Piracy, Drones, and Pot: Billion Dollar Opportunities
How grey-market startups create regulatory reform.
In 1844, American author, entrepreneur, and activist Lysander Spooner formed the American Letter Mail Company to compete directly with the United States Post Office. In the early 1840s shipping one letter through the USPO often cost more than 15 cents, a then ridiculously high price. Lysander sought to change this with American Letter Mail Company, which offered same-day delivery between four offices established in New York, Philadelphia, Baltimore and Boston. Lysander wrote that “[t]heir purpose is to carry letters by the most rapid conveyances, and at the cheapest rates and to extend their operations over the principal routes of the country, so as to give the public the most extensive facilities for correspondence that can be afforded at a uniform rate.” And that he did. In fact, American Letter Mail Company succeeded to provide not only cheaper postal services, but also faster delivery. The service was hugely popular and wildly successful, but also illegal. At the time, the United States Postal Service was managed entirely by the federal government and had a federally enforced legal monopoly on postal services. The Private Express Statutes, a group of federal civil and criminal laws, expressly forbid the carriage and delivery of letters by all organizations other than the United States Postal Service.
This was the status quo: the government delivers letters, private businesses do not. Do not try to innovate in this industry, the government has it under control. Do not try to compete with the government. Sound familiar?
Of course, nobody was especially pleased with the government service. The prices were outrageously high, delivery was sluggish at best, and mail was often lost, but to challenge this service would be illegal. How many highly regulated industries today suffer similar stagnation as a result of overregulation, or even legal monopolies? The general public is complacent, and it wasn’t until Lysander Spooner’s American Letter Mail Company gave them a taste of what they were missing out on that people even noticed the problem. And Spooner knew that this might be the effect. Upon launching his business he published a pamphlet “The Company design also (if sustained by the public) is to thoroughly agitate the questions, and to test the Constitutional right of the competition in the business of carrying letters — the grounds on which they assert this right are published and for sale at the post offices in pamphlet form.” He knew that he could innovate on this industry, and despite the regulation forbidding him to do so, he created a more efficient and affordable alternative to the USPS.
Eventually, the legal expenses fighting the federal government in court became too much and Spooner was forced to shut down his business. Nevertheless, it had worked. In March, 1845, a reduction of postal rates was approved and put into effect that July. In many circles, Lysander Spooner has gone down in history as “the Father of the three-cent stamp.”
Fast forward almost 200 years and we’re seeing the exact same narrative played out with companies like Uber and Airbnb. It’s no secret that these companies are operating in legal gray areas. In many cities both are explicitly illegal. They’re innovative, they’re easy to use, they’re popular, and they’re illegal. Yet they continue to operate– and to expand. As it should be. In fact, in many jurisdictions the impact that these companies have had have triggered legal reform, rather than the other way around. Instead of redesigning the businesses to comply with outdated regulations, we’re seeing the regulations redesigned to comply with the businesses. And that’s a beautiful thing.
I think we’ll begin to see this more and more. Disruptive companies defying overregulation and launching popular services that positively trigger legal reform. That’s what we’re trying to do with Canary, an Uber-like service for marijuana delivery. The entrepreneurs and investors willing to accept the risk that comes with such disruption await billion dollar opportunities.
Consider drones. In June the FAA made drone-based package delivery illegal, but that hasn’t stopped Amazon from continuing with Prime Air their drone-delivery initiative. While the debate over the legality of consumer drones continues, startups like Garuda Robotics and Skycatch are heads-down exploring commercial opportunities in the space. The consensus seems to be be that, as the famous adage goes, nothing is more powerful than an idea whose time has come.
Consider peer to peer file sharing, an especially controversial and disruptive technology. Perhaps the best example is Popcorn Time, an application that uses sequential downloading to stream torrented movies as they download. The result is a flawless user-experience that mimics that of Netflix, but with a catalog of movies nearly as large as that of IMDb.
Of course, this is entirely illegal and in July the MPAA issued a DMCA takedown of Popcorn Time’s Github repositories. Of course, since the project is open-source and had attracted a community of millions of users this did little to stop the service which has since launched an Android app, with plans for an iOS app.
The consensus seems to be be that, as the famous adage goes, nothing is more powerful than an idea whose time has come.
Nobody paid much attention to the price of postage, until Lysander Spooner showed them what they were missing out on. In a pamphlet he released when he announced American Letter Mail Co, Spooner wrote that his intention was to “test the constitutional right of free competition, in the business of carrying letter.” As the government continues to restrict innovation, we need more entrepreneurs to step up to the plate to capitalize on disruptive technologies that can’t be ignored. Marijuana, piracy, and consumer drones are all either explicitly illegal or heavily regulated, but I predict that in the next five years all three will be billion dollar businesses. Greater than that, all three will influence the regulatory landscape in America in a positive fashion. Nothing is more powerful than an idea whose time has come.
Follow me on Twitter.
