Five Ideas That Matter

Economics has traditionally relied on the implicit belief that most human activity brings the economy into equilibrium. This is usually illustrated by the relationships between price of goods and supply and demand curves.

If the price of a good is low entrepreneurs are unlikely to produce many such goods, which means the price is likely to be high, providing there is a basic level of demand for those goods. If price rises, more producers will be attracted in to production. The price is likely to rise, initially, is more people demand the goods. Demand forces price up but that leads to more goods being produced which swells the level of supply. If supply increases then price is likely to diminish under the pressure of competition, and a new equilibrium will be found.

More recently, economist have had to contend with entirely new economic conditions where the price of goods is affected by a near zero price of distribution and a near zero marginal cost of production.

The Internet means that the cost of getting soft goods like books becomes very low and tends towards zero. But so also the cost of producing each additional (e)book is marginally extremely low. The same can be said of many types of software and of “cloud” services as the cost of storage also trends dramatically downwards.

The market for information displays all these characteristics. First, in the case of Internet access, if you have a broadband connection that costs Euro 15 per month then accessing the Internet once will cost you Euro 15. However, accessing it 150 times will cost you ten cents per access, 1500 times 1 cent per access, and so on.

Once online, the cost of accessing most data is zero, so your return on the investment of  Euro 15 continues to multiply. If you go online to access 1 page per month it is Euro 15. A visit of one second costs Euro 15. But 15000 seconds costs 0.1 cent per second, and 15,000 accessed pages cost only  0.1 cents each.

In the world of low marginal costs and very low cost distribution entrepreneurs have been tempted to establish markets with free products. This has led to quite different types of market behaviour, unbounded by supply and demand economics See Easley and Kleinberg, Networks, Crowds and Markets, Reasoning About a Highly Connected World, Cambridge UP, 2010).

Easley and Keliberg demonstrate that a new logic is at work with economic behaviour increasingly governed by emotions that anticipate other people’s purchasing patterns, or which are responsive to the emotions inspired by popularity. These emotions can ramp up economic activity extraordinarily quickly and to surprising heights (like Facebook’s 400 million users).

The point I’m currently trying to explore is the role of metaphor in these changing economic explanations. The idea of equilibrium is powerfully influenced by the metaphor of waves, the visual experience we all have of seeing the sea rise and fall but ultimately always be in the process of doing one of these things. For some reason we see the sea as ultimately settled or returning to a settled state.

My question is what metaphor makes the idea of anticipation or popularity work? Whereas typical markets revert to this resting place, the new economy is constantly in the process of projecting upwards. Going back to the dot.com era we understood it as explosively so (the boom). We seem to have abandoned that language even though many aspects of economic behaviour resemble the late 1990s (for example companies seeking to grow market share at the expense of revenues).

In fact the language around around Facebook growth, as an example, is sometimes reminiscent of the dot.com boom. Articles and blogs talk about its growth in terms of speed and ballistics: “accelerating”, “skyrocketing”, ”trajectory”  but also sensual (”penetration”),   and more neutral terms such as potential.

My first stab at a conclusion is that we have yet to develop a commonly held understanding of what the economics of popularity actually means. The language is diverse, the metaphors still emerging. That I think makes it a perfect case for Metatrends.

Chris and I have begun thinking over the next five ideas that matter. It’s been a while since either of us posted and that’s largely because I left The Conversation Group and got stuck into a bunch of work for new clients. I’ve just been too busy and only slowly realised we’d been using the blog for many wrong reasons – just to sound off, largely, instead of having a focus on novel idea streams. SO we’re trying to renew our focus.

Obviously “open” is one of them. But what are the origins of openness? The open source community would make a strong claim here but so too do advocates of ideagoras, particularly the non-transactional ideagora, and open innovation in general. The folks behind livinglabs also have a case. Not forgetting the creative commons and copyleft. And of course there is the whole anti data asymmetry movement.

And one of the most important aspects of openness – something that will surprise many – the willingness to be open not just about the intimate but also about things like health, subjects we’ve long tried to shroud in privacy. That last link is to patientslikeme, which I picked up from opensource.com.

UPDATE: Reading Maryanne Wolf’s Proust and the Squid I was also taken by her references to the “open architecture” of the brain a concept now accepted by many neuroscientists – ie the brain as a self-architecting system.

Depending on where you put the emphasis “open” looks very different but in all cases represents a significant moral shift.

Chris came up today with an idea around how we create for others – a step beyond user generated content. I will let him explain more.

“Popularity’ seems to me another term that we need to get to grips with along with the wide and variegated use of “talent”. But for these to be meta-trends we have to come up with the emotional swell that is behind, pushing them on. Somewhere along the way we have to find room for belief. What is the meta-trend around belief? Religion, the new atheism, the new irrationality, the anti-science. These contradictory idea-emotions we call belief. And what does “real-time” really mean?

I also began thinking around more of those ideas that matter less. Terms like Protestant Ethic, sitting alongside the idea of progress and the American Dream.

Meanwhile I began finding some great new sites. More over the weekend I hope!

