The curious business model of internet swap sites

It doesn’t quite add up, at least that how it seems to me.

I’ll explain. There are a number of places on the internet where you can exchange your unwanted CDs, DVDs, or other items, for others that you might like better. A while back I wrote a brief review of hitflip, a cd swapping site. I didn’t much like it. Someone commented to my post that SwapShop is much better. I tried it and found it was true: SwapShop is a better deal for users. The main reason is that while hitflip charges you a fee for each item you acquire (currently 79 pence), SwapShop is a free service. Furthermore, on my brief inspection SwapShop has better “stock”, the stock being items that users have posted as available. I’ve also seen the site recommended elsewhere, such as on the money site I like SwapShop and have made several successful trades.

However, there is something curious about the business model behind these sites, especially the fee-free SwapShop. A quick word of explanation. These sites do not really manage swaps, which would be inefficient. Instead, you exchange your items for credits, received when another user confirms receipt of an item you sent. These credits can then be used to “purchase” items from other users. But what happens if you would like to acquire an item, but do not have sufficient credits? Easy, you buy credits from the site:

If the item you want costs more than the Swap Points you have, you can wait to send more items to build up a larger number of points to spend, or you can buy points by going to the Account tab. Swap Points can be purchased for £1 each via PayPal.

This gives the the company running SwapShop some income, to supplement what it can get from Google AdSense and Amazon affiliate links. It’s not just SwapShop; other sites have a similar arrangement including PeerFlix (see here) and the aforementioned hitflip (see here).

Sounds reasonable – or does it? The success of the site, and the value of your credits, depends on the availability of items you want. In other words, it needs a balance between items offered and items received. But if somebody buys credits, that person acquires an item without contributing to the stock of available items. Put another way, and please correct me if I am wrong, the company selling credits is in effect selling stock that belongs to its users.

Consider a simple case. Let’s say the site is just starting, and ten people each offer a CD. They start browsing the CDs on the site, when an eleventh person comes along and buys all ten using purchased credits. Result: ten unhappy people, with credits but nothing to spend them on.

Provided the site is busy, this effect might not be noticed for some time, especially if users are happy to maintain accounts that are in credit. I’m puzzled though: other things being equal, isn’t this inevitably going to dilute the value of the site, potentially leaving users with valueless credits?

Other things might not be equal. For example, the company could counter this effect by purchasing stock with its income, and offering it in exchange for credits, or there might be other safeguards I’m not aware of.

If I’m right, selling credits for cash is a doubtful practice on this kind of site, unless users can also cash in credits (they can’t on SwapShop). A better approach would be to run it on a community basis, or get by on per-transaction fees, or let the advertisers pay for everything.

Isn’t my question about the business model at least a reasonable one? I can’t find it covered in the help page.

I put my concerns to Paul McDonnell, founder of SwapShop. He confirmed that money paid for credits is “a contribution towards the cost of running the site”. Isn’t that in effect selling items that belong to other people? “It’s a drop in the ocean, a tiny amount of money,” he told me, emphasizing that it was primarily for topping up credits for items you cannot quite afford. “It’s a benefit to the users. It’s just not an issue.” What would happen if, over time, this leakage resulted in a shortage of items to acquire? “I can’t imagine it happening,” he said. He referred to a recent questionnaire completed by thousands of users, none of whom raised the issue.

Point taken; McDonnell seems a decent guy and SwapShop users seem happy. Still, the nagging concern won’t go away.


Here’s what Ian Wright at Hitflip told in an email reply to my query:

We are already monitoring the proportion of flips vs. worth of available items in our system via several internal reports. If an inflation of flips will be evident, we will buy items and insert them on hitflip.

Hmmm, it would interesting to know what those internal reports say, and what proportion would trigger the injections of items into the system. Still, it’s good that the problem has been considered. Hitflip is theoretically in a stronger position than Swapshop, since it has fee income.


Why does audio glitch in Vista?

I eagerly read An Overview of Windows Sound and Music “Glitching” Issues by Steve Ball, Senior Program Manager for Sound in Windows Vista, hoping to find out. Sadly, it offers no insight other than saying what a tough job it is for a busy operating system to play back audio smoothly.

I’d like to highlight a few of the comments to his post

The last time I remember my MP3s glitching was back when I had a P75mhz (which should be of no surprise). The only other time I had my MP3s glitch was when I upgraded my PC to Vista. This same machine (exact same hardware) which had XP running on it, *never* had an MP3 glitch. On Vista, sound **constantly** glitched. Merely scrolling web pages caused sound issues…honestly my mobile phone can play MP3s, while I surf the web, on a call and text message; all without any glitches. [from ateharani]

and this from explorer5:

Steve – Thanks for posting this article.. I’m hoping that in the second part of the series you will mention how and why “glitching” is appearing (sounding) on Windows Vista computers when those same exact computers when Windows XP was installed had no issues with sound quality.

and this, from divil:

When MS first announced that Vista could guarantee glitch-free media playback because of new kernel scheduling APIs my first thought was “what glitching?” since I’d never experienced it outside of DOS on slow machines. Now ironically, with Vista, I do get that wonderful experience. On a new PC.

