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3/8/2002
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Whose Rules?

The way tomorrow's workforce uses technology could have a profound effect on business.

William Schneider, an earnest but somewhat unkempt 18-year-old, was excited when he bought the latest Apple operating system, Mac OS X, for his iMac PC. He liked the look and simplicity of the new system. But after putting it through its paces, he wanted to improve its performance, especially for a particular application that ran better on the previous operating system, OS 9. So Schneider rifled through files and code in OS 9 until he hit on the right commands to make the app perform to his liking in OS X. An Apple spokesman says the company generally has no problem with such experimentation. But Schneider's father, the Rev. Don Schneider, a Lutheran pastor, is concerned about how his son applies his technical abilities. He wants William to consider the rights of the people who created the products he enjoys. "Unless he has authorization, I get a little leery of him doing these things," says Schneider, a soft-spoken 48-year-old who's more concerned about the ethical than legal implications. William's response: "His saying that only makes me want to do it more."

This father-son tension typifies ethical issues surrounding young people who have grown up with computers, the Internet, and instant communication, yet are governed by the laws and values of a society still adjusting to such technological developments. Not surprisingly, teens don't think adults have a clue. "If they'd grown up with the same technology we have now, they wouldn't be imposing their rules on us," says Bobby Wolter, one of Schneider's classmates at Branham High School in San Jose, Calif.

Most people in their late 30s and older probably learned about computers on the job, but many teens and young adults have grown up with them. They've faced both the temptations and opportunities of IT. They know how to copy research papers or download digital music with a few mouse clicks, which means they may not learn the skills needed to thoroughly research or write about a topic, or they may be tempted to bypass paying market price for music, movies, or books. At the same time, this generation has instant access to more information than any before it, potentially making today's teens more-informed and more-skeptical thinkers who, as adults, can force change in outdated industries, encourage creativity, and diminish boundaries of knowledge and experiences.

That dichotomy raises ethical and business questions. How do today's rules of conduct apply to tomorrow's high-tech digital world? And how will the decisions teens make when it comes to using these tools affect the way business is conducted in the future--from marketing and advertising to product development, warranties, and customer service? Their behavior has changed the music industry. Other areas of business might be wise to consider new paradigms as well.

By now, Napster Inc.'s story is familiar. Napster, launched in 1999, created a firestorm of controversy with file-sharing technology that let Internet users download MP3 music files for free. The service appealed to all ages, but teens had the tools, the time, and the know-how to quickly take advantage of the technology.

Responding to howls of protest from music executives and some--but not all--high-profile artists, the courts forced Napster to shut down. Napster plans to launch a service for music sharing this year that will cost $5 to $10 for a one-month subscription that would let customers download a designated number of legally licensed songs. Napster will pay the rights holders--the artists or music companies--fees based on the number of downloads.

Saied Ghaffari, a 17-year-old high-school senior at Oakton High School in Vienna, Virginia. Photo by Bill Cramer.

Young people can help adults come up with products that will appeal to teens, says 17-year-old Ghaffari (with his mother, Ardalan). He dreams of designing Apple computers someday.
But other music-sharing sites such as Grokster and Audio Galaxy have emerged. They let listeners swap music files by directly connecting with each other's servers--making the sites difficult to track or shut down (see "Anti-Copying Technology Regulation Isn't Welcomed By All," March 4, 2002). Many teens are unfazed by the Napster controversy or the ethical implications of copying music. "I think it's unethical, but at the same time I do it. It's free," says Saied Ghaffari, a 17-year-old high-school senior at Oakton High School in Vienna, Va.

That's typical short-term teen-age thinking, says one child psychologist. "Their thinking isn't whether it's right or wrong morally, it's 'What are the consequences?'" says Konstantinos Tsoubris, who works with eight school districts in Duchess County, N.Y. "If I download from Napster, my consequence is that I get music for free."

Maybe. Or maybe there's some deeper thinking going on. "I can see where it can be wrong sometimes," says Matt Spinopolice, an 18-year-old senior at Port Jervis High School in Port Jervis, N.Y. "But it's beneficial because it helps unknown artists get their music listened to." That's because consumers, mostly teen-agers, won't pay for an unknown artist's CD, Spinopolice says, but they will listen to it if it's free and that brings the artist needed exposure. "But I do see that artists have copyrights, too," he adds.

Despite lawsuits by the record companies against most online music sources, young people say access to free music won't go away. It's not a new concept, either. In the pre-Internet days, friends copied music onto cassette tapes for each other--the same idea as digital music sharing, but now it's faster, easier, and better quality. New peer-to-peer sources run on the Gnutella network, where supernodes connect users to dispersed servers that shut down temporarily after the music-file swapping is completed. Unlike Napster, which uses a central database to store music files, Gnutella-based music systems will be much more difficult to shut down as they merely act as enablers to connect users to distributed servers.