UPDATE: Opesource.com gives this list of open source healthcare – ie non-software but still open:

• Intra Health – http://www.intrahealth.org/ | Mobilizing local talent for sustainable and accessible healthcare
• Indivo – http://indivohealth.org/ | Advocating for personally controlled health records
• Open Health Tools – http://www.openhealthtools.org/ | Building an open source ecosystem in health-related fields
• Life as a Healthcare CIO – http://geekdoctor.blogspot.com/ | John D. Halamka talks about standardizing data in healthcare
• European Federation for Medical Informatics (EFMI) – http://www.helmholtz-muenchen.de/ibmi/efmi/ | Democratizing medical information in Europe

The 20.00 hours Aer Lingus out of Cork to London Heathrow this evening had to execute an emergency procedure when it turned out there was an airplane on the runway as the plane – my plane – neared completion of its descent and prepared to land.

Just prior to touchdown, I mean as we were thinking about putting our mobiles back on, the plane suddenly veered upwards and climbed rapidly into the clouds. The plane was full and I’m sure, like me, people were thinking what the f***. Did we lose the landing gear? Is there something wrong with the plane?

We leveled off and the engines went quiet…. I was actually thinking – well if we couldn’t land then, how will we land at all? We DO have to go back down sooner or later.

After a few minutes the pilot announced that air traffic control had brought the flight down too close to the plane in front which had not yet cleared the runway.

Our plane circled for a further ten minutes and then came in to land safely. How close was that? I don’t suppose we’ll find out. Perhaps the most amazing thing was how we all filed off the plane without mentioning it – like it happens every day! Or maybe we were so relieved that the pilot was telling us we will be able to land anyway.

It was a couple of hours – when I got to my hotel – that I started to think, well that was a plane and there were probably 180 people on it, and we came all the way down and suddenly started climbing all the way back up again…..Quick apology from the pilot and down we went again.

Is there going to be an inquiry? Was an air traffic controller tired? Too tired? Was the pilot too eager to get down? Is it an officical incident? Nobody so far seems to have said anything about it. It wasn’t mentioned on the news this evening. I dunno does it constitute an emergency?

Continuing our attempts to understand the ramp up of the iPhone (good concept, poor product) we came across this today over at wikonomics.

It’s a post by Gautum Lamba about the Droid – Verizon/Motorala’s competitor to the iPhone which is being publicised through a list of the iPhone’s shortcomings on the droid website. Apple fans however have done it better (see the pic).

The phenomenal pleasefixtheiphone website has a couple of thousand ideas for a better iphone which is a) gratifying I am sure if you are an iphone designer and b) surely indicative of the phone’s shortcomings.

The site is not actually an Apple site – it is a fan site which makes it all the more remarkable.

Anyway enough said. We are a little closer to describing the iPhone phenomenon if not to understanding it. These comments represent, in previous ideas about product and customer service, something of a condemnation – many thousands of people saying many thousands of things are not good enough. Yet they sit in a perfumed garden of Apple adoration.

The final point is that iPhone has grown through the kinds of skewed dynamics typical of web information markets. It is remarkable to see that popularity persisting through fan efforts rather than the iPhone marketing department.

Mary Meeker’s presentation from Tuesday’s Web 2.0 summit is rapidly approaching Sequoia momentum (mementum?), but still worth a good close look for anyone that’s been living in a cave for the last couple of days.

Great data in particular on the underplayed market potential of mobile, although readers will not be surprised to learn that we view the heavy emphasis on Apple with some skepticism

Mary Meeker’s Internet Presentation 2009

My Sunday mornings are currently spent catching  up on John Hagel and John Seely Brown’s Shift Index work. Though this concept is not directly in their work I would like to air it – the ambivalent purpose of social networks in business. To all the people I am linked to in LinkedIn, at least for a while, I used to say, so how can we help each other? How can I help you? What will you do for me? I never got a constructive response to those questions.

Here is why organisations are better than networks.

First, in passing this morning I read JSB and JH’s comments on the large organisation:

Only 20% of people are passionate about their work, and the least passionate are likely to be working in large organisations.

The fear is large organisations end up staffed by people who really don’t care.

My feeling about large organisations is their future lies in being platforms that organise people in any way that leads to sustainable revenue. JSB and JH see it slightly differently:

“We believe big institutions will become more relevant than ever–once they focus not just on efficiency but on providing platforms for individuals to systematically experiment, learn, and innovate. As scalable learning replaces scalable efficiency big institutions will become more appealing to talented individuals.”

I like the idealism in that statement but as a knowledge worker I educate myself, by and large. It gives me advantages to do it that way. And I am increasingly inclined towards greater degrees of individualism.

And yet, I like organisations. I like them for this reason:

“….the second reason we believe that large-scale corporations will remain a prominent feature of our professional landscape: because they will be best positioned to develop and support scalable, long-term, trust-based relationships. Think about it. Even the most accomplished networker supported by social networks like Facebook can develop only a limited number of trust-based relationships. On the other hand, a large institution could scale these kinds of relationships far more rapidly and broadly than any individual could.”