Couldn’t agree more. See here for my earlier post: Audio in Vista: more hell than heaven.

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Microsoft Oslo: now where have I heard this before?

“Oslo” is Microsoft’s latest pronouncement on the vexed subject of software modeling. This is from the backgrounder, which you can find here:

We are building a general-purpose modeling language, tools and repository to bridge all the models within an application, moving models to the center of application development. Models will no longer just describe the application, they will be the application.

Cool. But isn’t this reminiscent of what the OMG has talked about for years, with UML 2.x and Model Driven Architecture?

Why has MDA failed in mainstream development? I suspect the key question is whether it complicates rather than simplifies the software development process. In other words, the MDA overhead may exceed its benefits for the majority of applications. Looking at the list of OMG specifications that’s not hard to believe.

In relation to Oslo, I have a few questions.

First, why will Oslo succeed when other smart people have failed? Point of interest: they may even be the same people. Note this quote from Microsoft’s Jack Greenfield, whom I interviewed for the Register:

“We are the UML guys, that’s the funny part of it,” says Greenfield. “I was one of the chief architects at Rational; I spent a lot of time deeply steeped in the UML and in the committee work in the OMG. Other guys on team go deeper than I do.

Second, how serious is Microsoft about Oslo? When I spoke to Greenfield, I had the strong impression that modeling is an area of factional conflict within Microsoft. Thus, it could be the big thing one moment, then pushed to one side the next.

Third, how does Oslo simplify development, as opposed to giving developers yet another layer of complexity to worry about?

Irrespective of the above, it the parts of Oslo that talk about better integrating between BizTalk, the .NET Framework, and System Center do make sense:

There will also be investments aligning the metadata repositories across the Server & Tools Business products. System Center “5,” Visual Studio “10” and BizTalk Server “6” will utilize a common repository technology for managing, versioning and deploying models.

Further, who know whether Microsoft may yet do something wonderful with modeling that delivers on promises like:

In short, we want developers to be able to build [distributed] applications with one-tenth the code that is required today. And we want to establish a rich context in which those developers can interact with business analysts and IT professionals easily.

But count me in the sceptics camp until Microsoft comes up with something more convincing than rhetoric we have heard before.

UK Government resists Peer pressure on internet security

In July this year the House of Lords reported on personal internet security. I read the report and was impressed. I don’t agree with all of it, but I found it well-researched and mostly sensible. You can download it here [PDF]; I recommend it if you’ve not yet read the actual document.

The UK Government’s response [PDF], on the other hand, reads more like a series of excuses for doing nothing (or perhaps I have watched too much Yes Minister). So I guess that is that.

See Richard Clayton’s blog here (he was one of the advisors to the Lords committee), and this Register article.

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How ASP.NET began in Java, and the truth about Project Cool

A bit of nostalgia for you. Cast your minds back to 1999 or thereabouts. Microsoft is finishing off IIS 4.0 and there is no such thing as C# or ASP.NET. However, there are rumours that Microsoft is creating a Java-like platform codenamed “Cool”, in the aftermath of a dispute with Sun that was making it impossible to use Java itself. Microsoft denies the rumours. Here’s a report from February 1999:

There is no Java-like language under development at Microsoft, said Michael Risse,  Microsoft’s product manager for application development tools. Risse said the company is talking to developers about a concept called Cool, a much less ambitious project intended to tie Microsoft’s Visual C++ development tool more closely to its COM+ middleware. However, Cool is not yet in development, and is unrelated to Java, said Risse. He said Cool is strictly a “whiteboard” concept, and that no software code connected to the concept has been written at Microsoft. Cool is also unrelated to any Java technology within the company, Risse stated. “There’s no connection between Cool and Visual J++, and the Java lawsuit is irrelevant to the thinking we are doing [with Cool],” he said.

Even after C# was announced in 2000, Microsoft denied that it had anything to do with Cool:

Yesterday, Microsoft executives denied that C# was related to the rumored Cool project.

Now, over to Mark Anders, co-inventor of ASP.NET, whom I interviewed earlier this month at Adobe Max Europe. I asked Anders how ASP.NET came about.

