When You Create Value It Doesn't Mean You Have To Capture Every Bit Of That Value
from the share-the-value dept
As I discussed in my Hacking Society post, one of the things I’m thinking a lot about these days is how to measure value that isn’t directly monetized. There’s a related aspect to all of this, as well: recognizing that when you create value, you don’t have to monetize all of it directly yourself. Historically, in economics, they’ve talked about things like “externalities” and “spillovers” when discussing parts of the economic value chain that can’t be controlled or monetized directly. However, it seems like a growing number of economists are realizing that this undersells what’s happening. Externalities and spillovers often feel like a small thing — a tangential bit tossed off to the side. But when you’re dealing with information and digital goods, it’s important to recognize that these things can be a major part of the market, and may not be controllable at all. And that may be a good thing.
In the discussion we had about Craigslist, one of the points was that while Craigslist itself only “captures” a small part of the value it’s unleashed, that’s not necessarily bad. First, it’s good because much of that value to go out to the users of Craigslist themselves. That’s why they appreciate and use Craigslist in the first place. If Craigslist tried to capture all of that value itself, people would stop using Craigslist. Now some may argue it becomes a different situation when you have third parties monetizing some of that value, but I disagree. When you look at the most successful companies in the world, they’re often platforms — they create value and capture some of it, but also allow much of that value to be monetized by others.
Look at Microsoft, Apple, Google and Facebook. All of them created a massive amount of value — and all have become phenomenally successful companies — but all of them did so by also letting others monetize large portions of the value they created. It’s how you build a more long-lasting ecosystem from which you can continue to profit from over time. If you seek to capture all of the value yourself, you don’t last very long.
I got to thinking about this more, after hearing the CEO of The Economist (who, one would hope, would understand these economic concepts) complaining about Flipboard capturing some of the value The Economist creates, and declaring it a “competitor” to The Economist’s own digital and app ambitions.
“But you’re heading down a route we’ve seen before – giving the opportunity to extract value to somebody else in an area that should be our own – so Flipboard is problematic.”
Of course, that ignores the fact that Flipboard — an aggregator app — provides its own value as well. People don’t use Flipboard just because it includes content from The Economist. They use it because of the overall experience and the fact that it aggregates content from lots of different sources in one place. As much as The Economist, or any publication, might like to “own” the reader, that’s not necessarily what the reader wants. Letting others “extract” some of that “value” can actually be a really good thing. Flipboard provides a useful service for The Economist in not only experimenting with new ways to aggregate and present content — from which The Economist can learn — but also in potentially expanding The Economist’s audience as well, feeding much greater value back into that ecosystem.
Yes, companies need to look at the overall market and see where it is they can extract value — but you have to wonder about those who claim eminent domain over certain parts of the marketplace. Letting others extract some (and perhaps lots) of that value can have tremendous benefits for those who do so.
Filed Under: economics, externalities, jacking society, spillover
Companies: amazon, apple, craigslist, facebook, flipboard, google
Comments on “When You Create Value It Doesn't Mean You Have To Capture Every Bit Of That Value”
But now I worry about them
Look at Microsoft, Apple, Google and Facebook. All of them created a massive amount of value — and all have become phenomenally successful companies — but all of them did so by also letting others monetize large portions of the value they created.
I don’t want to use them as a model now because each is or has used their size to extend control into every larger areas. I see them as the next power block that will have to be upended for a new wave of freedom to exist.
To me bigness and growth may not be desirable from a world economic sustainability perspective.
I couldn’t help but notice the similarities between this and Mojang, the developers of Minecraft. By allowing others to profit off the game (minecraft servers, minecraft server hosts, youtube videos, minecraft services) there is an entire ecosystem of people working because of the game.
Electronic Arts has stated Mojang didn’t monetize Minecraft enough, but they possibly have created more value then anything EA could have released.
Here's an alternative model
Shareable: Blueprint for P2P Society: The Partner State & Ethical Economy
What I like about Michel Bauwens is that he argues for a much bigger picture change, but he also points out that it requires a transition and whenever he anticipates problems, he acknowledges them.
Here's an alternative model
I should have included this quote with the link:
“A new way to produce is emerging. By this I mean: a new way to produce anything and everything, whether it is software, food, or cities. What once required rigid organisations and a society defined by the mentality of hierarchies, we are discovering now (and in many cases re-discovering) how to do through free association of peers.”
Here's an alternative model
The problem with both systems is the same from a sustainability standpoint. It requires a certain amount of scarce natural resources to produce anything (energy, clean water, medicines, farmland ect).