Matt Lydecker, a 23-year-old new-media major at Emerson College in Boston, has no qualms about using these services instead of buying CDs. "I buy records if it's a small band that I really like, and I know that my contribution counts, but otherwise I never buy CDs," Lydecker says. "I should feel bad, but I don't." Record companies have made hefty profits charging $15 to $20 apiece for CDs that are relatively inexpensive to produce, Lydecker says, and everybody knows it. "Nobody will spend that money on a CD if they have broadband and can download it in 20 minutes," he says. "Sure, people want the packaging and the booklet that comes with a CD, but not for $15 or $20." Lydecker says he's willing to pay $10 for a CD.

There's a question of whether--or how--downloading music affects record companies' bottom lines. CD sales are down compared with a year ago, according to SoundScan, which tracks the music industry, and music-company executives are very willing to blame free-music sites rather than the slumping economy or possibly overpriced products. Napster advocates argue that the rise in CD sales during the company's peak indicates that people are more apt to buy a CD after they've heard it on the free service.

Whatever the reason for its current malaise, the music industry must adjust its business model, rather than try to force traditional rules into a new environment that fosters sharing, says Jonathan Shames, a partner at the mid-Atlantic technology, communications, and entertainment-services arm of Ernst & Young. "The business world has to figure out the right answer to deal with this, because if so many people are doing it, then there's a big difference between legally wrong and ethically wrong," Shames says. "Stealing is legally and ethically wrong, and we know it because society tells us it is. But downloading off the Internet? That's a very blurry area."

Is it? Some people might say stealing is stealing, no matter how you slice it. Psychologist Tsoubris says adults can't ignore the new realities of a digital world, but at the same time, they can't toss aside traditional values. He warns that now more than ever, parents must establish rules for their children because, regardless of the venue, adults have the life experience that lets them consider right from wrong in ways that children can't yet understand. "Adolescents will tell you they know everything they need to know and they don't need us," Tsoubris says. "While we shouldn't stifle their creativity, we still need to give them rules and to pass on our knowledge." Amen, says one mother of a teen-ager. "We have to look to them for future trends," says Davar Ardalan, Ghaffari's mother. "But we also can't let them tell us the way everything should be just because they're the next generation."

The debate over value and ownership of intellectual property isn't new. The pioneers of the software industry fought hard against the notion, an ideal that's still evident in the open-source movement, that code shouldn't be commoditized. It's a notion that has currency among young people. Jennifer Antonatos, a marketing major at Hofstra University in Hempstead, N.Y., says consumer piracy should be a red-flag warning to the software industry that it needs to reconsider how it does business. And she has her own solution. "I'm trying to get Office but it's, like, $200 or $300, so I'm looking to see if I can download it from a friend as opposed to paying for it," she says.

It's a debate that displays some young people's na?ve view of how markets work. Rob Capogna, a 21-year-old IS major at Hofstra, says technology vendors should increase their prices if they want to cover their losses. "Some people are going to buy it anyway, and some people are going to steal it," so, Capogna reasons, vendors should try to make more money from the honest consumers. But Ravid Razak, a 21-year-old Hofstra finance major, says people want to legitimately own products that are from vendors and have fewer glitches than pirated versions. "If vendors lowered their prices, it would be better because people would rather buy the original," he says.

Young people's aptitude for the Internet and long-term exposure to its immediacy and directness lead some to make sweeping generalizations about how the marketplace will evolve. Young adults are so comfortable with the Internet that there will soon be no need for any middlemen in commerce, says Peter Gould, a 24-year-old psychology graduate student at Hofstra. "For something like insurance, say, old-fashioned folks might want to go through the traditional method of hiring an agent, but younger people are more in tune with what's available and can get it on their own," Gould says. "The reseller business model is going to be archaic."

The death of the reseller channel was an Internet axiom at the height of the dot-com boom; it even had its own catchphrase--disintermediation. Along with many dot-com business models, disintermediation proved to be overly simplistic. But vestiges remain and prosper. Dell Computer, for instance, won consumers over by selling its technology directly, bypassing the retail channel and its costly overhead.

The cost of intellectual property is what drives many decisions in the digital world. Just as most young people would prefer to pay artists directly for their work, they say they're less likely to do so when they believe an intermediary is profiting along the way. That applies to any industry, anytime, if the Internet will save money--as Antonatos recently did when she bought tickets for a spring-break cruise. "It's just going to be a lot cheaper," she says.

One model that may benefit greatly from the interest of young people is open-source software development. In October, IBM held the Linux Scholar Challenge competition for college students, and organizers were blown away when they received 1,400 entries from 64 countries. It's "a proof point of how the next generation is thinking and what they're interested in," says Ross Mauri, VP for eServer development at IBM.