Anders: “ASP.NET happened after we shipped IIS 4.0 and everyone went on vacation. Scott Guthrie and I – Scott worked for me at the time, he was 22 years old, straight out of college – and we took advantage of the time everyone was on vacation to start brainstorming new ideas. We looked at ASP and how it was being used. I had worked on Visual InterDev so I had a lot of friends on that team, and we were looking at the new version, I think it was Visual InterDev 6.0, and we noticed how messy the code was. We said, how can we do better? Scott and I worked for a month and a half, and then when everybody came back from vacation in January we showed them a prototype and a PowerPoint deck, showed them this vision, and people said, ‘keep working on it’.”

I asked whether the prototype was based on .NET from the beginning, or “Project Cool” as the rumour went?

Anders: “No, it was not. The original prototype was written in Java. I loved Java as a language and Scott did too. So it was done in Java, and we took that around to lots of different groups. The first group that we took it to was the tools team. The VB and the InterDev teams were in a feud, and when they saw our demo they liked it. They said, ‘If you build that, we will target it with our tools.’

“The VB team was working on developing a new runtime, what became the Common Language Runtime. It was not as complicated as COM, and it had a nice object system, it was garbage collected. So we made a decision that we would write our thing, which at the time was called XSP, in this new runtime. So we were the first ones to commit to writing anything on it. The VB team was going to be using it as their runtime, they were doing their forms, but we actually built the whole thing in .NET.

“The funny thing is, you mention Cool. It was called Cool at one time, but Microsoft denied it. Scott and I presented what was then called ASP Plus, but we presented it a long time before anybody talked about .NET. We went to a conference, I think it was in Washington DC or something, and Scott and I were up on stage. He is doing this demo, and he says, ‘Here is a directory listing’. And I glance up at the screen, and I see, all these .cool files, and we’re busy denying that there is anything called Cool, and he has this directory listing. So I was worried that somebody would see that and put two and two together… but nobody picked up on it. They had asked if they could videotape me to re-broadcast, and I’d said fine, but when I realized that the Cool screenshot was shown, I contacted them and said, ‘I can’t let you have that videotape’, and they sent it back. So it never leaked.”

All these efforts did not prevent The Register posting a story in September 2000 which describes how a reader working with early C# samples:

…discovered that the original C# compiler was called coolc, subsequently renamed as csc.exec. Elsewhere, sample C# code has the HTML tag <script language=’COOL’ runat=’server’>, and Larry notes a couple of references to the string “C\temp\fact\”.

So why did Microsoft deny it? I’m guessing, but maybe the company felt that ‘Project Cool’ was related to Java in people’s minds, and wanted to emphasize that .NET was 100% Java-free. Any resemblance is purely coincidental, as novelists like to say.

VOIP from a mobile without Wi-Fi

Here’s a good offer from UK Voice over IP provider Voipfone. Call any number from a mobile at landline VOIP rates. The potential savings are huge, especially as the service works internationally.

The deal is described here. The first one aims to make use of included minutes on contract phones, for calls that otherwise would not be included in the bundle, like international calls. Voipfone customers dial a UK access number, and get a dial tone. Dial the number you want and get connected.

The deal for pay-as-you-go users is more cunning. Customers call a special number, which is never answered: you get an engaged tone. Voipfone calls you back and you get a dial tone. You dial the number you want and pay the cost of the VOIP-to-mobile call, currently around 14 pence per minute, plus the cost of the VOIP call, say 1.1 pence per minute for a call from the UK to the USA. For international calls that is likely to be a big saving.

Hmm, don’t the big mobile providers have small print about schemes like this? Still, I’m right behind it. Mobile call costs are a disgrace, and the profits from them subsidize a horribly inefficient and non-Green contract system which encourages users to trade their perfectly good phones for new ones every time they renew. Voipfone says:

We think that mobile telephone calls are not only far too expensive but also priced and sold in deliberately confusing ways. In particular, calls to and from mobiles and all international calls are wickedly expensive.

Can’t disagree there. Now, how about a scheme to make data transfer more reasonable as well? I have a phone here with all sorts of neat Internet features which I can’t afford to use.

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Lessons from Microsoft’s WSUS blunder

What happened: Microsoft pushed out an update to Windows Desktop Search (WDS) through WSUS (Windows Software Update Services, used to keep large Windows networks up-to-date), but made an error.

I found I had to read this explanation three times before I understood it, so here’s my attempt to re-phrase it.

From time to time, Microsoft issues updates to WDS. One of these updates came out back in February. Sane administrators approved this because it applied only to desktops that already had WDS installed.

Last Tuesday another such update appeared, and was automatically approved on sites where the February update had already been approved. Microsoft’s error was to make the new update applicable to all Windows XP SP2 or Windows Server 2003 machines, rather than just those where WDS was already installed.

