Scrabulously wrong!

July 31, 2008 at 1:53 pm | In Advertising, Economics, Intellectual Property, Internet | Leave a Comment
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The Open Source revolution is here to stay, say most internet and computer experts. The open source revolution which has spiralled from writing operating system programms like Linux to application ‘widgets’ for various we based applications is currently in vougue with most programming savvy people indulging in. The advantage of the open source revolution is volunatry sharing of user generated ‘open’ source codes for the applications which can be sold at a price if the developer so intends, but essentially is a free to be upgraged, modified  and marketed by any user if he or she is also into coding. This is a tremendous opportuity for millions of computer programmers around the world who are able to use thier coding knowledge to build better models of a basic functional tool and market it for profits.

But there are many, for lack of a better word, discrepancies in the open source revolution. Take for instance a situation when an open source program creates an application which replicates a patented real world product, service or an experience in the virtual world. What are the rules which govern this? Is it in violation of the patent rules? This is exactly what is happening in the case of Hasbro vs Scrabulous. Scrabulous, developed by two Kolkata residents, Jayant and Rajat Agarwalla is the virtual version of the hit word game Scrabble which is a patented product owned by Hasbro.

Since the game was introduced as an application in the social networking site Facebook, the game has become a hot favorite of people around the world who use the social networking sites. And also as there is advertising involved in the whole scheme of things, there is vast revenue potential also. But now, Hasbro has woken up to the fact that Scrabulous is violating their patent for the original game of Scrabble and are miffed. Hasbro has insisted that Facebook needs to stop providing its users access to the game as it is in violation of their Intellectual Property.

This has caused serious reactions against Hasbro in the social networking world. Many ardent fans of the game have voiced their dissaproval of Hasbro’s insistence of removing the game from Facebook by publicly claiming that the company is being greedy by not allowing consumers have a better product (Scrabulous).

“I have burnt my Scrabble board in protest” 

commented on irate fan.

But are Hasbro wrong in doing what they are? I think it would be vastly incorrect if the intellectual property of the company be allowed to be exploited the way it has been. The power of social networking remains in the fact that most applications which are advertising magnets are based on the popularity of the product. Scrabble is one of the most popular games of all time and its virtual personification Scrabulous has no differences from the original real world version. Hence the product is still under domain of Hasbro’s intellectual property. If Facebook and the Agarwalla brothers are benefitting from the advertising reveneues of Scrabulous, then it is in breach of the intellectual property held by Hasbro.

Although the fans of the virtual game may be miffed, it is not correct to allow the game to continue in its present form, becuase of its popularity. The only suitable arrangement that can be found is if Hasbro were to benefit from the game of Scrabble being online and the company is willing to consider such a business model. Most people beleive that it is incorrect to steal another’s ideas, but find it hard to draw a line in such cases as there has been an effort by the Agarwalla brothers in developing the software, which people beleive allows them to market it. But, one should not forget that it is the primacy of ideas that an intellectual property defends and is of paramount importance if innovation is to continue.

But, there are problems at the other end of the spectrum also. For instance, this article in The American, titled “Courting Trouble on Patents” talks about the increase in the number of low quality patents being issued due to the sheer number of patent applications that need to be processed by the US Patents and Trademark Office (USPTO). With the costs and process of revoking these low quality patents being too high and cumbersome, the article argues patents might increasingly become a pain in the neck. While this is surely true, it is also a scary thought that intellectual property is not guarded and explotation like the Scrabulous case becomes prevalent. While, the Agarwalla brothers might not have intended to voilate serious patent laws while writing their open source code for Scrabulous, this incident is defenitely an important event in the often messy, but required process of safeguarding Intellectual Property.

