Posted on 2005-12-30 at 16:14
Concerning the New Economy and the rise of virtual property valuation. This paper was written in February of 1998 during the swelling of the Dot Com Bubble. Though the figures are dated, the thesis is, I believe, still defensible.
So you say you want a revolution? Well, here you go. Welcome to the New Economy---yes, capital N, capital E. I know, why have a New Economy when we haven't figured out the old one yet. Perhaps that's true, but it doesn't seem to concern the next-generation digital bean counters whose hopes seem laced with visions of information and trust-based commerce at the expense of the integrity of the manufactured product. A revolution, indeed.
What is this New Economy exactly? It's no less than the shift from things and machines to people and ideas. From competition to coopetition. From causality theory to complexity and chaos theory. What does all this jabber mean? Have a seat, and let me tell you.
Twenty-five years ago, any billion-dollar company would've had suits strutting in, slumping out, and moving throughout all day long. A day in the life of a Ford engineer would likely have been prescribed from a recipe of 1 part incremental innovation, 2 parts posturing, 3 parts corporate politics, and a dash of middle-managerial excess sprinkled in for good luck. Red Tape was the protein of a good company. Order, management, control, and manufactured products were the building blocks used by every successful business to survive in the dwindling last days of the industrial age. Now, these blocks seem like wrecking balls.
Order can't be maintained when management hasn't any idea about how to measure productivity. Earlier in the century productivity was simply the ratio of produced materials to the cost of production. This formula is forced into obsolescence by a shift from manufactured goods to collected information. How much is an idea worth? How much did it cost to produce that idea? These seem to be the questions plaguing fortune 500 companies. Traditional ideas of supply and demand cannot be superimposed onto this economic model. Oh, that's to say we don't try. Look at IBM. Once the undisputed champion of the technological arena, IBM kept its old-world business model and lost this title to Microsoft and Intel. What happened to the IBM-Compatible system? It's called the Wintel system now. Go figure. As for IBM itself, though it produces over US$76 billion---far more than Microsoft's US$11 billion---it is valued at only US$100 billion compared with Microsoft's US$150 billion. Now you tell me something hasn't changed. Look at General Motors. Producing US$160 billion, it is valued at only US$56 billion. Why? It's the shift from things to people.
People and the ideas they naturally create have come to replace manufactured goods in order of importance in this New Economy. Having the right idea or the right list of employees in Silicon Valley---the traditional nesting ground of information industry pundits--- is far more important than having a working product ready to hit department store shelves. Who cares that no one has ever seen the mysterious vaporware called Trinity by Id Software. All that matters to Id's market value is that John Carmack, coder-extraordinaire, is leading the way and that the idea---that of a truly immersive 3D first person gaming environment with photorealistic scenes---is a good one. Everyone knows that Carmack is reliable and is one of the best 3D action game programmers ever thrown to earth from gamer heaven. Id is a formidable company so long as Carmack sticks around. How much is that worth?
And speaking of value, how does a company truly engage the Internet to its best interests? Sure, a web site is great, but the real concern is with what this new medium means to accountants and advertisers---that is to say, to the people who traditionally determined value to a company. Who needs to concern themselves with just what Betsy down the street wants in a product or service when one has the entire world with which to deal? I mean, are Betsy's wishes where the money is? Research will determine that---not a manager or a marketer, just research. Who needs to limit corporate affairs geographically when a global communications network allows for the disintegration of territorial concerns? Besides, won't Betsy choose to bootstep in line with the rest of the world when she realizes---via that same global communications network---that what she thought she wanted wasn't what she actually needed? I mean, she can only thank the industry, can't she? It inspires a comfortable feeling to know that corporate interests will help us to learn more about our needs and desires---even those we never knew we had. It's kind of nice having a Big Brother, of sorts, looking out for us, isn't it?
But the real economic concern isn't about what the world needs---or could need with the right prodding. That can be determined with an appropriately expensive data-mining query to look for overarching spending or lifestyle patterns. Easy stuff now. Entire companies have been formed with no product other than immense databases culled from every entered contest, filled out form, credit card purchase, and library card transaction ever initiated by the population at large. No, the real concern is in how to manage that data. Copyright protection doesn't extend to databases and yet we pay big bucks for access. Copying a program to another disk and giving it to a friend doesn't affect Microsoft's hard profit line, but it is illegal. Why? Because corporate America desperately wants to control, to manage, the flow of information. If we didn't, Microsoft surely wouldn't waste its time writing all those great programs. Id wouldn't bother working on Trinity. Data mining corporations wouldn't see a reason to gather all that freely available information into one place.
