1. Friendly File Sharing System The “Potato” System We bring customers and providers of content back together to a common economic interest I 2 C, Kuehlungsborn 6/22/2002 I 2 C, Kuehlungsborn 6/22/2002Ruediger.Grimm@TU-Ilmenau.deJuergen.Nuetzel@TU-Ilmenau.de

2. 6/22/2002Jürgen Nützel, juergen.nuetzel@TU-Ilmenau.de - www.4FriendsOnly.org 2 At a Glance …  Goods - Virtual Goods  Life Cycle of Virtual Goods  Classical Distribution  Problems with Virtual Goods  Friendly File Sharing System  The Research Team  The Potato Box  Conclusion and Next Steps

3. 6/22/2002Jürgen Nützel, juergen.nuetzel@TU-Ilmenau.de - www.4FriendsOnly.org 3 Virtual Goods  What is a Virtual Good? A Definition: „A product or service is "virtual" if it is freed from its original medium and bound to a new medium and if it fulfills these two conditions: (a) human users accept the virtual image of the product (or service) as a real product (or service, resp.); (b) consumption of the product (or service, resp.) is independent of the producer, it is solely in the hand of the consumer and can be repeated by the consumer whenever he decides so (note, however, that repeated use of a product or service may induce costs and has impact on the reality).

4. 6/22/2002Jürgen Nützel, juergen.nuetzel@TU-Ilmenau.de - www.4FriendsOnly.org 4 Virtual Goods  e.g. Music Freeing from media (sound waves, record, compact disc) is possible Binding to media (sound waves) Consumption can be repeated by the consumer whenever he wants Digital production/reproduction with optimized quality possible Digital transmission and storage without loss Highly effective coding allows fast transmission

5. 6/22/2002Jürgen Nützel, juergen.nuetzel@TU-Ilmenau.de - www.4FriendsOnly.org 5 Life Cycle of Virtual Goods 011101000100101001 111010010000100110 coding (reduction) transmission/storage (without loss) 011101000100101001 111010010000100110 interpretation (enrichment) The practical value of virtual goods is primarily defined by the personal enrichment of the consumer

6. 6/22/2002Jürgen Nützel, juergen.nuetzel@TU-Ilmenau.de - www.4FriendsOnly.org 6 Classical Distribution specify / sell / control Provider Trans- fer Files CDs Authors / Creators User / Consumer rights

7. 6/22/2002Jürgen Nützel, juergen.nuetzel@TU-Ilmenau.de - www.4FriendsOnly.org 7 Problems with Virtual Goods Provider Authors / Creators Files Napster User / Consumer rights

8. 6/22/2002Jürgen Nützel, juergen.nuetzel@TU-Ilmenau.de - www.4FriendsOnly.org 8 Problems with Virtual Goods Provider Authors / Creators Napster Files Gnutella controls User / Consumer rights

9. 6/22/2002Jürgen Nützel, juergen.nuetzel@TU-Ilmenau.de - www.4FriendsOnly.org 9 Problems with Virtual Goods  Conflicting Interests User have the interest and possiblity to copy and re-distribute virtual goods (e.g. music) with almost no costs. Providers have indeed the interest to distribute (superdistribution), but only under their full control. Providers hinder the users to re-distribute (Digital Rights Management). Users will be criminalised. Prosecution and spying on the users. Intervention in the user‘s sphere (computer).

10. 6/22/2002Jürgen Nützel, juergen.nuetzel@TU-Ilmenau.de - www.4FriendsOnly.org 10 An Expert Opinion  Forrester Research in „Content out of control“ “…DRM can't prevent filesharing, nor will business models that depend on the control of content ever reap sustainable revenues … Consumers don't want business rules or restrictive technology -- and it only takes one person to break down the security barriers and share content on the Net. Lawsuits will only succeed in driving consumers to underground Internet services like Gnutella and Freenet…" http://www.forrester.com/ER/Press/Release/0,1769,397,FF.html

11. 6/22/2002Jürgen Nützel, juergen.nuetzel@TU-Ilmenau.de - www.4FriendsOnly.org 11 An Alternative Approach  Cooperation of Interests! Providers and users of digital music, ebooks or other virtual goods no longer treat one another as enemies! No copy protection or other restriction will be imposed on the users! Users are able to – they are encouraged to – re-distribute the files. A user may decide to pay for a virtual good. If he does so, he becomes an active part of the distribution network for virtual goods. He gets additional benefits.