Many students look down on companies that don't allow access to their code. High-school senior Spinopolice says proprietary code can actually stifle creativity and innovation at the same time it accomplishes the company's goal to get users to pay more. "I wish there were more open-source coding, especially with Windows, because there are people out there with great minds who might not be able to get a job at Microsoft," Spinopolice says. "Plus, Microsoft's prices are absurd. I don't feel like shelling out $300 for Windows."

Copying has always been an issue between students and teachers, but the Internet has compounded that problem. A freshman at Branham High School says that he once bought a book report online for $7.99 and received a B on the paper. The student says he has no regrets and was pleased that he was able to pull it off. At Piper High School in Piper, Kan., teacher Christine Pelton gave failing grades to 28 sophomores after she discovered they all had plagiarized from the Web. The students and their parents had signed a sheet that outlined the requirements of the assignment, including a promise not to plagiarize. Parents complained about their kids' grades, and the school board mandated that she raise them, leading to Pelton's resignation and backlash from universities and businesses.

Burn RateSome adults foresee dire consequences from the way standards of behavior are evolving in the Internet era. It's also spawned new business opportunities. "It's na?ve to think that if you lay a certain foundation of ethics in high school, once kids get the diploma, the old values are going to be re-established," says John Barrie, founder of iParadigms LLC, a company that checks students' papers for plagiarism via its Web site, http://www.turnitin.com. "Really, the end point is Enron and Arthur Andersen." (See story, "Teens Ace IT Shortcuts.")

That may be a bit of hyperbole. There's evidence that suggests that when kids are exposed to the realities of intellectual property, they begin to respect it. Tracy Koon, director of corporate affairs at Intel, oversees the company's internship program and its annual science competition. Both programs teach kids about the value of protecting intellectual property, Koon says. "A good percentage of the kids we work with in our science competitions apply for patents because they can see that when you hit a point of personal creation, you want to protect it."

But the Internet has altered the playing field. This generation is skilled at finding information and accessing it, including copyrighted material, so the evolution of intellectual property to a shared model is inevitable, Barrie contends. "The sooner businesses embrace the concept that intellectual property is to be shared, the better," he says.

Inevitable or not, any industry that fears loss of profits because of digital sharing should move to a royalty-based business model, much like the music industry did when radio stations gained popularity, Barrie suggests. One solution might be to monitor how much of a company's property passes over Internet service providers' networks and charge the ISP a fee that would be passed along to the customers exchanging the information. "The whole mind-set of this problem has to evolve from calling the lawyers to a digital concept that relies on tracking information rather than suppressing its distribution," Barrie says.

Tech-savvy kids could even add to innovation by becoming an important part of the product-development feedback loop. Imagine if Mac OS tinkerer Schneider and his like-minded peers were able to report back to Apple in a systematic fashion their complaints and customizations, thereby helping the company create a better product. Also, it's tough to ignore the fact that young people understand their peers so they could help adults who are making products for teens, says Ghaffari, who dreams of one day designing computers for Apple and working with its top engineers. "I'm a teen-ager, and I'm going to be with college kids for the next four or five years, so I can tell them what people want and what people think, and what they need from a computer," he says.

Improved technologies and a generation of savvier users mean that any industry that sells digital information is vulnerable. The movie industry is the next easy target. Consumers already can download films from the Internet or get DVD burners as a standard feature in products such as the new iMac.

"There's no doubt that the marketplace evolves and develops new rules on how to deal with intellectual property," says Ramon Barquin, president of Computer Ethics Institute, a nonprofit research, education, and policy study group in Washington, D.C., formed to address technology and ethics. "And market forces always push the envelope in ways we never expect."

Barquin parallels the issue of intellectual property on the Internet with what the print media has been dealing with for centuries: "Conceptually, why should anyone be allowed to lend a newspaper after they've read it?" Publishers address that challenge by selling advertising based on the total number of readers, not the total number of units sold.

The print media is wrestling with its own internal issues of intellectual-property rights on the Internet. Who owns electronic content repurposed from printed material has been a long-standing acrimonious debate between publishers and writers. And revenue models vary: Some media outlets, such as The Wall Street Journal, charge subscription fees for online content; The New York Times, on the other hand, doesn't charge for content but requires Web-site visitors to disclose personal information that can be used for marketing purposes. It shows that industries that manage creative content are on the cusp of real change, iParadigms' Barrie says. "The evolution of intellectual property will happen whether industries want it to or not," he says.

However that happens, it's thanks in no small part to today's young people, who have embraced information technology in ways that might make some people uncomfortable--and some companies look closely at their business models.

-- With Tischelle George, Tony Kontzer, Jennifer Maselli, And Paul McDougall

Illustration by David C. Wong
Photo of Ghaffaris by Bill Cramer.

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