Anomalous Presumptions

I’ve recently written up some strategic thoughts for a university (which shall remain nameless) and will post them here, since they develop some themes that I’ve discussed in other posts.

Information technology driving social change

Our information environment is rapidly being transformed by digital systems. Today’s students will work most of their lives in a world transformed by digital information. Their success will depend to a large extent on how well they cope with, understand and anticipate the social and institutional consequences of these technology trends.

The technical trend is that the cost of storing, transmitting and processing digital information has been declining exponentially for decades, and will continue to decline at more or less the same rate for decades. This creates immense pressure for economic and social changes unprecedented in history.

The economic trend is radical factor substitution. Any activity that can take advantage of the declining cost of digital information gets “sucked into” the digital domain. In many cases, the costs become so low that they are effectively zero, like the cost of napkins or a glass of water in a restaurant — there is indeed a cost, but it is below the threshold of individual accounting or control.

While these are simple trends, their social implications are far from simple, because we have no easy way to anticipate what changes are possible or likely. These factor substitutions are radical because they typically involve reinvention of a business, and such drastic changes can only be discovered through innovation and testing in the real world. We have been repeatedly surprised by personal computers, the internet, the world wide web, search engines,Wikipedia, YouTube, etc.

So the overall effect is that large social changes will be driven by simply, easily stated technical trends for at least several more decades. Even though we know the cause, we will be continually surprised by these changes because they arise from technical, business and social innovation that takes advantage of exponentially falling costs.

The ground rules of information goods

Information goods are very different from material goods. Scientific and scholarly communities have always operated largely by the ground rules of information goods, but since material goods were dominant in most areas of society, information goods haven’t gotten major attention from scholars, until recently.

Until the early 1990s, essentially all information goods were embedded in material goods (books, vinyl records, digital tapes, etc.). High-speed digital communication finally split material and information goods completely, and enabled new modes of production. We are finally understanding how the differences in ground rules between material and information goods arise from very different transaction costs, coordination costs, and different levels of asymmetric information on the part of producers and consumers.

One key ground rule is becoming clear: Voluntary contribution and review are essential and often dominant aspects of information good production.

This ground rule has always been important in scholarship. Scholars have always done research, written articles and performed peer review primarily because producing information goods was intrinsic to their vocation. Now, due to the exponential shifts in the cost of information technology, this ground rule is applying to a much wider swath of society.

The successful businesses of the internet era such as Amazon, Google and EBay, depend almost entirely on external content voluntarily contributed and reviewed by their stakeholders — buyers, sellers, creators of indexed web sites, people who create and post video (in the case of YouTube), etc.

The same pattern applies to major new social enterprises enabled by information technology. For example Wikipedia, Linux and Apache all produce information goods (software and content) that are dominant in their very large and important markets, and they produce them through voluntary contributions and review by their stakeholders.

Filed by Jed at 11:44 pm under Economics, Strategy
No Comments