ONLINE PIRACY AND THE EMERGENCE OF NEW BUSINESS MODELS
by David Choi and Arturo Perez
This explorative paper examines the impact of online piracy on innovation and new business creation. While often dismissed by academics and professionals alike, online piracy has shown to be a valuable source of innovation to both industry incumbents and entrepreneurs for the following four reasons: First, the online pirates have pioneered the use of new technologies. For example, they have made a significant impact in the evolution of file-transferring technology, which has created breakthroughs in information distribution for both illegal and legal uses. Second, the piracy communities have been the source of invaluable market insight to the business world. Third, online pirates have contributed to new market creation. For example, many of former Napster users have migrated to the legal version of Napster and Apple’s iTunes. Finally, online piracy has often spurred the creation of legal and innovative business models. We observe that this pattern of piracy pioneering new market insight, market communities and business models is repeated with each generation of new pirate technology. We point out that companies that understand the pattern and take advantage of the innovation offered by piracy communities can build businesses of significant value. Our paper is one of the very first and rare attempts on the subject of online piracy in management or entrepreneurship literature. It is also one of the first writings to describe the transition of online piracy to legitimate businesses. We believe that this is a practical paper that can be of use to academics as well as entrepreneurs.
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Critics of today’s copyright laws often contend that instead of trying to control the use of their works through copyright, “old industries” must adopt “new business models” that would address the public’s desire to have unlimited access to content and impracticality of copyright enforcement in the context of the Internet. Usually adoption of such new business models is offered as a remedy for the growing number of copyright infringements.
In my new article, Failed Business Models of the Past, Eh?, at http://mincov.com/articles/index.php/fullarticle/business_models/ (http://bit.ly/b2TceK), I explain why adoption of new business models has nothing to do with abandonment of the underlying principle that the owner of copyright should be allowed to decide how its content is used. If a business decides to use their property in an inefficient manner, it is perfectly OK to let such a business fail. We should not “save” this business by stealing from it the property that we think it uses inefficiently.
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