Idle thoughts on modularity and loose coupling in digital media

The following is a very rough sketch followed by very rough notes on the modularity and coupling dynamics in digital products.

A map of the digital media market

Obviously, given that this map only has X and Y axes, it is literally a two-dimensional view of the digital product marketplace.

Notes

Moral Hazard

Vending platforms that are tightly coupled and commodify the products they vend, like Facebook, Youtube, or Amazon, have substantial built-in moral hazard. Google benefits from a certain amount of ad fraud. Amazon benefits from having a certain proportion of cheap counterfeit goods in its retail site. Facebook benefits from exaggerating video views on its platform. They get a share of the upside but are unaffected by the downsides and negative externalities. It is unrealistic to assume that amoral corporations will not take advantage of this moral hazard and shift costs and risks onto their producers instead of taking them on themselves. This can inflate profits enormously in the near term but in the long term can lead to dysfunctional markets and the platform’s destruction.

Strip-mining

Another risk is sustainability. When the platform is built around vending low cost commodity products such as open source software or self-published ebooks, it can easily result in a market where a too small proportion of the revenue ends up in the producer’s hands. The initial burst of revenue as the market gets off the ground jumpstarts the producer economy but as the market develops and ongoing costs pile up, it becomes obvious that the revenue is nowhere near enough to sustain a majority of the producers. This can result in general market stagnation.

The only way to counter this is to pay the producers more money, either directly or through secondary markets.

Sometimes this means that product development is paid for separately. E.g. the open source software products that are the basis for AWS are often partially funded by the buyers of services from AWS separately from their purchase of the services. By separating the product business into two independent markets—development versus distribution—the industry becomes more flexible and more adaptable. The popularity of Patreon and Kickstarter suggests that this is potentially a generally viable strategy for digital media producers.