If you don’t plan for your resources to stretch into the foreseeable future, it’s not sustainable. If two or more different groups plan to use the same resource without massive collaboration (ie oil), it won’t last as long as any group plans.
I don’t see why peer associations would be any better at not overusing the real scarce resources than anyone else.
Solved
Flipboard provides a useful service for The Economist in not only experimenting with new ways to aggregate and present content — from which The Economist can learn — but also in potentially expanding The Economist’s audience as well, feeding much greater value back into that ecosystem.
I suppose they could buy Flipboard, rebrand it as Economistboard, and then shove all their stuff to the front of the queue. I’m sure everyone would be happy with that arrangement.
Here's an alternative model
If you don’t plan for your resources to stretch into the foreseeable future, it’s not sustainable. If two or more different groups plan to use the same resource without massive collaboration (ie oil), it won’t last as long as any group plans.
Very true. That’s why a sustainable model needs to factor in/encourage less consumption. I like the Shareable movement because it raises the question is to whether we actually need to make and buy as much as we do.
Here's an alternative model
As much as I appreciate Apple products, I see it as a very traditional company. Make expensive products manufactured by cheap labor, encourage people to upgrade all the time, and charge them a premium when they do. And obviously it is working well for them right now. But I don’t really want to see more companies doing that.
again, it sounds like mike is all about letting others take from you, just because they can, if flip board can do what it does with out the economist, then have flipboard remove all economists content from flipboard
and then see what “value” flipboard has those who maybe only read ecomnomists content
adding value, is another mans leeching
Re:
You mean drawing new readers is leaching? With impeccable logic like that, its no wonder idiots like you are foundering.
A better title
When You Create Value It Doesn’t Mean You Own Every Bit Of That Value
Some really believe that when they create value, they own every bit of it. Even a few think they own all of the downstream value as well, completely ignoring the fact that value only exist due to the work others added to it. Of course, the only value that exist is what the market is willing to give it. The more value you try to take, the less value the market is willing to give. The less the market gives, the less you actually have. If you were ever to take all of the value for yourself, effectively leaving everyone else with nothing, then no one would want it. All of the value disappears and it becomes completely worthless.
A better title
When you create value, you should own every bit of it. That’s not the issue here though. The issue here is people feeling entitled to things they didn’t create.
If I produce and start selling The Wheel, I’m entitled to continue producing and selling The Wheel when and how I like and to reap whatever profits I can from it. I am not entitled to any claim on The Cart, The Motorcycle, or The Car. I didn’t think of them. I put forth no effort into producing them. I put no effort into bringing them to market.
That’s what money is, folks: solidified effort. If you didn’t put forth the effort, you have no claim on the money. Anything that diverges from that line of thinking is always going to boil down to someone thinking they deserve something for nothing. That, not simply the desire for money, is what greed really is and yes it is wholly evil.
Value capturitis
For non-rival, informational, goods the idea of ‘value capture’, or capturing all positive externalities, is basically absurd.
What can the basic proposition possibly mean here? For non-rival goods, it can only mean to deny value to others, even though there is plenty for all. That is surely an exemplar of *un*-economic thinking: the basic logical structure yields a collectively suboptimal result — when we all do it, we all lose.
Is not one of the fundamentals of economics the idea of ‘gains from trade’? And that depends on neither party capturing all the value.
The most basic idea of trade is not to capture value, but to *release* value.
It is as if some people have lost any contact with what economics is really about. Economics was always, and is truly, about forming a co-operative system. It is not about each individual maximising the gains to their self-interest as the final aim — the exact opposite.
A better title
When you create value, you should own every bit of it.
No, you shouldn’t. Value is determined by how useful it is to others–how much it cost them vs how much they get out of it. The more value you take, the less useful it is to others–leading to devaluation.
It’s fine by me if you want to squeeze your lemons dry, all you’ll be left with is sour fruit.
That’s not the issue here though.
Sorry, but handwaving doesn’t disprove anything I said.
The issue here is people feeling entitled to things they didn’t create.
No, it’s people like you feeling entitled to the value that others create.
If I produce and start selling The Wheel, I’m entitled to continue producing and selling The Wheel when and how I like and to reap whatever profits I can from it. I am not entitled to any claim on The Cart, The Motorcycle, or The Car.
The wheel is a perfect example. A wheel by itself is completely useless. It has no value until it is made useful by someone else, such as a cart maker. You say you have no claim to the cart, yet you still feel entitled to it’s value simply because it made your wheel useful.
The new economic reality
Krugman just posted a chart showing how labor is not sharing the gains of productivity. That’s one reason I think the shareable movement will have to catch on — out of necessity. People have had less money to spend, and what they have financed has been debt financed. But if they adjust spending to income, they will spend less.
