Thursday, January 17, 2008

trading information: the economics of information, part 3

Other parts:

Part 1, defining information and data
Part 2, valuing information

Economically considered, transactions in the information market have some unusual properties, due to information not being matter (recall part 1, each time communication occurs, the receiving mind decodes the data and "recreates" the information): 1) the producer's "inventory" of information isn't depleted, 2) the consumption of the information doesn't eliminate the information, 3) the consumer is immediately able (physically, mentally) to use the information in future transactions, this time as a producer.

Taken together, these unusual properties lead to a predictable outcome: the more transactions in the information market which occur, the greater the supply of the information becomes, on a compounding scale. Old-fashioned hearsay, rumors, and gossip can take less than a week to become common knowledge. New-fashioned blogs commenting on blogs produce an "echo chamber" (I WILL NOT use "blogosphere" non-ironically!), rocketing a particular entry to popularity...or notoriety.

Since the data market approaches the information market as data's efficiencies, particularly digital data, approach those of information, the economics relied upon by participants in the data market must adjust. Fortunately for producers who wish to eat (as opposed to having their lunch eaten), information retains the same value it always has had. There isn't a set formula of precisely how to adjust, but some suggestions and observations pertaining to the information market are available. Generally speaking, each one is aimed either toward leveraging a lack of scarcity or introducing scarcity, so the high level of overlap is unsurprising. Naturally, no guarantees are included.
  • Produce information whose value to the producer increases as the information is consumed. The traditional example is advertising. "Viral" marketing and product placement are some other techniques.
  • Instead of producing information, produce tools and services which empower consumers to manipulate information, whether creating, modifying, storing, sharing, securing, selling. Admittedly, the more these tools and services are offered for free, and the stronger and easier those free tools and services become, the probability of earning a profit here will shrink.
  • Ensure that the original producer of the information continues to be the best source for that information. Recommended tactics are offering the most convenient transactions (greater hassle for the consumer equates to greater perceived cost), frequent updates to keep past versions of the information less desirable (note that even information takes nonzero time to indirectly spread, depending on the number of intermediaries/layers), extra benefits to consumers who use the original source (the benefit could even be additional information), greater context for the information.
  • A more efficient information market means that more choices are available to the consumer. His or her time and attention are limited. This immutable fact presents an opportunity for tools and services that could aid him or her in finding and discriminating information. An information market has less profit in distribution (how expensive is it to distribute something that's ethereal?), but it has more profit in filtering.
  • On its own, information is inert. "Interactive" information is cleverer at not seeming inert, but only up to a point. By contrast, the greater value of interacting with a mind is hard to overestimate, which is why education will continue to have a deep need for teaching professionals in the face of widespread information. (Of course, some kinds of information are hard-to-impossible to communicate apart from the immediate feedback of a "coach".) A consumer can reuse information in another transaction; he or she can't take and resell the source mind.
  • The value placed on information, like the value placed on any other resource, has a subjective component. Information producers can drastically exploit the subjective component because information is extremely malleable at low cost. Customized information is simultaneously of higher value to the targeted consumer and of lower value to every other consumer. (Then again, the same malleability potentially makes it easier for secondhand consumers to un-customize and re-customize the information.) Significant customization assumes a corresponding amount of work by the producer, though.
  • Joint ownership of conventional goods illustrates that simple possession isn't the sole measure or benefit of ownership. So information producers can still trade "ownership-like" privileges for a shared possession like information. For instance, like a stock investment, information could be "pre-sold" before production--the obvious difference being that the investing consumers are expecting a return in information, not currency. (Clearly, the "investors" would need to be convinced that the information will be worthwhile.)
  • Use a pricing strategy opposite to that of mass production: because large numbers of transactions can't be counted on (due to the potential of cheap duplicates), make up the difference through setting a higher price per transaction. Or go with a "group rate" paradigm, in which the high price could be split among several consumers, but each of the consumers in the group receives the information.
  • Finally, economic behavior isn't independent of other behavior. More abstract incentives, positive or negative, can affect decisions. Societies function on incentives like those.

A top factor in the dominance of the human species (over other lifeforms and to some degree Earth itself) is its talent for information. Over time, the matter representations of information, data, have grown in efficiency by the advances of technology. Data increasingly resembles information, and people will treat data more and more like information. Thus, the market for data will approach a market for information. Information will remain a market because, though the efficiencies of manipulating data enable large-scale (& decentralized) information production, good information will still have value. Nevertheless, the information market has its own set of challenges for yielding a profit. Those challenges aren't new, but take on more significance.

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