This information-based commerce, however, cannot be controlled so easily. Information is all becoming 1's and 0's. The technology industry calls that convergence. Everything, from movies to doctoral theses, is being moved to the new digital format. And as we all have learned, this new digital format cannot be kept secure. Data leaks. Information, no matter how the industry black-boxes it, is free flowing. Ideas cannot be truly protected from theft. Apple created the concept of a Window-based Graphical User Interface. Microsoft used their idea. One can almost hear Bill Gates voice. "Thanks Apple, but we can take it from here." Sure, Microsoft changed it a bit---they call that innovation in the New Economy---but they didn't invent it. When Id's Trinity was announced, other companies agreed it was a good idea. So good, in fact, that they are now working on separate software versions of the same concept. Maybe in a few years one of them can say to Id Software, "Thanks Id, but we can take it from here." In this New Economy, companies are forced into the unprecedented position of having to display proof of good ideas to the industry in hopes that they can then get the idea to market before the imitators, whose numbers seem to be a good indicator of the validity of the idea, can do the same. Suddenly business is thrust into a playing field where, for the first time in history, the economy of time far outweighs the economies of scale or quality. To survive in a world where the primary commodity is impossible to fully control, companies must move from a competitive state to a coopetitive state. Even in competing companies, a measure of cooperation is necessary. Microsoft cannot compete in the Internet technologies market without recognizing that standards will drive consumer acceptance. Standards cannot be achieved without cooperation. No one wants another company controlling the standard because it necessarily creates a new sort of monopoly---one where a single corporate entity controls the shell in which information is stored, viz. Microsoft's operating system. The Sabre reservation system, originally created by American Airlines, is open to all its competitors, who have a say in its structure, so that every airline can benefit from its existence. Without all airlines being onboard, The Sabre system doesn't have much market appeal. With all of them onboard, it becomes an invaluable resource for information and the distribution of the air travel commodity to the public. A rising tide lifts all boats … in theory.
We've moved into a world in which we cannot point conclusively to a specific cause for a specific economic effect. The old causality business model doesn't work anymore. Some of the more adventurous economists---bet you never thought you'd see adventurous and economist in the same sentence---have proposed that we ought to look at economy as the product of complexity theory or chaos theory forces. Complexity theory holds that it often seems true that the sum of the parts doesn't inevitably explain the existence of the whole. You want to see complexity theory at work? Look at a rainforest or Ford Motor Corporation. Chaos theory fills in the blanks that Complexity theory doesn't touch. It is a science that tries to approach incredibly complex systems as they are rather than by simplifying them as other sciences tend to do. It upholds the cause-effect relationship but concludes that many things have a causality string that we simply cannot follow. The classic example is one wherein the beating of a butterfly's wings over Afghanistan ultimately results in the formation of a hurricane miles away. One caused the other, but the relationship between them is too complex to distinguish its component parts. According to these economic theorists, economy in this new environment works similarly. The President is accused of sexual impropriety and New York Stock Exchange safeguards are triggered to avoid serious detriment to the stock market. Every leading analyst points to a correlation but none can explain the relationship in detail.
To say that this New Economy is simply about the creation of new market demands, the expansion of the market to global levels, or the shift from material goods to information is to see this revolution in short-sighted terms. Perhaps complexity theory is adequate to describe this as well. These things may be a part of the whole, but the whole itself is something entirely different. It's about change so fundamental that we cannot quantitatively express or measure it. It's about a change so thorough that it affects the way in which we view change. Canons of economy are obsolete before reaching the printer's press. What is a businessman to do? Well, it wouldn't hurt to take a look at the corporate structure and practices of a company like Netscape. Small product development teams, decentralized management, and a less rigid environment all work together to create a model that makes it easy to shift focus from one project to another quickly as market demands necessitate. This is the model adopted by everyone from Microsoft to Saturn Cars in hopes that it will allow them the flexibility needed to react to the last minute demands of the anarchy of our modern economy. Will it work? Ultimately that is a question that history will have to answer. This is a revolution that hasn't ended yet. Perhaps we'll all know in a few years. The business world at large seems to have hope that a new model, like the Netscape one, will work and allow for a stable structure in the midst of a Post-Modern economic mess. Most answers to the problem of information control have thus far been teetering between outright censorship and capricious idiocy. Whatever the answer, we had better find it soon or we may be facing a global economic meltdown of behemoth proportions.
Posted on 2005-12-14 at 08:03
"The empires of the future are the empires of the mind."
Said in a speech at Harvard University, September 6, 1943. Fairly prophetic, I'd say.
Posted on 2004-10-01 at 08:03
So, as everyone knows I've been boycotting the RIAA's music since around 1997 or so. The only new music I get is from non-RIAA artists who actually want me to hear their stuff. That said, I saw Nellie McKay on David Letterman a few months ago and I've been interested in her music ever since. I downloaded the free stuff she put out, but I won't buy her CD (boycott and all that). Maybe if she comes into town on tour I'll go see her.
Posted on 2004-09-14 at 08:01
Lawrence Lessig, a noted legal dude, did a great presentation on the evils of copyright and patent law as it currently exists.
Posted on 2004-04-29 at 08:07
Our system of patents, trademarks, and copyrights was never designed for the uses to which our modern world is putting it. Many of us have been saying this for a long time. Thankfully, now it looks like someone important has taken notice:
"As a solution, the council recommended in its report that the patent office and Congress take seven steps to improve the patent system. Those steps include, among other things, hiring new patent examiners, creating a more open system for challenging questionable patents, and rejecting more patents on processes that are deemed to be "obvious" by people in the field." - quoted from Wired's article, New Study Urges Patent Upgrade.