215 years later, Adam Smith is having his last laugh again. Here we go again, arguing on the seemingly incompatibility of business and humanity. Is web 2.0 really so different from previous incarnations of business models, opportunities, and organizations that once again we hold our hand together and declare . . . “this time, the rules have changed!!!” Wasn’t it just a short 5 years ago we declared the same thing with the last new economy revolution.

Can the peer economy find a business model?

Does the peer economy deserve a business model?

Yes, Mr. Carr, web 2.0 is amoral . . . so is all businesses. . . and sometimes it can be immoral like some businesses. And its very amorality is what helps the aggregate “be moral.” No delusion of grandeur here.

Like Om said, the conundrum does exist and that many times eBay gets skewered for being the first web 2.0 (kinda of, close enough, web 1.5 atleast?) company to grow-up, make some money, and make some hard decisions. . . be it business or moral ones. (remember how eBay banned handguns on the site and got skewered? Freedom of speech or moral responsibility? Not an easy answer!)

Too many web 2.0 startups hide behind the mantra of openness as well as the lack financial downside (due to lack of scale and community critical mass) by simply spending VC’s money in search of a business model that might or might not exist. Even worse, they delay decision making on their “moral” responsibility on how best to manage and share value with their community and user contributed content until someone else figures it out.

Peter Rip & Alec Sauders is right, that web 2.0 needs a business model to be sustainable . . . whatever good these companies want to do for the world, it needs money to pay for the sky high mortgage payments in the Bay Area and kid’s college tuitions of the people that work there to be sustainable.

Here at eBay we walk the tight rope every day, sometime we argue endlessly amongst ourselves. We also know that if we don’t make some decisions, there is no one we can “copy” from. As the first “web 2.0” company (please forgive me for the audacity of the claim), I think eBay does have a lot to offer on striking the balance between morality and immorality – ie amorality.

Perhaps I’ve drank the cool-aide here at eBay for way too long, but I’ll let Pierre explain this one as he talked of his omyidar.net social investment fund at web 2.0:

Looking for businesses that can only be successful if they have a positive social good. We are building tools with new technology to bring people together. Adam Smith: given the right environment with people pursuing their self interest leads to an increase in the general welfare. In fact, look at the profit generated in an economic system, if the environment is right, then the existence of profit is evidence of general welfare. If the baker can sell bread to a shoemaker, he can feed his family, and also apply the profit to buy shoes. It’s more complex than that, but the principle holds true.

We look for three things: does it have a level playing field? does it foster interaction, connecting and communication around shared interests? do the participants have a sense of ownership for what is going on?

There has to be competition for the pursuit of self interest to work. No externalities that are not priced into the product that you are selling. Market failures. Commercial sector has the ability make the world a better place, but governmental regulation is responsible for fostering the right environment. As an investor, we want government to help understand it’s responsibility, while being a good citizen in the private sector and not distort markets.
An organization that only focuses on their social good has difficulty scaling compared to those that focus on profits. With both, you get great people and you set them loose. That’s what we did at eBay. With the full confidence that as they were pursuing returns they are making the world a better place.

Peter and Alec’s post is directly related to what happened with Oodle and Craigslist (and Om’s question on whether the community deserves to profit from their contribution). Be it webservice API’s, crawling, or scraping. . . the underlying technology does not matter. . . the question is how do you share value and make money when the atomization of value contribution is distributed and hidden behind the end user experience – be it another website, web service, or an another user.

eBay does have a model. . . not THE model or even a model that applies to anyone but eBay . . . but it does have one. . . For making a platform/marketplace (check out the # of employees eBay have in the 10K, its not such a hands off business as many might think) eBay take a portion of the value. Sellers make their margin as well (if they don’t, they wont come back and eBay will slowly die). Buyer gets a better deal than they would have from another site (so they would come back too).

Finally, direct to Peter’s point, on the API side of eBay. Furthermore, in some cases the API calls are free other times not. And in many cases, eBay actually PAY our partners who drive traffic (and transactions) to the site using the API’s. In short, based on the value creation equation and use case, money (and value) flows all different ways not just towards eBay. eBay have TRIED to strike a balance between openness and monetization. It works for now, and it can work better. As mashups become more popular, I’m sure more issues will arise. But eBay will be sticking our neck out trying to make it work.