Update: The story is getting murkier. The Agarwalla brothers have now relaunched the Scrabulous game under the name Wordscraper on Facebook. It already has a lot of fans and is getting more users hooked on regularly! Technically, as this version has some new rules and changes the squares of Scrabble to circles, it does not fall under the patent guidelines and it is free to be marketed. I was reading Mankiw’s textbook “The Principles of Economics” today morning on the topic of Externalites and how patents safegaurd against the negative externalities of not being able to generate a profit from one’s intellectual property. It makes me wonder how this above example shows that intellectual property is subject to ever more negative externalities and innovation is under threat in the new internet powered world. Yes, this may seem counter to most discussions today that the internet is the hotbed of innovation today. But, I beleive that it comes with a cost. The internet is turning propriety into a ‘fifteen mintues of fame’ kind of situation and I beleive that this is a foreseeable threat for the future of innovation. Aptly, the tagline for the newly launched game of Wordscraper is “Don’t follow rules, make them!”. I wonder what the consequences shall arise from this!           

Autorickshaw vs the Free Market!

June 24, 2008 at 12:45 pm | In Economics | Leave a Comment
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A positive sum game according to game theorists is a transaction where both parties in their own estimation, are better off as a result of the transaction.

Walter E Williams, a distinguished professor of economics at George Mason university quotes in a lecture titled Markets, Governments, and the Common Good. This is the essence of free markets, where there is a good-good exchange. I am a firm beleiver in the goodness of the free market; but one situation which I face daily seems to contradict this. In the evenings, I can’t get autorickshaw drivers in Mumbai to drive me home from the local suburban train stations!

 

The drive from the nearest suburban train station in Mumbai to where I live is around five kilometers. If I travel this distance by autorickshaw which is running on a meter that has not been tampered, it would cost me Rs. 17, an amount I am more than willing to pay; if only I can convince the autorickshaw driver to take me there in the first place. But this is the most difficult negotiation. The reason; in this transaction, going by the meter in the direction of my residence, may not be in the auto driver’s estimation a transaction which will leave him ‘better off’.

So, am I right in cursing the free market system which allows the auto rickshaw driver to deny me the comfort of travelling to my residence on the autorickshaw, by being willing to pay the requiste fee, when he finds it not to his benefit?  Well, I think it would be a premature decision. One must always examine the system’s constraints before deciding if it is a bad one.

Firstly, to blame on the free market system in this situation would be wrong since the autorickshaw-commuter transaction is not a free market transaction. The autorickshaw driver is able to ‘deny’ me conveyence becuase the system is subsidized in his favor becaue of the monopoly of individual public transport that he commands. He leverages on the fact that there is nobody else who can offer me the same conveyance without any run-ins with the autorickshaw owners union! The system is not operating in a free market.

I cannot for instance, decide to purchase a fleet of small cars or private autorickshaws and offer a taxi service to commuters at similar prices without being registered under the union. Also, if I wish to do something of this nature I also stand the danger of being attacked for trying to rob the poor autorickshaw driver’s income!

Hence my friends, its not the free markets that need to be blamed; it is the opposite of free markets which is a cuase of this problem! Restrictive trade practices!     

Smaller State? No, Smaller Government is better…

June 17, 2008 at 4:05 pm | In Economics, Geopolitics, Politics | 1 Comment
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The American magazine has an interesting article on the topic of Geopolitics and how maps are being redrawn. The article titled “Map Quest” talks about the continual flux in the way the various nations of the world keep changing in their ideaologies and with it the economic conditions leading to different postures in foreign policy. Economic changes and the ambitions of the people of a nation always seems to have some kind of correlation. What seems to be interesting is the fact that this economic upswing and downswing seems to be of a cyclical nature.

Take for example the case of India and China; some three hundred years ago, the Indian and Chinese economies were the dominant economies in the world. America and Japan were nothing more that third world countries. During this period, most products that originated in the subcontinent and China were held in very high esteem. And true to the famous saying that ‘imitation is the best form of flattery’ the western businessmen actually copied the articles from the oppulent orient and sold it in their countries for a premium. Ceramic is a classic example of this kind of a situation. It was a product of China and some European entrepreneurs perfected a process to make cheap imitation ceramic and sold it to the western nations. Today, when the US is the dominant economy, we see a reverse situation. Chinese and Indian entrepreneurs are the one becoming competitive by manufacturing western products in a cheaper and better way!

