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Friday, 20 December 2002

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.
Posted by Kevin Marks at 23:34

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About Me

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Kevin Marks
Kevin Marks works on IndieWeb and open web tech. From 2011 to 2013 he was VP of Open Cloud Standards at Salesforce. From 2009 to 2010 he was VP of Web Services at BT. From 2007 to 2009, he worked at Google on OpenSocial. From 2003 to 2007 he was Principal Engineer at Technorati responsible for the spiders that make sense of the web and track millions of blogs daily. He has been inventing and innovating for over 25 years in emerging technologies where people, media and computers meet. Before joining Technorati, Kevin spent 5 years in the QuickTime Engineering team at Apple, building video capture and live streaming into OS X. He was a founder of The Multimedia Corporation in the UK, where he served as Production Manager and Executive Producer, shipping million-selling products and winning International awards. He has a Masters degree in Physics from Cambridge University and is a BBC-qualified Video Engineer. One of the driving forces behind microformats.org, he regularly speaks at conferences and symposia on emergent net technologies and their cultural impact.
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