valuing information: the economics of information, part 2

Other parts:

Part 1, defining information and data
Part 3, trading information

Information has much value, although its value is harder to grasp than the value of other goods. Of course, the same key economic principle applies: value is assigned by a market. The market for information is minds.

Minds value information in the same way any economic agent values any good: for what it achieves. The question of what an economic good, especially information, achieves can be subjective and loosely-defined. If someone says a story made him or her laugh, cry, and think, then the information has definitely achieved something for him or her, and it has proportional value. If someone learns how to play pinochle, then that information has increased his or her capabilities, and it has proportional value (i.e., depending on how much he or she will be playing pinochle). If someone legally hears of a stupendous stock tip, then that information has substantive value indeed. If a spy discovers a long-planned surprise attack from an opposing army, the value is measured in the preservation of human lives (from the perspective of one of the sides, anyway).

All these values happen on the consumer or demand side of the market, but in any (semi-free or more) market, the value has a corresponding producer or supply side. Just as value on the demand side of the information market varies widely, value on the supply side of the information market varies widely. Of course, for the producer, value means cost. Information production has costs. R&D is an example that has price tags. Basic science research has price tags, too--supercolliders and space telescopes aren't free. Less obviously, the creation of "fuzzier" information by artists, writers, engineers, architects, etc., have costs. The creator's time and exertion are far greater than zero.

Another supply-side value which deserves more attention is the expertise of the information producer. Rarity raises value, and the expertise involved in producing worthy information is relatively rare. In my opinion, the spike in amateur videos has confirmed this all too well. For every truly noteworthy piece of creative information, a multitude of mediocre to awful creative information also exists. Still more rare is the information producer whose expertise results in consistently-high output.

So information undoubtedly has value. But the data, the material manifestation of the information which can be seen and felt and heard, has its own components of value. One is fidelity: how well the data reflects the information. Low-fidelity data, like a scratched vinyl album, or a grainy filmstrip, has lower value than high-fidelity data for the same information. A second component of value is utility: how easily, flexibly, etc., the data, and therefore the information represented by the data, can be manipulated. Data which requires specialized devices to read it has lower value than universal data. The point is always the information, not the data. Fidelity and utility describe the degree to which the data doesn't hamper the communication of the information.

Once again, digital data's technologically-achieved processing efficiencies have changed data to more closely match information. On the consumer or demand side, digital data is increasingly easy and cheap to obtain and experience. For instance, not many years ago, communicating a large quantity of video data via priority mail was quicker and cheaper than trying to send it through a line, but more recently the decision has flipped. In the case of data like text, the digital form's proposition was stronger almost from the start (recall the excitement over having an entire encyclopedia on a data CD, including "multimedia"?). The growing ease of consuming data, particularly on an interactive or on-demand basis, in effect makes the data market itself larger and more efficient. In simple terms, this just means that the consumer has more choices. A common term for this is the Long Tail.

Meanwhile, digital data has had similar effects on the producer or supply side. Through the assistance of technology (without which the digital form would be quite useless), data is subject to any modifications of arbitrary precision. People can create new experiences of sound without picking up an instrument, munge pictures, and computer-generate movies and TV shows. Moreover, the technology for doing these tasks has grown steadily cheaper, allowing more potential producers to become real producers. (For instance, anyone can publish through a blog, or calculate finances with a spreadsheet.) As on the demand side, the growing ease of producing data has made the market itself larger and more efficient.

Ultimately, information will remain valuable on both the demand and supply sides. Its market won't vanish. As data better serves its function of communicating information, it will give way to the underlying market, the information market. More to the point, continuing to target the data market rather than the information market will become steadily irrelevant. However, the information market comes along with its own set of conceptual shifts.

coda about software

Software is a unique case of data, in which the data represents information about manipulating data. For clarity's sake, the data manipulated by the software shall be called "work". (Of course, in practice the software is separated from the work for security and efficiency, but all data is nevertheless stored and retrieved in the same general way. Well, software and work have separate caches.) Since the manipulation of the work is the motivation for using the software, the value of the work is thus intrinsic to the software's value. In the opposite way, since software creates and modifies work, the software's value becomes intrinsic to the work's value--if the work can't be manipulated, its information is lost, at least without conversion.

The trend to transform the data market ever further into a purer information market will apply pressure to any obstacles which would trap information into data. Consequently, the value of software will lie in how much of the information market it can manipulate. The value of work will lie in what degree it can be treated like information--that is, the degree to which it can be easily manipulated. Minds don't need apparatus like software to manipulate any ideas. Similarly, ideas are much more fluid and interconnected than work, the actual bits of digital data. A second fusion between software and work will probably occur, but not in the rigid co-dependent way as before: "smarter" data, with standardized, replaceable parts. Dare I say Semantic Web? Or the Cloud?