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Security never becomes an issue until it is violated. Our boundaries begin open and undefended, sufficient for integrity, if not defense. But nature thrives on conflict, so every boundary becomes a battlefront in the war for continuing integrity – a war which we all eventually lose. People die. Cities fall. Civilizations collapse. Yet, in each of these failures lies the seed of renewal, and eventual victory. The pressure of natural selection forces an evolution of technique; overrun borders are reborn as more resilient walls, and the eternal battle moves up a notch in intensity.

Network culture is something less than 30 years old. With the birth of USENET in 1979, the individuals networked together by the then-fledgling Internet began to engage in a collective and as-yet-uninterrupted conversation about every conceivable topic, from the mundane (a bicycle needing repair) to the sublime (does God exist). This conversation shattered into a million pieces after the emergence of the World Wide Web in the early 1990s; the singular threaded conversation of USENET became more conversations on more websites than anyone could hope to count.

The websites thus constellated each represent one or perhaps a few of the conversations previously embraced by USENET (which still survives, though as a shadow of its former self). Although the unity of conversation has been irretrievably lost, it’s been more than made up for by a laser-like focus: these websites are very specific, concentrating on one topic, and serving those interested in that topic very well. Furthermore, an ecology of conversations now exists; websites grow and fade based on how well they serve their base of users. If you upset your user base enough, you lay the seeds of your own destruction, for your users can and will compete with you – and perhaps put you out of business.

Furthermore, networked media do not function in a vacuum. Although in its earliest days mainstream print and electronic media regarded networked media as a useful adjunct to their franchises, most neglected to note how the inherent qualities of networked media – and in particular, hyperdistribution – have changed the basic economies of media. Nowhere is this more clear than in the United States, with the curious case of Craigslist.

II.

Founded in 1995 as a list to keep San Franciscans up-to-date with events and parties, Craigslist quickly grew to a one-size-fits-all website which exists to connect people. These connections are, for the most part, bounded by proximity; Craigslist keeps separate websites for all major American cities, as well as a growing number of “international” cities, such as London, Sydney, and Tokyo. A functional cross-pollination of a bulletin board and a website, with an interface that hasn’t changed significantly since 1996, Craigslist serves as the “market maker” between people who have things to offer, and people who want those things. The definition of “things” is very broad on Craigslist. It could be something absolutely material (a bicycle), or far more subtle (a boyfriend). With few exceptions it costs nothing to post to Craigslist; a marketplace with no barrier to entry has produced a powerfully self-reinforcing path dependence which has resulted in Craigslist becoming the 30th most-visited site on the Web. People love Craigslist because it’s helped them out with something they need, or need to be rid of.

Although Craigslist has clearly created markets where none existed previously, it has also effectively removed one source of revenue from print media, which have, for many years, garnered substantial revenues from classified advertising – the sort of “thing trading” that Craigslist excels at. Most major American newspapers have seen at least a 30% drop in classified advertising revenues as Craigslist has grown in significance, and there seems to be no end in sight. Or rather, the future seemed boundless until just a few weeks ago, when a highly publicized incident pointed up the inherent flaw of all open systems, including Craigslist – a fundamental lack of security, predicated on the assumption that all human beings are basically honest.

Craigslist is not the first nor the most significant case of this peculiar form of naïveté. SMTP, the protocol which moves electronic mail across the Internet, was also designed as an open system, predicated by the assumption that people would only send mail to people who wanted to receive it. We now know that is not true, and – unless we actually abandon SMTP (very unlikely) – we will live for quite some time with an arms race of spammers and spam filters. In a networked world, one bad apple does spoil the whole barrel.

While Craigslist has had consistent low-level problems with fraud, no one was quite prepared for “The Craigslist Experiment.” (WARNING: SEXUALLY EXPLICT CONTENT) In September 2006, Seattle web developer Jason Fortuny posted a personal ad on Craigslist, masquerading as a woman in search of sexual gratification. As responses from interested men piled up in his email, he took these personal statistics (often including graphic photos) and made a website from the replies, publicly revealing the identities of the responders. While one can question the wisdom of the men who replied to an anonymous posting, one could also argue that they assumed a good-faith relationship with the poster. This assumption – again, drawn from the provably false assumption that all human beings are basically honest – points toward the missing element on Craigslist: trust.

III.