Geopolitically, the economic dominance of nations has a cause & effect relationship with the countries prosperity – that is until, it seems there is a cyclical economic swing in other direction. Now, about the redrawing of maps, I think the most common reason which most separatist movements quote for wanting to form their own countries or states is economic freedom and release from oppression. If one observes the various factions in the Indian states which want their own separate states (Telengana, Vidharba etc) economic liberty to choose a different ideaology from the parent state is one of the strong reasons for the want of separate states.

But is this a productive and forward looking? One of the funadamental tenets of free market capitalism is the right to private property. This right is the genesis of the capitalist society which can lead to entrepreneurial activity and competition leading a robust trade. Is there any causal relation between the formation of smaller states and countries which have governments which control smaller geographies and the increase in the robust trade and better economic conditions? I think not. Even if these smaller newly formed states have free market leaning governments, I think economic conditions will not improve too soo. Of course, Singapore and Hong Kong are classic opposing examples to this arguement. Singapore, separated from the larger nation of Malaysia and is today a leading free-trade embracing nation with a dominant economy. Hong Kong, a economic giant, the true bastion of Free trade, has now been rejoined with a left leaning Chinese mainland and is seeing an economic downturn.

The reason, I think a smaller newly formed state, albeit with a free trade embracing government would struggle to be economically strong is that while it might uphold the laws of private property, it is a move which is against another of free market capitalism’s basic tenets. It is a net move towards increased Govenrment. From a single government which governs a large geography to multiple governements which govern smaller geographies in the same total region is a net increase in the interference of government and this would be an obstacle to free trade.

It might make more sense for those who want to separate from a larger parent nation, so that they can follow a free trade policy in their own small country/state, to rather effect change in the existing government to move towards free trade. This would also give them the benefit of ’more’ scare resource to allocate properly for the ‘greater good’. And of course, those separatist movements which focus not on economic liberty but rather seek separation so that they can establish more control and rule over their separate communities, well they are defenitely not in the free trade mould and would anyway not get the benefits of free trading economy!        

Constraints, and the way to approach issues

June 13, 2008 at 8:46 pm | In Economics | Leave a Comment
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Manangement techniques and aproaches argue that there are constraints which govern any business model and the businesses need to exploit their available resources to the maximum extent therby achieving the best possible outcome that is ‘allowed’, as defined by the limits imposed by the constraints.

A thought came to me when I was travelling on the local suburban trains here in Mumbai. Amongst the three suburban rail corridors which run in Mumbai, the Western Railway system is considered to be better than that of the Central Railway and the Harbour Line. Not that the Western Railway is any less crowded, but what one observes is that rakes on the Western corridor are better maintained and rattle and sway less, literally!

I was being thrown about on the Central Railway earlier today, between the Currey Road junction and Victoria Terminus; and this dichotomy came to my mind. I wonder if the members of the Central Railway management, who may have lesser funds to work with than their Western Railway counterparts, be victims of the ‘Exploit to the maximum the available resource to get the best possible result under the situations imposed by the constraints’ management theory? One justification, which the Central Railway management might be coming up with, to justify poor quality of their suburban lines (when compared to the Western Railways ones) could be “We lack the funds they have. We are doing the best utilization of our resources under the constraints”

I think this management approach is a poor one. Why can’t one instead, think differently, and use the available resources not to strain the maximum out of the constraint, but rather render the constraint irrelevant – thereby removing the ‘limits’ imposed by them? Opportunity costs and feasibility are generally the variables which are thrown against such an arguement; but I think this approach needs to be further examined.

Whose plate is half full?

