P2P By Design

Every so often, city officials take a leap of faith into commoning: Curatiba and NYC turning  heavily trafficked streets into asphalt parks; towns in Sweden, Germany, New Zealand, UK, and Netherlands remove traffic signals and road signs to lower wrecks and traffic jams (video); and Sao Paolo outlawing all outdoor advertising. These all tend to be so counterintuitive to traditional management thinking that onlookers scoff and wait for failure and ruin. What surprises most, even the cities who test these measures, is that these actions work. Local business does increase despite roads being closed to traffic. Wrecks and congestion do decrease despite there being no network of traffic signals or signage. Despite the cries from advertisers and media companies, the vast majority of citizens say the outlawing of advertising makes cities a better place to live.

Stepping into this trend is New York City’s MTA. In an effort to reduce the commuter trash overflowing from trash cans and strewn everywhere in the the city’s subways, MTA officials decided to do the counterintuitive: they decrease the number trash cans available to commuters. The results surprised everyone:

“…trash cans were removed from two subway stations last year, the Metropolitan Transportation Authority says the counterintuitive plan has worked: trash hauls have decreased, it said, and the stations are cleaner. 

“’I’m actually very intrigued by this,’ said Joseph J. Lhota, the transportation authority’s chairman, before urging riders to treat the subway ‘as you would treat your home.’”

While the results aren’t perfect, authorities said that in plain numbers, its been remarkable: the number of trash bags hauled out by workers has decreased by 50 percent and 67 percent at the two stations. The MTA described the logic of the program simply: If there is nowhere to discard trash, riders will take it with them — often outside of a station. Asked if the measure could eventually be extended into a systemwide policy, Mr. Lhota said, “It could be.”

There’s also been a few positive externalities as well: fewer rats and an uptick in business for newsstands. I think anything that keeps the subway rats out of sight is something all New Yorkers can get behind. 

If you haven’t heard of Enspiral, it’s a pretty remarkable case study in collective creation as a business model. The company bills itself as “an eco-system of 76 people and 12 companies” that “offers everything from web and software, through to animation, graphic design, legal, accounting, environmental planning, landscape architecture, urban design and engineering design and prototyping services.” Originally located in New Zealand, Enspiral “locations” have spring up in Auckland and Hong Kong (already 30 people under its banner) and a soon to be established node in Berlin (as former Wellingtonians set up shop in the German capital). 

The company is designed around a heterarchical structure. It’s founder Joshua Vial says, “we wanted a business in which there was no distinction between who works and who owns.” As a result, members share the same information and have the same level of autonomy as a business owner would have. What’s really amazing is that the members set their own salary. The catch is that they have to prove they’re justified in receiving it.

To aid the innovation and productivity of its flat, collaborative model, Enspiral has even released an alpha version of software to help its members reach consensus and, most importantly, develop actionable conclusions. The platform is built around the concept of a motion or proposal – should Enspiral do this or that? “It forces us too to front load the decision-making with conversations to get everyone onboard, obtain perspectives from different people. The participatory process seeks to build a consensus of understanding, not necessarily agreement. A person may not necessarily agree with the final decision, but can generally run with it, says Vial.

Vial says there’s great economic and productivity power to this model: 

“Every time a new person comes into Enspiral, they release untapped potential within the organisation and their own networks. It is one of the laws of networks; if you double the size of the network you haven’t doubled its value, you’ve increased it by much more than that.

This matches nicely with one of the laws of Peer-to-Peer Production: Every time a closed system opens up and interacts directly with other existing systems, it acquires all the value of those systems.

The people involved in Enspiral tend to have a higher purpose to their works, which explains why they created the Bucky Box to help the local food movement by taking admin hassles out of the equation so farmers can spend more time growing their tomatoes and less time sorting out receipts.

Nice article from Dalton Caldwell’s post on critical mass vs network effects. In it, he talks about the “growth above all else” dogma and how that can actually hurt the sustainability of your platforms (or company’s) community’s growth.

I particularly liked this part:

The power of the asymmetric model + global feed

Twitter’s growth model is a nice blueprint for getting a critical mass and then growing to global scale. Specifically, if you launch with a small, dedicated group of interesting people that can asymmetrically follow each other, along with a global feed of all content posted, you can feel like you are the member of an interesting and vibrant community.

As the site starts to scale, the early userbase will depend less and less on the global feed, and use their own feed/following list to crank up or down the amount of information they are presented with.

The asymmetric follow model also takes care of some of the strange things that happen on Orkut, Facebook, Google+ etc. Strangers can choose to follow you, and @-reply to you, but it doesn’t feel like they are “putting” their troubling messages on your content.

It should also come as no surprise that Pinterest and Instagram followed the Twitter blueprint of asymmetric follows + global feed to scale from a small critical mass of interesting people into a massive, global community. Those sites were fun and useful to early adopters on a small userbase, and have managed to keep their community mostly solid throughout massive growth.

This is one of my favorite examples collaborative filtering. It comes from Google.

To understand it, it helps to know how Microsoft developed its solution to a misspelled search term. For the word “appropriate,” for example, Microsoft developed a long list of possible misspellings: apropriate, approriate, appropriate, aprpiate, etc. (I’m guessing they just used a algorithm to do so.) Whenever a user typed in one of those misspellings into Microsoft Search Engine, the system knew they were trying to search “appropriate” and suggested the proper spelling. It’s a logical approach. But when large dictionaries carry 400,000 words, creating such lists is a cumbersome task. Google’s approach was different. Its engineers noticed that when a person accidentally searches for a misspelled term their next move is to search the correctly spelled term. As such, Google recognized that it didn’t need to generate lists, it let the user base’s natural search behavior generate the list without them even knowing it. All Google did was present the next typical search term as a simple visual—”Did you mean: appropriate?” Google found a way to use the digital exhaust from its searches to create a lightweight solution to a user problem.  

