Net economics

Eric, Doc and David are discussing economics and the net.

Firstly, I don't understand why commoditizing something is deemed to a be a bad thing. If something is a commodity, it basically means that a market is operating well, and that its price has stabilised at an equilibrium; it is the things that aren't commoditized that are problematic- their values fluctuate wildly through fashion. A commodity business is predictable enough that you can employ MBAs to run it.

If we could commoditize connectivity, that would be great. Joel's essay on 'Commoditizing your complements' is interesting here, and explains some of the forces that move things towards Open Source or Infrastructure.

Eric says the internet is *truly* economically destructive in the sense that it bends the assumptions of supply and demand to the point that making money gets progressively harder over time (since the public domain chews everything up).

This shows a profound misunderstanding of economic value. Value is created by exchange. If I buy a sushi lunch, I value it more than the $12 it costs me. Conversely the sushi chef values the $12 more than the sushi. If this wasn't true, one of us would not make the trade. Thus, by trading, we have increased the total amount of value in the world.

The net enables these kinds of exchanges to happen more easily, reducing friction and delays, as well as enabling other value-creating ones like this conversation.

Arbitrage is when you move things from one place where they are less valued to another where they are more valued, and keep the differnce (less transport costs). This 'taking between' is the literal meaning of 'entrepreneur'. The net, by easing communication, reduces the opportunities for these kinds of gains.

This article explains how things play out by using economic data derived from web sales. You get commoditized, low-cost operations, and premium, high-service operations coexisting, just as you do in the real world.

This is what David was getting at with his recording industry example. It is the distribution side that gets squished, as that is all about moving things around. The creating music and discovering artists part is still valuable, but it no longer needs to be tied up with the distribution based companies. Which leads me neatly to mediAgora.