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The general digital shift from an ownership economy towards a service economy

13.10.2021
Hans Graux
Opinion

This is the first article in the series of opinion pieces that dive into data sharing as a service. Will data services remove intellectual property rights from the picture, and at what cost?

The digital economy has undergone many radical changes over the past few decades. One of the most significant changes is arguably the move from an ownership-based economy, to a service-based model. Traditionally, up until the late ‘90s, digital content was purchased on a physical medium – a floppy disk, CD or DVD – by an end user. Legally, this ‘purchase’ covered both the ownership of the physical object, and specific rights to use the digital contents stored on the object. In that way, a citizen or company bought software, games, films, music, or any other creative work – or more accurately, they bought a contractually defined licence to use that work, along with the physical object itself.

As the Internet became more and more prevalent, and particularly as higher download speeds and volumes became viable for most users, the need for a physical carrier disappeared. Simply buying the digital content online and downloading it directly provided immense benefits for both the seller and provider. The seller could reduce marginal costs (the cost of each additional copy of the content) to nearly zero, and could more easily sell directly to its customers, thus cutting out any middlemen and increasing their margins. The buyer could obtain their content more quickly and conveniently, and always received the most recent version, rather than the version that most recently was distributed on a physical medium. For software in particular, the ability for a newly purchased version to contain all the most recent updates, patches and features was economically interesting. The legal model remained largely the same: while no physical object was bought anymore, users still bought a licence to use the creative content, based on the contractually defined terms that were included with the download.

However, over the last decade, the business model behind digital content has evolved further. Rather than one-off sales of digital downloads based on a licensing model, digital content is increasingly sold as a service. This can be observed for software (cloud services), video and audio content (streaming services), gaming services (gaming subscription stores), and so forth. In addition to the benefits mentioned above, the seller replaces a one-time payment by a recurring revenue stream. The buyer benefits from a broader service offering (e.g. having access to a much broader library of music, video, games, etc) and/or from a better service quality (e.g. benefiting from the vastly higher capacity and functionality of cloud services compared to locally deployed infrastructure).

The shift to services however has also changed the legal model to a large extent. Rather than obtaining a download paired with a specific licence agreement, the user concludes a service agreement. While that service agreement inevitably will include some usage rights – and therefore licensing terms – as well in order to allow lawful use of the digital content, the user’s rights are principally governed by a subscription. This is not a matter of semantics, since a key characteristic of these subscriptions is that they can be terminated (either by the buyer or the user), and that termination causes all usage rights to the content to disappear. Contrary to a digital download, a digital service may no longer be available tomorrow, in which case the user loses their ability to use the content.

Moreover, in the subscription-based model, content is available dynamically. This is beneficial when it implies that a customer gets more or better content; but it can also imply that key software features disappear overnight, or that songs or videos that were important to a user suddenly are no longer available.

The shift from a static download coupled with a licence to a dynamic service based on a subscription thus has clear benefits and clear risks. Given the growth rates of dynamic services (cloud software, audio-visual entertainment etc.) and the fact that their turnover already exceeds traditional equivalent sales by a wide margin, the trend in the digital economy is clear.

But what about digital data sharing, specifically by the public sector? And what about data that is distributed under an open licence? Is data sharing similarly increasingly done as-a-service by public authorities? Is the shift from a licence to a subscription agreement occurring here as well? What are the legal challenges and implications, if any? Is the shift – if it is happening – a potential problem?

 

Stay tuned for the next article in the series: Will data services remove intellectual property rights from the picture, and at what cost?

The general digital shift from an ownership economy towards a service economy
Image credit:
2017, Giammarco Boscaro via Unsplash

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