June 13, 2008 at 2:52 pm | In Economics, Environment | Leave a Comment
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The Financial Times has a lead article on India’s rising inflation. The wholesale price inflation today (June 13th, 2008 ) hit a seven year high of 8.77%. This figure has crossed the anticipated figures by most economists and has got most policy makers tied up in knots over the impact on the economy. The major cause people attribute to the inflation is the rise in crude oil prices and to the rise in food prices. The increase in food prices in India has followed the international trend with around a 30 to 50% increase in the prices of commodities like rice, lentils, vegetables and milk.  

The global food crisis which has been in the media for a while now has prompted many reactions from across the spectrum of observers. Policy makers in the government have gone on to increase price controls on food commodities to control the spiraling food prices leading to greater regulatory architecture coming into the market. Other reactions which have come to the media, mainly because of their comical nature, is the assertion of President Bush that food prices around the world are increasing as Indians are eating more!

One intriguing argument as a result of the increasing food prices, which has been popping up on the internet on many major blogs and news editorials, is the revisiting of the famous argument by Thomas Malthus. Thomas Malthus in his famous essay on the Principle of Population published in 1798 essentially argued that in a world where global population grows geometrically and the food production grows arithmetically, the math indicates towards an eternally damned human population which would in the future face massive food shortages. This argument had been proven wrong over the years after 1798 when the population grew at a geometric rate and food production thanks to improvements in technology also grew so as to make the world self sufficient in the matters of food. The current food shortage, along with the increased media awareness about the global warming (or as it is popularly known, Climate Change) which is also caused, most people theorize due to exponential increase in population, has reopened the debate on Malthus’ argument.

Malthus famously wrote, “The power of population is so superior to the power of the earth to produce subsistence for man that premature death must in some shape or other visit the human race”. Increasing exhaustion of cultivable land was one of the major facts which Malthus laid out to support his arguments. Is fertility of soil and availability of cultivable land one of the main reasons behind the increasing food shortage today? With many other articles talking about the critical population limit which certain economies can sustain mainly due to the access to cultivable land problem also gaining ground, the idea that lack of land could be one of the culprits.

This got me thinking; has the human population really grown to such an extent that there is no more cultivable land available now? A distribution of population around the world definitely does not seem to indicate a ‘lack of land’. A look at the population density map of the world seems to indicate that the population of the world is concentrated in certain regions and the world is vastly ‘empty’ in a majority of the place. Although I know that my idea might seem juvenile and without depth by agriculturists, what is lacking in the world is not the availability of land, but rather a lack of cultivable land. And this according to me is the critical flaw where Thomas Malthus’ famous essay falls short.

 

What was the problem of the age when Malthus wrote his famous essay was the lack accessibility for the famer to the cultivable lands. With the advance of technology has seen this problem increasingly disappear. Accessibility and communication is not a primary constraint in the world today. Similarly, I would like to think that with the increase in technology, if the availability of ‘cultivable land’ can also be made to increase, coupled with the already better accessibility infrastructure, land will not be a primary reason for shortage of food.

Now, I know that there an innumerable number of ‘holes’ that can be poked into this argument, even I can suggest a few. But hey! We optimists are accustomed to seeing a plate full of food! 

Private Labels

March 23, 2008 at 9:20 am | In Economics, Retailing | Leave a Comment
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Private label pose the biggest threats to branded FMCG businesses. The normal margin structure in a typical FMCG supply chain today is as follows. The margin for the carry and forwarder (C&F) is ranges from 1 – 4%. That of a stockist ranges from 4 – 9% and that of the retailer ranges from around 8 – 17%. Also as the channel of distribution has gained prominence in the consumer’s mind due to pervasiveness of their reach, the retailer increasingly calls the shots. In such an environment, consumers increasingly face the pinch of higher prices.

Hence, the best way for the retailer to add value to the consumer would be to remove the price burden he bears. The solution – creation of private labels. This makes good economic sense too as is indicated by the following table.

Just as an indicator one can observe, that private label business of Wal-Mart is USD 126 billion. This figure is greater than that of the total sales revenue of Nestlé’s which is considered as the largest FMCG manufacturer brand in terms of sales.  

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