Yes, this is what makes me an organisation man. The fact that they provide a short cut to trusted relationships. And relationships where a revenue purpose might emerge without ambivalence. Ambivalent purpose is one of the big snags with social networks like LinkedIn and Facebook – really guys I want to be linked to you not because I admire that profile but for business purposes and that is both enough and worth while.

John Seeley Brown is the writer that converted me to digital sociology and digital economics. The Social Life of Information is the classic social technology text, written prior to anyone talking about social technologies. Lately Brown, along with John Hagel, has been writing about asset returns:

“Corporate returns are under pressure from far more than the recession. The patterns we’ve uncovered span decades and deeply affect even the highest performing companies, with the single greatest driver of these challenges, and indeed future opportunities, being our underlying digital infrastructure. Regardless of when the economy shifts back to an upturn, the long-term implications for continued erosion of return-on-assets will continue.”

And worrying abut their decline in the USA

Among the key findings, U.S. companies’ return-on-assets (ROA) have progressively dropped 75 percent from their 1965 level despite rising labor productivity. Even the highest performing companies are struggling to maintain their ROA rates and increasingly losing market leadership positions.

The point to where Seeley Brown and Hagel’s thoughts are leading is a kind of vanishing point. Radical innovation on a scale and of a type we can’t imagine. I know, I know. they quote things like the impact of innovation in China and India on the west – blowback innovation. But I value more this sense that we can’t imagine or anticipate the radical changes we are due after 40 yea of relatively lethargic inactivity disguised as growth.

I see the problem slightly differently – as a gradual desertion of conventional demand and supply economics for social and moral reasons – because it increasingly failed to deliver fairness. That’s the subject of a paper I’ve written which I hope will be presented soon in Stockholm but if not Memphis in December.

UPDATE: Meanwhile…. isn’t the RoA paradox partly resolved if we look at the contribution of intangible assets to corporate reporting? I can’t believe JSB and JH would have overlooked this so I offer the explanation tentatively. If companies are adding intangible assets in (patent rights, brand valuations) then their RoA will appear to be down because their asset base will suddenly increase?

Continuing our occasional coverage of the evolution of the web as an information market, Joe Wilcox had a great article recently that picked apart the story around the iPhone.

We’ve been reviewing iPhone coverage here and here oh and here as well. Here is the tail end of Joe Wilcox’s article. the whole is well worth a read as are the comments.

“Many of my journalist peers are themselves obsessed about iPhone and App Store. The number of blogs in any given week just dedicated to new App Store applications is evidence enough. There is informational obsession with the device that defies reality.

IDC’s Ryan Reith agrees. “The view about American journalist obsession with the iPhone couldn’t be more true,” he said.

It’s that misguided obsession as expressed in two separate blog entries posted yesterday that prompted my writing about iPhone. At the Apple 2.0 blog, reporter Philip Elmer-DeWitt asserts that “iPhone’s share of the smartphone market hits a record 40 percent.” Really? In what alternate universe? He writes:

Apple now has a substantial — if not the largest — share of the smartphone market in every region of the world except Asia and Africa, according to a report issued Wednesday by AdMob. Overall, the iPhone’s worldwide share grew to 40 percent from 33 perent over the last six months. In North America, its share of the smartphone market is 52 percent, as measured by hits on AdMob’s ads.

This data — based on advertising measurements — doesn’t even remotely jive with Gartner or IDC smartphone unit shipments, nor even Apple’s figures. According to Gartner, Nokia has 45 percent smartphone marketshare in the United States. But the data makes sense perhaps looking at AdMob’s share on different handsets. This kind of persistent reporting makes iPhone appear larger than what it really is. It’s wonderful for Apple’s Stock price.”

Couldn’t resist this quote or the opportunity to reference Thought Leadership Group, TLG, from where I lifted the paragraph:

“Mr Seidman and Mr Shapiro have latched on to the concept of “outgreening”, a term coined by LRN and popularised by Thomas Friedman of the New York Times. “The old strategies for success – outmining, outdrilling, outconsuming, outspending – no longer offer a sustainable competitive advantage,” Mr Seidman says. But you can outgreen the competition. This is not simply a question of changing light bulbs. It is about changing mindsets. Think of it as a 21st century version of business process re-engineering, only taking place under a green banner.”

Personally I don’t think it will stick but then again I think I know how I could make it stick. We need to understand voluntary attitudinal responses to outgreening campaigns. Will come back with some thoughts on that.

Search tools are not infallible, as anyone can testify who has taken content metrics sourced from Google, Technorati or their peers at face value, and been burnt. Here is some evidence, from a recent internal research project.

Chart 1 plots the number of results reported by Google Blog Search in a simple search string, banded by month using the advanced search interface.

Chart 2 plots the same results if you throw away the number of results reported by Google, and count actual results by hand.

There is a critical issue here for metatrend analysis – the old business cliche of garbage in, garbage out applies: if data are junk, no valuable insights will be created. Researchers working within social media need to understand the limitations of the tools that they use, and incorporate an effective validation process into their workflow.

A Metatrend method paper is in draft form, so more on the implications of accuracy and reliability in tool selection later.