Copyright (c) 1994,1995 Michael Brundage. All rights reserved.

Pricing the Internet

One of the best selling features of the Internet is that it is, for all practical purposes, free! These days almost nothing is free (and of course, you may have to pay to have access from your home...), but if you are a student or teacher at a university, or even a government or commercial employer with net access, you can usually manage to get access to the Net and all it contains, for free.

Well, okay, it's not really free. Many at the conference stressed that we may correctly refer to the Net as subsidized, but certainly not free. There are a number of articles out there about this fact, and I don't want to dwell on it overly long (not least of all because I myself know very little about it). However, several important facts stick out in my mind. The first of these is that commerce is coming (and indeed, has already come) to the Net. While students and researchers may enjoy creating information services for the masses, and have no real problems providing such things free of charge, product revenue is the bread and butter of the commericial sector. So we see that, as commercial interests adapt to the Net, methods for secure billing and payment (more on this in a moment) will be developed. I view this as inevitable.

Consider then, this next fact, which is that once such billing schemes are in place, it will presumably be a simple matter to use them. I.e., it should not be particularly difficult to keep account of your microprocessor and internet use (indeed, some universities already do this), and bill you (automatically, via the Net, of course) for this use. In my limited experience, it appears that most people prefer making money to not, so that providers of what was once free will likely reason to themselves, "Gee, I could be charging for this," and sooner or later (sooner, to hear some economists talk), these free (by which we mean subsidized) Net resources will cease to be free.

There is currently so much speculation about this hot topic that I'm not going to bother to reference any works on it (c.f. the FMC home page or practically any magazine at the bookstore for additional reading). If there many make predictions concerning the future of librarians and publishers, then everyone is a fortune-teller when it comes to pricing the internet. The presentations at the conference focused primarily upon the net as a ``congested resource'' -- individual total benefit decreases as usage increases. Currently the net operates in an altruistic manner (first come first serve), but perhaps in the future it will be regulated (either by rationing, subsidizing, or pricing) differently.

My own view is the one stated above; that, independent of the type of resource it is, or other economic considerations, commerce is coming to the net, and when it does, most of the handouts will dry up. Pricing the internet brings up books full of issues, including security, privacy, currency, validation, transaction costs, anonymity, acceptibility, transferability, and the like. Some predict that these issues will be resolved soon. As applied to the electronic publishing industry, Hal Varian believes we will see price differentiation by user and usage, quality differentials to support self-selection, bundling to support cost recovery, and explosive growth. Personally I wonder a number of things, mainly ``what will pricing the internet mean for me?'' I think that the free flow of information (as appears to happen now) is a fantastic thing. Can we maintain this Utopia, or will information (and the transfer of information) soon be priced?

Another issue which was not addressed at the conference (although I asked, neither Jeff MacKie-Mason or Hal Varian was able to answer) is taxation. Once pricing mechanisms are in place and information comes with a price, surely governments will say, "Hey, this is big bucks!" (probably a few years after all the Internet Tycoons have made themselves rich), and begin to tax it. This however, is far different from taxing apple shipments from Washington to Japan or subsidizing sheep farmers in Iowa. How do you tax information? How do you subsidize information providers? Frankly, I find the ramifications almost frigteningly unexplored.

Moreover, tariffs may cease to be the realm of governments solely; universities may recognize their role as vast information creators, and begin to reap profits on their information services. Public domain software could vanish altogether once it becomes possible to charge for it easily and effectively. As the net pervades so many countries, a truly global economy could emerge. Accounts could be linked universally, leading to everything from easier payment of bills and taxes to more accurate accounting to an end of money laundering (or conversely, bigger money laundering schemes).

The possibilities of the Net are staggering, and when applied to monetary issues, overwhelming (to me, at least). Look for this to be a hot topic in years to come, as methods of document authentication come to pass. By all means, think about these issues yourself, and wonder what possibilities and protections you want to have in an electronic banking world.

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