Trust is generated iteratively, emerging from the continuous interactions between communicating entities, whether human beings or computers, or some combination of the two. While trust can never be taken to be absolute, the history of interactions can be used to develop a trust model: if someone has been trustworthy so far, it is likely that they will continue to be trustworthy. Furthermore, trust is to some degree communicative across social networks: if my friend trusts you, it becomes that much easier for me to trust you.

eBay – which dealt with trust issues from its earliest days – implements the first of these models. Each buyer and each seller rates the quality of the trust relationship after the transaction, and both the buyer’s and the seller’s trust level is visible to trading parties before they enter into a transaction. Friendster – which began life as a dating service – implements the second of these models: if you are a friend of my friend, it’s probably safe for me to go out on a date with you. (You’re less likely to be a serial killer if you’re in my social network.) Neither of these models, on their own, are entirely foolproof. eBay sellers have been known to spoof the trust model by building layers of circular references, where each partner in a dishonest enterprise fully endorses the other members. The tenuous nature of connections on a digital social network means that a friend-of-a-friend on Friendster may not actually be a friend at all, or even an acquaintance.

Since neither model is entirely perfect, why not combine the two? The eBay trust model serves as a generic thermometer of trust – although someone may be putting a match under the thermometer’s bulb. In that case, you’d need to ask, “Whom do I know who knows this seller?” If there is no connection whatsoever to the other party in the transaction, that must be noted, and presented to both parties as a serious roadblock to establishing trust. This combination of techniques – eBay plus Friendster – adds to the security of both parties, but these relationships can not be wholly anonymous – and Craigslist is famed for its anonymity.

You need present no credentials to post to Craigslist, other than a valid email address. Since these are notoriously easy to acquire – and easy to spoof, or make opaque and anonymous – an email address provides no trust information whatsoever. Yet Craigslist does have a login capability, so it can potentially record each of the interactions users have through the system. It could collect data about the quality of the trust interactions users experience on Craigslist, and use this information to annotate all of the postings on the system. In short, every posting on Craigslist could be accompanied by metadata which allows users to have some basic sense of the trustworthiness of the other participant in a given transaction. With each successive transaction, Craigslist could begin to model an emergent digital social network, developed from observation, and supplemented by a user’s list of first-degree contacts. With over 10 million visitors a month – many of them repeat users – it should be relatively easy to develop a strong trust model, combining elements of both the eBay and Friendster systems, to produce an effective and anonymous solution (anonymous, that is, from the user’s perspective, as this information can be maintained opaquely within Craigslist, though this brings up a further question of whether Craigslist itself can be trusted, which can only be learned via a user’s long-term interactions with Craigslist itself).

It is possible that such a proposal would be anathema to Craigslist, whose creators value the noble but antique qualities which make it so susceptible to violations of trust. Craigslist does carry the warning Caveat Emptor. Yet, in the unceasing war to garner attention, how long will it be before someone else – perhaps eBay, or Friendster, or MySpace, or Google – puts the pieces together, and produces a free marketplace based on trust? Craigslist must adapt, or it will be entirely overrun by barbarian hordes, its walls breached, its gates burned. Out of that collapse will come a more trustworthy system – but perhaps Craig Newmark and his crew are smart enough to know that more is required. Perhaps the lessons of the past will motivate them to a more secure future.

There is a phrase that rings out across the meeting rooms of Silicon Valley so frequently it has an almost comic quality. Comic, because all replies to this phrase are lies, damned lies, and spreadsheets. Yet this phrase has become the axis mundi, around which orbits the enormous influence of California’s venture capital community.

“What’s your business model?”

It seems an innocent question. Businesses, after all, must have some mechanism in place to earn money. Manufacturers make things. Retailers sell things. Creatives license things. All very neat, straightforward, and – through the clarity of hindsight – absolutely simple. Yet radio had no business model for almost 20 years after its invention. Commercial radio did not emerge until the mid-1920s, when advertising and sponsorship drove the development of an industry. The personal computer, born in 1975, had no real business model behind it until VisiCalc was released in 1979. Commodore, Apple and Tandy sold tens of thousands of computers to hobbyists, but the spreadsheet created an industry.

This story can be told again and again. There’s that famous line from the founder of IBM, Thomas J. Watson, who predicted the market for computers in the “few tens of units, worldwide.” Or HP’s executives knocking back Steve Wozniak’s suggestion that HP manufacture a personal computer – they didn’t see the market for it. (HP is now the second largest producer of personal computers, worldwide.) We could blame these ridiculous miscalculations on a lack of foresight, the peculiar human ability to imagine an eternal present, where nothing ever changes. But time is change. Nothing remains the same. Novelty emerges continuously, often from the most unexpected quarters.

So why, then, when confronted with something new, does anyone ask, “What’s your business model?” How, with any confidence, could anyone know? Here’s the uncomfortable truth: no one knows. Instead, entrepreneurs lie, dissemble, and build spreadsheets which, like the fabric of the universe, emerge from random quantum noise, hoping that no one can see through to the reality of the situation – nothing truly novel has a business model.