BTW, the usual disclaimers apply. Everything in this blog is my own opinion. I do not represent eBay nor does it represent me. I am not directly involved in the many decisions made mentioned above nor work at the business divisions mentioned above. None of the data/information is proprietary. Think of me simply as a biased observer.

Blog networks are hot. . . ever since weblogsinc got bought by AOL the idea of blog networks have spread beyond the “professionals” into the casual bloggers segement. Sure there had always been BoingBoing, Gawker, Corante, even the9; but today everyone and their mom are either starting their own blog network, joining one, or being invited to one. (I won’t name names here)

This was certainly inevitable ever since main stream media started publishing top xxx blog lists. A few people realized what was happening like, Fred Wilson, and asked to be taken off those lists. Other’s however, saw an opportunity to get famous or make some money. Many on those lists are leveraging their notoriety as “anchor” blogs and starting their own networks. Those left off, are joining together hoping to gain critical mass in numbers. (BTW Google’s PageRank is one of the implicit drivers of the trend).

The emergence of a blog hierarchy, be it single destinations or networks is not a good thing. It feeds the ego of bloggers and destroys the democratic nature and voice of the blogosphere. Perhaps I’m being naïve as there was never such a thing (see blog mobs). But I don’t see a good ending for the scene in general.

A long long time ago, as a teenager, I was involved (peripherally) in another “scene.” An underground PC hacking counter culture sometimes called the “scene” or “elite.” The scene first started out as bunch of kids distributing and cracking games where copy protection had been removed. The community (the better word for it) at the time was pretty haphazard (like the blogosphere was 12 month ago) and certainly amateurish. There were “groups” of hackers with their BBS’ but no one dominated the scene. That all changed when “The Humble Guys” arrived. No longer a community of teenagers looking for a free copy of Leisure Suit Larry, these guys were adults (almost ) who had risen/grown up with the scene and taken a elitist and professional attitude to what was before a hobby and passion. There were money to be made in the ecosystems of cracking and distributing illegal software. All of which fed off the ego of the community to be cooler and better than others. The software remained free, but you can now pay to join a group, pay to be a distribution BBS for a crack group, pay to run your BBS on the latest version of Vision or LSD, etc, etc.

Pretty soon, seeing the power and money making ability of The Humble Guys, other imitators popped up like Razor 1911, iNC, Fairlight, USA, and others. A hierarchy was quickly established and the scene bifurcated significantly. You are either a “consumer” or part of the “management.” More specifically, people are either involved in the publication of software (analogous to blog creators) or people who downloaded (readers). There was no middle ground. You were either “elite” or “lame.”

There was almost no point starting your own BBS (think blogs) because there is no support system for you to get started unless you belong to a major group or have a network of BBS to drive you traffic (dialers). But of course, you can’t join one unless you run your own BBS and build up a good reputation and user base. The catch-22 eventually drove the downsizing of the community. The resulting apathy, the rise of the internet, movement away from copy protection, secret service crack down, and p2p file trading all helped reduce what was once a very vibrant community.

Of course the pc hacking scene is not even a close analogy to the blogosphere today . . . but there are lessons to be learned. Once any community has a huge peer asymmetry between producers and consumers, its network value decreases and a vicious rather than virtuous cycle emerges driving down the incentive of joining such a community. I hope this I not the beginning of the end. I once got apathetic and left the “scene 1.0” (plus chasing skirts became more fun ), I hope this is not the case for the “scene 2.0.”

I always wondered what happened to those guys, and where they are today (those that did not get arrested!). Did Paul Allen become Fabulous Furlough after leaving MSFT? (not likely ) Did any of them become hugely successful entrepreneurs? Are they running around the valley today knee deep in the tech industry? The blogosphere even? Better yet, are there any BBS’s left? Would love to fire up my modem and Procomm, dial around and re-live the wild wild west again. I could even load up theDraw and pull out some ANSI artskills I’ve hidden away for over 10 years. . .