billions of dollars (think: big Pharma) to put out a single product? Many would argue there are certain niches for open markets for orphan drugs (snappy article in this month's PopSci "The Drug Resurrector") exist, but that patent protection is necessary for A) encouragment to invest the R&D and B) disclose that information to the government so everyone knows about the innovations and the patent can be used for research until the patent expires. Is their a happier medium... you know... between "It's mine... all mine!" and "everything you do is free..." because eventually that becomes "you don't work = you don't eat." Essentially, the idea does become not the IP, but the delivery. Who can deliver with the best QA/QC a product that what the customer needs and or wants. Or not?

  • think feeldo

    In his book, G-Forces - The 35 Global Forces Restructuring Our Future (Morrow Publishing 1989), Frank Feather offers a Chapter on Sharing Information and Technology with a subject headed: Copyright Law Becoming Obsolete. In it he proposes: 'Individual intellectual property rights will become absurd once collective knowledge is shared in a single electronic global brain, accessible to all.' He continues; 'To restrict access to information, then, is to restrict economic development for everyone. Ideas are only economically valuable once they are applied in economic activity, and their value can be increased only through their widespread diffusion.'

    Mr Feather's next subject, titled 'Technology Transfer - Essential to Prosperity' offers another remarkable insight. 'Never before have ideas been made so subservient to the wishes of mercenary authors. These days you must buy ideas or do without them - unless you succumb to piracy and counterfeiting.' Later he produces this gem: 'The problem today is that world competition has become intensely threatening. The fear of this threat is impeding our collective progress.'

    It's all there in black & white and almost two decades have passed since the book was published. Like Mr Feather, so many other thinkers provided views of our 'collective' future - some that would today put many authors/ thinkers and creators to shame. It would seem that many preferred to consider their actions long before they produced an outcome.

    What amazes me is why we have seemingly chosen to so quickly tune out to these visionaries before we have bothered to spend the time tuning in.

    Anyone interested in like-minded thinking may wish to view the books I have presented in my profile.

    Thinkfeeldo

  • Richard Lipscombe

    Piracy is a C20th concept and practice... The flat world of the internet has moved on... We should all move on too...

    Within Nation-State economies we relied rather heavily on a notion of sovereignty so property rights made perfect sense but in a Global Network Economy the notion of property rights is limited to tangible assets. Intellectual property is a virtual asset and so the more these assets are shared the more the network economy expands to the benefit of all. The network economy is a cooperative based on the inclusion principle and energised by transparency and free trade. The Nation-State economy is a competitive entity based on the exclusion principle and energised by notions of ownership and protectionism.