This makes entrepreneurship less an exercise in creativity than salesmanship: it is up to the entrepreneur to convince venture capitalists that yes, this wholly novel invention is well-understood, and revenues from it can be calculated using a formula. While charismatic entrepreneurs can make that statement seem believable, they can not make it true.

This friction between novelty and predictability forms the essential feature of a “disruptive” technological innovation; novelty must emerge before its benefits can be forecast. An invention, in its earliest days, has not grown into its full properties. We do not ask of children, “What’s your business model?” Why, then, do we demand an answer when confronted by novelty?

II

We have just passed through an era of failed Internet business models. In the explosion of novelty which followed the advent of the Web in the mid-1990s, the charisma of the Web led many venture capitalists to behave irrationally, predicting too much upside for innovations which simply were not that novel. When – as was bound to happen – most of these businesses failed, the venture capitalists resolved to do better next time, and thus the mantra – “What’s your business model?” – began its steady echo throughout Silicon Valley.

In other cases, the causes for failure can be laid directly at the feet of these same venture capitalists, who forced immature innovations into “exit strategies” – either through acquisition or an initial public offering. But innovation, like human maturity, can not be hurried along. Grow up too quickly, and a lifetime of therapy follows. Push an innovation where it doesn’t belong, and it fails, catastrophically. Time is needed; time to nurture the innovation, and time for careful observation. That observation will tell the entrepreneur how the innovation is being used by the world. Before that happens – and it will normally take some years – any attempt to “guide” the innovation will thwart its true potential.

Novelty is a constructivist process. Like a child, intent on learning about the world by playing in the world, the novel innovation must be free to explore its own capabilities. It does this through the agency of many individuals and organizations who adopt the innovation for their own ends. The role for the entrepreneur (and the venture capitalist) during this phase of development is simply to keep the innovation in an enriched environment, constantly introducing new scenarios and communities who might benefit from the innovation. As William Gibson wrote, “The street finds its own use for things, uses its makers never intended.” Entrepreneurs must surrender an innovation to the world-at-large if they expect that innovation to come into its own. Innovations nurture their own language, coming into being hand-in-hand with the words that make them apprehensible, sensible, and predictable. Only after this has happened can any exploration of business models begin.

III

In recent months I’ve talked to individuals working to revitalize the film industry in Australia. Their approach? Think up ways to make filmmaking look like less of a gamble than it really – always – is. So they’ll bombard investors with spreadsheets, surveys, financial models, in an effort to answer the eternal question – “Will I make my money back?” Most films lose money in their theatrical release – here in Australia, and everywhere else – but that hasn’t kept the studios from earning lots of money; the money’s not in the films themselves, but in all the ancillary licensing and distribution deals enabled by the films. That’s not a business model that emerged overnight: the motion picture studios nearly collapsed in the 1970s, as they foraged around for a business model that could thrive in a world thoroughly colonized by television. Eventually, after the success of Star Wars and the VCR (which the studios fought, until it emerged that the VCR would make them more money than they’d ever earned in theatrical release), the business model became clear: make intellectual properties and license the hell out of them.

Why would the technology industry insist on a form of surety guaranteed to no other industry? Why would venture capitalists demand something they know, in their heart of hearts, is all smoke and mirrors? Why can’t they simply say, “We don’t care about business models. We’re looking for novel innovations with a capacity to emerge into successful businesses.” Part of it comes down to training: most venture capitalists have MBAs, and that education has made them painfully aware of the difference between successful and unsuccessful business models. Furthermore, having been so badly burned in the Web 1.0 bubble, venture capitalists are naturally suspicious of anything that doesn’t seem immediately substantial. Here we see the paradox: venture capitalists haven’t the discernment to know if, in the long term, any innovation has substance. No one does.

We need to enter an era where we simply do not care about business models. Entrepreneurs need to build something, get it out there, and let the street find its own use for it. They have to sit back, listen intently, and let things emerge on their own, in their own good time. That’s the lesson of Flickr, which started as a game, and ended as part of Yahoo! That’s the lesson of del.icio.us, which started as a project to allow individuals to share their ever-growing lists of bookmarks, before it, too, became part of Yahoo! And that’s the lesson of Wikipedia, which began as an alternative to a locked-up Encyclopedia Britannica, and matured to become the 16th most-visited site on the Internet. None of these, in their earliest incarnations, portrayed the potential of what they would become. The street had not yet found its own use for them. In hindsight, everything seems perfectly obvious. But an innovation, raw and new, can not be judged on its merits or its models: only the sunshine of time and the rain of the street can grow value from novelty.