12. 6/22/2002Jürgen Nützel, juergen.nuetzel@TU-Ilmenau.de - www.4FriendsOnly.org 12 Friendly File Sharing System The “Potato” System Bill runs the Accounting Server of the “Potato Systems“ Fred made mysong.mp3 Fred registers mysong.mp3 Bill responds with transaction number 0001 File will be renamed mysong4fo0001.mp3 Ginny receives mysong4fo0001.mp3 directly from Fred mysong4fo0001.mp3 Ginny presents 0001 and pays for it mysong4fo0002.mp3 Bill responds with the new transaction number: 0002 File will be renamed. Harry receives mysong4fo0002.mp3 from Ginny

13. 6/22/2002Jürgen Nützel, juergen.nuetzel@TU-Ilmenau.de - www.4FriendsOnly.org 13 Friendly File Sharing System The Accounting Server Bill runs the Accounting Server of the “Potato Systems“ manges user accounts on behalf of providers (Fred) and consumers (Ginny) stores information about the files (mysong.mp3) of the providers handles registration and purchase of files generates unique transaction numbers pays out commission to the user (Ginny) (if Harry buys) provides evidence of purchases by presenting transaction number

14. 6/22/2002Jürgen Nützel, juergen.nuetzel@TU-Ilmenau.de - www.4FriendsOnly.org 14 Friendly File Sharing  „Pretty Good Distribution” Re-distributing users may earn more than they payed for User not paying may consume and re-distribute anyhow Unpaid re-distribution finances previous payer Users are able to demostrate their purchase: „I purchased it“ Rapid distribution of content of unkown artists No compatibility problems

15. 6/22/2002Jürgen Nützel, juergen.nuetzel@TU-Ilmenau.de - www.4FriendsOnly.org 15 The Research Team  „Security for Virtual Goods” May 24, 2002: Under chairmanship of Prof. Brandenburg the Fraunhofer institution AEMT in Ilmenau creates a new research team distributed over three Fraunhofer Institutes in Ilmenau, Darmstadt and Erlangen. Ilmenau will bridge the different competences: multimedia technology in Erlangen, and IT security in Darmstadt. Moreover, in Ilmenau we will develop alternative DRM business models. A first idea of a friendly distribution model is already filed for patent, together with Fraunhofer and 4FriendsOnly.com AG (4fo). http://www.4FriendsOnly.org

16. 6/22/2002Jürgen Nützel, juergen.nuetzel@TU-Ilmenau.de - www.4FriendsOnly.org 16 More Ideas: e.g. “potato box“  Distribution and Purchase via CD-R The potato system was primerily developed for PC users with Internet access. But distribution and purchase via CD-ROM is already included. Ginny receives mysong4fo0001.mp3 on a CD-R. Using the new TN (0002) the file will be renamed on CD-R (new directory). With CD writer Jukebox functionality (Point-of-sale) Control via PDA Realisation using the “potato box“ MP3 player with hard disc

17. 6/22/2002Jürgen Nützel, juergen.nuetzel@TU-Ilmenau.de - www.4FriendsOnly.org 17 Conclusion and Next Steps  Classical view: conflicting interests  New view: cooperating interests  User build an alternative distribution system  Invention 01/16/2002 in the potato pub in Ilmenau  Agreement with Fraunhofer at CeBIT´02  Patent filed on April 17, 2002  Research team “Security for Virtual Goods“  Realisation of the Accounting Servers by 4fo  Financing by Fraunhofer starting from June 2002  First milestone in January 2003

18. 6/22/2002Jürgen Nützel, juergen.nuetzel@TU-Ilmenau.de - www.4FriendsOnly.org 18 Thank you For more information: http://www.4FriendsOnly.org I 2 C, Kuehlungsborn 6/22/2002 I 2 C, Kuehlungsborn 6/22/2002Ruediger.Grimm@TU-Ilmenau.deJuergen.Nuetzel@TU-Ilmenau.de