Why was it such a big blunder? Many Enterprise PCs are set to redirect the My Documents folder to the server, where it can be backed up. WDS always indexes My Documents. Result: heavy network traffic as all these new indexes were being built. Furthermore, Microsoft’s track record for unobtrusive background indexing is not particularly good. Crippled network = lots of support calls.

The lesson: Susan Bradley says never auto-approve patches. I tend to agree, though it is a dilemma since with security-related patches time is of the essence. But here’s another case. I noticed on a Small Business Server 2003 box recently that Windows Server 2003 SP2 was waiting to be installed. Before clicking OK, I had a quick look for any issues, and came across this support note:

After applying Windows 2003 Service pack 2 on Small Business Server 2003 you may see the following issues:
1.  For both Standard and Premium:
     Missing Help and Support service
     R2 patch approve console has error on approval
2.  For Premium with ISA Server 2004
     Networking issues including NAT and VPN connectivity programs, Outlook not connecting, RPC errors, etc.

Ouch. There are solutions; but that’s definitely one to defer for after hours maintenance.

Two spins on Microsoft’s excellent quarter

Microsoft has delivered an excellent set of results, showing growth in pretty much all areas.

It seems to me that you can spin this in a couple of ways. First, you could argue that Microsoft is alive and well and still in the race. Certainly, with figures like these you can hardly suggest that it is out of the race.

Second, you could argue that the figures demonstrate how monopolies can continue to make good profits even when their products disappoint, especially in a buoyant market like computing.

The truth? Somewhere in between. It doesn’t matter how good the financials are: the disappointment with Vista is real. Personally I have Vista working fairly well, though annoyingly slowly at times, but I notice plenty of people advising one another to stick with XP, for performance and compatibility. Maybe the long-awaited SP1 will fix it, but some are now resigned to waiting for Windows 7 (you know, odd-number release theory) for a really good upgrade. Vista’s problems have created an opportunity for Apple and even Linux to grab some market share.

Other shadows hanging over Microsoft that come to mind:

  • Lack of clarity over Internet strategy
  • Continuing security problems centered on Windows (for whatever reason)
  • Losing the search wars
  • Governments mandating ODF
  • Apple’s increasing market share, especially among thought leaders
  • Bureaucracy and litigation
  • PR and image problems

On the plus side I’d mention the strength of the .NET platform and languages; Silverlight’s promise; and the fact that most people still want to use Microsoft Office rather than Open Office (in my experience).

I am absolutely not a financial analyst; but I observe that having a good quarter does not fix what strike me as deep-rooted problems. At the same time it is a reminder of Microsoft’s huge resources and entrenched position; that’s not going to go away quickly either.

TechEd Europe the week after next; no doubt some more Microsoft reflections then.

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A musician speaks out to defend Oink

Seen the reports of a major file-sharing site getting busted? You should also read this post from a musician and it seems a former Oink member, DJ/ Rupture:

About a week after I shipped out orders of the first live CD-r Andy Moor & I did, it appeared on Oink. Someone who had purchased it directly from me turned around and posted it online, for free. I wasn’t mad, I was just more stunned by the reach… and usefulness of the site.

I don’t doubt that Oink breached copyright laws. However it appears that the powers that be have been misleading the public in some respects. It particularly irks the Oink community that the site was widely described as “extremely lucrative” – in the BBC story this is part of a remark made by “A Cleveland Police spokesman” – when in fact it was an enthusiast affair.

DJ/ Rupture comments on the new economics of the music business:

My library metaphor for Oink makes more sense than economic analogies: for digital music & data, there’s lots of demand but no scarcity at all, which either requires that we rebuild an economic model not based on supply & demand, or start embracing commons analogies. I like living from my music but I also like libraries, the ideas behind libraries…

Personally I have long believed that only an all-you-can-eat subscription or license makes sense for legal music downloads and sharing, if indeed people will pay at all. The success of iTunes seemed to disprove that, but debate has reopened, following the opening of Amazon’s DRM-free music store, and Radiohead’s whatever-you-want-to-pay experiment. I appreciate that neither of these alternatives is an all-you-can-eat subscription, but the possibilities seem wide open again, and I still think that is where we will end up – something close to the library concept described above.

Microsoft Ruby

In what is partially a response to my earlier post, Bob Warfield asks:

Sun has “cultivated and vigorously supported” Ruby.  When will we read something similar to either announcement from Microsoft, instead of reading things like they’re going to quit shipping the JVM at the end of the year?

At least this one is easy. Microsoft announced Iron Ruby back in April.

But Iron Ruby runs on .NET. Right, so what does Sun’s Ruby run on? The JVM, of course.

By the way, I cannot think of any good reason why Microsoft should revive its JVM – withdrawn, you recall, at Sun’s insistence. Microsoft’s JVM was horribly out-of-date anyway; and there are several perfectly good JVMs that run fine on Windows.

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