If you go to London’s Science Museum and look at some of the early commercial steam engines you might notice a ‘pump counter’ which ticked up with every pump of the piston. Boulton and Watt’s original business model was to charge a build fee, and then a usage fee, on the basis that their engine was capable of doing more work more cheaply than the alternatives, within the constraints of the mines and factories in which it was installed.
So, every month I imagine a man with a clipboard doing the rounds, and then a bill arriving which represented the work done – the value added by the engine. It wasn’t cheap, but it made things possible that had not been. And the benefit of their patent was to allow them to sell the work, not the engine.
There seem to be two conventional opinions about this – the first that it was enough that B&W delivered power to kick start the revolution in productivity that changed the world. American industrialist Carnegie was a fan and proponent of this line. The other is that B&W’s overly aggressive use of their patents (they got a legal bill once for £30,000 – which in today’s money is multiples of what EMI is spending to annoy Michael Robertson) delayed the widespread adoption of the technology, and the revolution happened a few years later when the patents expired.
I don’t quite buy either of these, though I am sure each holds some truth. For a start, manufacturing engines was difficult and risky, with many accidents and imperfections. B&W hugely improved manufacturing techniques during their patent period so that robust high performance engines could be made in much larger numbers during the first 2 decades of the C19th than the last 2 of the C18th. One might see a parallel in the electrification of the music industry here – no amount of interesting business model innovation could fill up a pipeline that lacks basic supply chain infrastructure and reporting.
The second point is about the innovator’s investment dilemma, faced with the prospect of losing a constant portion of the value created. The benefit is there enough for B&W to make and sell hundreds of their engines over a few decades. But the mine or factory owner couldn’t run the engine 24/7 without paying more, and nor could they double the output by adding their own innovation. The incentive therefore was very strongly to keep up with the market, because engines did more at less cost, but not to get ahead of the market, because you ended up working for B&W and not yourself.
In fact the greater incentive was to try to deny access to B&W’s engines to your competitors, either by tolerating a higher price than was really justified (in which you might have found B&W to be tacit colluders), or through more devious means.
The parallels with our own rather less industrial music industry are so striking to me that I bothered to do a bit of reading about the subject. They have also led me to think that the digital music industry won’t achieve scale or commercial penetration until the rights owners are prepared to set a price, allow anyone to buy, and then stay out of their customers’ business. Nor do I think that the market will work with a price set on an abstract such as ‘access’ – that would be like selling thermodynamics without cylinders and pistons.