So damn smart. 

The above Fresco by Raphael shows Plato (left) and Aristotle (right). Aristotle gestures to the earth, signifying his belief in knowledge through empirical observation and experience. Plato gestures to the heavens, to communicate his belief in The Forms.

For a long time, it’s intrigued me that Aristotle’s observations convinced him of the follies of the commons.  

“That all persons call the same thing mine in the sense in which each does so may be a fine thing, but it is impracticable; or if the words are taken in the other sense, such a unity in no way conduces to harmony. And there is another objection to the proposal. For that which is common to the greatest number has the least care bestowed upon it. Every one thinks chiefly of his own, hardly at all of the common interest; and only when he is himself concerned as an individual. For besides other considerations, everybody is more inclined to neglect the duty which he expects another to fulfill; as in families many attendants are often less useful than a few.”

Aristotle, The Politics, Book II, Chapter III 

Like many things in life, there is a truth to what Aristotle says. But is it Truth in the absolute and universal sense? For many centuries, people affirmed, “Yes.” Enclosure proponents waved this quotation as support against shared value and the commons. While history has elevated Aristotle’s idea to Truth, the philosophers observations of life had led him to offer a caveat to the private ownership of all wealth, natural and man made:

“It is evident then that it is best to have property private, but to make the use of it common… And also with respect to pleasure, it is unspeakable how advantageous it is, that a man should think he has something which he may call his own; for it is by no means to no purpose, that each person should have an affection for himself, for that is natural, and yet to be a self-lover is justly censured; for we mean by that, not one that simply loves himself, but one that loves himself more than he ought; in like manner we blame a money-lover, and yet both money and self is what all men love. Besides, it is very pleasing to us to oblige and assist our friends and companions, as well as those whom we are connected with by the rights of hospitality; and this cannot be done without the establishment of private property, which cannot take place with those who make a city too much one [referring to Plato’s idea of the ideal Republic (city) holding all property in common]; besides, they prevent every opportunity of exercising two principal virtues, modesty and liberality. Modesty with respect to the female sex, for this virtue requires you to abstain from her who is another’s [referring to Plato’s idea for the Republic’s ruling class to hold all their wives and children in common]; liberality, which depends upon private property, for without that no one can appear liberal, or do any generous action; for liberality consists in imparting to others what is our own.”

Aristotle, The Politics, II.v.

It is very important that Aristotle says “it is best to have property private, but to make the use of it common.” He goes on to extol the virtues of sharing and hospitality, and to propose that they are virtues only thanks to private property. What I find interesting about this extended look at Aristotle’s perspective is the opportunity for generosity he recognizes in the act of ownership. His argument is that we own to share. He sees this as the purpose of ownership because sharing—not collective ownership—teaches the individual morality, generosity, and instills in him the will to care. More fundamentally, to me, it seems that Aristotle felt that the act of sharing taught people to see themselves as there for others and, in the broadest sense, the world. Not only must we be caretakers of that which we own, but of each other as well. Only then could the individual understand the concept of and importance of “reciprocity”: the vitality in you inspires the vitality in me. And vice versa. Only when a citizenry lives in mutual contribution to each other, could it experience freedoms and happiness. All otherness and me converged into an inclusive consciousness. In the end, private property whose use is made common is a necessary ingredient in unlocking the power of commoning.  

A short while ago, a software glitch at Knight Capital sent many stocks into free fall. That fritz lost it hundreds of millions of dollars in a half hour—a capital loss that almost destroyed the company. And it’s not the only disaster of recent memory. Remember that the trading debacle at JPMorgan? The Libor-fixing scandal? The Facebook initial public offering? The customer restitution that Capital One is paying for what the Consumer Financial Protection Bureau said was deceptive credit card marketing? Or UBS’s “rogue trader’s” $2 billion loss? 

The common refrain from the average investor tends to be the same: Wall Street has no consequences, it’s a casino, and they rig it for their own gain.

Luckily, in the process of life, as one system fails on a regular basis, new, different system emerges. 

Peer-to-peer lending is one such system. P2P lending is financial transaction (primarily lending and borrowing, though other more complicated transactions can be facilitated) which occurs directly between individuals without the intermediation of a traditional financial institution. It is for the most part a for-profit activity and is, therefore, distinguished from charity, philanthropy, and crowdfunding. Though no always, this type of investment focuses on local economy activity—or “localvesting.” 

I’ve been a fan of this for a while but lately its seems that this alternate system is finally getting the respect it deserves. Ron Leiber, who was against P2P lending as recently as a year ago, wrote the piece, ”A Financial Plan for the Truly Fed Up.” In it, he advocates including P2P lending as part of your investment strategy.  

The other legit proponent is Fred Wilson, VC and Partner at Union Square Ventures who wrote on his blog, 

“Our firm is a big fan of these [P2p Lending] markets, having invested in two of them and looking at others.”

Such P2P lending companies are a great example of how, over time, the Internet is (and will) decentralize and distribute all institutions that are centralized and hierarchical. The financial sector has long been considered a hard nut to crack in this respect. However, a hard nut to crack still means it can be cracked. The bodes well for any P2P entrepreneur and is a call to change for brands who still believe in controlling the message and the product.

(If you like the idea of the internet decentralizing/distributing everything, read Philip J. Windley’s post about the inevitable decline of Facebook—and all centralized systems.)