Difference between bittorrent and gnutella replacement

Technological changes have made this possible - but the way the business model of the music industry is at odds with the implicit contract it signs with listeners is what makes it probable. Here are the basic economics of the music industry: The major record labels assume market risk in exchange for value. They take on the risk of assuming search, development, and distribution costs, in exchange for uncertain profits. We can also look at this through the lens of contract theory.

Contract theory says that principals contract agents to do things they're unable - for whatever reason - to do. In every such transaction, we can say that there are extra costs incurred. Economists call these costs agency costs. So we can say that labels are agents hired by music listeners - principals - to perform a function they don't have the time to do - find interesting and entertaining musical artists.

The problem is that this simple transaction creates massive information asymmetries. There's no monitoring mechanism, so listeners can't see what the labels are doing; conversely, labels can't really tell what listeners' preferences are. Even worse, the principals can't influence the agent unless they can coordinate amongst themselves to do so. Now, in most real-world markets, information is an issue.

Neither side in a transaction is perfectly well-informed about costs and benefits. But in most markets, prices are considered the central economic mechanism of information transmission, because they convey information about future benefits and future risks.

This point is intuitive if we think about it: prices reflect the scarcity of a good. Think of the price of blue-chip stock, for example. But, partly because of massive buyer power the influence the biggest retailers exert over the record labels , prices in the music business have long since failed to carry any pertinent information. Prices have become, if not fixed, as many suspect, certainly standardized. And this robs consumers of a vital means to gauge how much future value they derive and risk they take when purchasing different music goods.

It also robs labels of the ability to really understand consumer preferences. So this forces listeners to rely even more on the record industry's - the agent's - choices. In this case, the principals are kind of blindly reliant on the agent - they have no mechanism to monitor the agent. So what if, under such a contract, the interests of the record labels - the agent - diverge from the interests of the listeners - the principal?

What if, for business reasons, the labels are more interested in economies of scale, scope, and brand than providing music listeners with music they value? In an extreme case, the labels might begin to impose agency costs beyond the search costs the listeners are exchanging value for - making transactions with record labels provide negative value for listeners.

Conversely, we can say that listeners might find it more efficient to take on their own search costs. And this is what's happened today. Many people are more happy to spend time searching for new music on the net than they are simply buying the goods the industry selects and promotes. It's traditionally argued that the web reduces search costs.

But this argument helps explain a very curious phenomenon: why music today is one of the few markets in which people, are, curiously, willing to pay very high search costs. So the net actually begins to make it possible for people to pay higher search costs at all. They do so because they replace the agency costs imposed by the music industry - which provide them little value - with their own search costs, which do result in a transaction that provides them value.

Before the web, people had little option but to pay the agency costs the music industry demanded. Economists have a name for problems like this: moral hazard. Moral hazard happens when the actions of an agent can be hidden from a principal, creating agency costs - because the agent is able to shirk, take additional risks, and generally not deliver on his end of the bargain.

In this case, the moral hazard is that the record industry, because listeners can't monitor or influence it, can effectively shirk, and choose artists not based on listeners' preferences, but based on business efficiencies. This is effectively what the record industry has been doing - adding massive agency costs that replace the search value it is supposed to provide.

It's compounded by the fact that music is an experience good, whose value is not directly knowable to buyers - another fact the music industry has been exploiting. The way to change the incentives implicit in such a moral hazard-creating contract is straightforward in economic terms - insurance. Insurance provides an incentive for the recording industry to choose only acts listeners value.

At the same time, insurance means that consumers don't have to pay agency costs - the costs of the music industry selecting acts no one wants to hear. But doing so would create a double moral hazard. The second moral hazard is trickier: offering insurance to listeners provides listeners an opportunity to hide their actions from the recording industry.

Listeners might take advantage of the insurance, and renege on buying music altogether. If the industry offered consumers the ability to simply return any music they didn't like, consumers might return all the music - even the music they did like, after having copied or consumed it. But this is exactly what the internet has done - offered music listeners a second moral hazard, in opposition to the first. The net offers a kind of gigantic way to renege on buying music goods produced under moral hazard, and completely eliminate the risk listeners take in buying such risky experience goods.

The point is this: the net offers listeners insurance against the music industry itself. File-sharing isn't simply theft. Rather, file-sharing is risk-sharing - against an industry with the freedom to undertake hidden action in the extreme, and not live up to the contract it has written. Remember, the contract said that labels would assume the risk in exchange for dollars from listeners - so when moral hazard lets labels try and push risk to listeners, is it any surprise that listeners try and minimize it by parceling it out?

In fact, we could go even further - saying that file-sharing is a way for principals to punish agents operating under extreme moral hazard, with the hope of bringing the agents incentives into line. We instead insist on talking about file-sharing as an horizontal activity. Just like the activity of breathing includes both taking in air in the body and letting it out, filesharing has the same symmetry between up and down.

Taking them apart, if even only through language, can only fill the purpose of replacing open exchange with centralized control. Apparently, these disadvantages are minor, because people have downloaded hundreds of millions of copies of Gnutella clients. It does not have some of the bells and whistles of the more sophisticated clients, but it does work, it is a small file to download only kilobytes or so , it has no "spyware" or bundled pop-up advertising mixed in with it, and it is very easy to install and use.

Its simplicity makes it useful to demonstrate how a typical Gnutella client works. There are three big things you can do with XoloX: search for files, transfer files to your machine and look at your downloaded files. There are three buttons at the top of the XoloX window that let you toggle between these three activities. Advertisement The figure above shows a typical screenshot during a search.

All you do is type in the name or keywords of the file you are looking for. You can also select the file type: audio, video, etc. One thing you will notice in the search window is a score. The score represents the number of machines currently online that have the same file available. By choosing a file with a high score, you increase your odds of actually getting the file you want.

Advertisement XoloX Example: Downloading To download a file, you simply double-click it in the search window. This sends the file name to the Transfer window. Once a filename is in the transfer window, your copy of XoloX will connect to the peer machine to download the file.

In the figure below, you can see that Filename1. XoloX is estimating 43 minutes to complete the download of over megabytes. When you pick a file for downloading, it is fairly common for nothing to happen. That is, XoloX cannot connect to the machine that has the file, or the machine holding the file is already busy helping other people. You can solve this problem either by waiting eventually a busy machine can get unbusy , by choosing files with high scores increasing the likelihood of finding an unbusy machine , or by deleting a file that is going nowhere from the transfer window and replacing it with an identical file from the search window.

Advertisement Once you have the files on your machine, you can find them in a XoloX directory and in the Files window of XoloX. You can share all the files you've downloaded with other people if you like. You do this by first specifying the directories and file types you want to share in the Preferences dialog: You can also control how much outgoing bandwidth you allow XoloX to consume when people download files from you: This can keep people from chewing up all your upstream bandwidth.

Advertisement Is Gnutella Legal? Gnutella itself is legal. There is no law against sharing public domain files. It's when people use Gnutella to distribute copyrighted music and films that its use becomes illegal. This is the problem that got Napster in trouble.

The music industry is officially upset about Gnutella, but there is currently no easy way to control it.

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