What’s going to be interesting from a networked perspective is that the companies depending on advertising to sustain themselves (e.g., Google, Facebook, Twitter) will likely be affected if there is a massive downsizing of consumption. I use Google all the time, but totally ignore whatever ads it serves me. I wonder what will happen if Google’s current business model isn’t sustainable. How much will Google continue to provide to me for free if fewer advertisers are footing the bill?
Where The Productivity Went – NYTimes.com: “Larry Mishel has a systematic breakdown of the reasons for worker income stagnation since 1973. He starts with the familiar divergence: productivity up 80 percent, the compensation (including benefits) of the median worker up only 11 percent.”
Re:
People who only read the Economist probably aren’t using Flipboard. And if they are, holy shit, the Economist must be run by terrible businesspeople – they can’t even keep a captive audience inside their own publication because someone else made a slightly nicer interface? That’s pathetic.
But now I worry about them
Here’s a piece along those lines. I’m happy that Apple, Facebook, Amazon, and Google are battling amongst each other because hopefully that will keep them in check. Investors and company owners want their companies to wipe out the competition, but I’d rather see a world culture where there is no reason for us to have any company as big/powerful as Google, Amazon, Apple, and Facebook. In my mind, the ultimate networked environment doesn’t even allow these mega companies to form because there is no point to them. We would change the nature of economics so that as we develop more efficient, localized goods/services, we eliminate the economies of scale. Now that would be a revolution.
Google is powerful now, but Amazon, Facebook, and Apple are taking over | Business | TIME.com
The new economic reality
It’s nice to think there will be a massive down sizing of the consumption of the real scarce resources, but that’s unlikely.
Inequality IS the downsizing of consumption. Group A gets to consume more than group B, but overall consumption drops because less people are holding little pieces of paper with president’s heads on them that gives them permission to consume.
Anything that addresses inequality will increase the consumption of natural resources.
What we really need is an expansion of sustainable energy so we can give more people little pieces of paper that give them permission to consume without inflating an unsustainable population bubble.
The new economic reality
Inequality IS the downsizing of consumption. Group A gets to consume more than group B, but overall consumption drops because less people are holding little pieces of paper with president’s heads on them that gives them permission to consume.
I agree with you on this, too. That’s the upside of recession, consumption goes down because the masses have less money to spend. And as wealth aggregates into the hands of a smaller group, they can only drive so many cars, only take so many plane trips, etc. Everything else goes into stocks, art, homes, etc.
As for energy issues, that’s a major focus for me. I’m far more interested in limiting the damage of the fossil fuel lobby than I am concerned about Internet-related issues, but I figure if we can get corporate money out of politics for whatever reason, it will be beneficial to the causes I do care about. I live in Colorado and companies want to frack in residential areas now. Most homeowners do not own the mineral rights, so they have little or no control over whether there is drilling on or next to their property. The goal is, essentially, to turn big chunks of Colorado into a pin cushion, drilling everywhere because the wells decline quickly and more of them constantly need to be drilled. At what point do you get to say, “Enough”?
The new economic reality
“At what point do you get to say, “Enough”?”‘
In about 20 years when we run out of natural gas fracking locations. I’m not saying it’s a good thing, but it’s the realistic thing.
There are 3 types of people in this.
Type 1. People who don’t want to do it, and won’t. These are the minority.
Type 2. People who are not worried about an unsustainable population bubble because they are short-sighted, greedy, stupid, or a combination of the three.
Type 3. People that realize the type 2 people will fuck it all up anyway and so join in because the marginal benefits may as well go to them too.
If you cannot understand the difference between ADDING value and TAKING value, it’s not surprising when you have a hard time understanding why piracy is self-defeating.
Re:
I guess you can’t see why charging millions for distribution when someone else can do it for free is self-defeating.
Re:
And how is TAKING billions in revenue without paying the artist ADDING value to their work? Oh, right…it’s all about ADDING value to shareholder dividends by TAKING value from everyone else, including the artist.
Here/s an interesting piece on value
This pointing to a bubble mentality in Silicon Valley again. I lived through and wrote about the first dotcom bubble and crash so I have been skeptical about this round of hype as well.
Disruptions: Start-Ups Keep Revenue at Zero to Cash In on Acquisition – NYTimes.com: “When small start-ups I?ve spoken with do make money, they often find it difficult to recruit additional investment because most venture capitalists ? and often the entrepreneurs they finance ? are not interested in building viable long-term businesses. Rather, they?re interested in pumping up enough hype and valuation to find a quick exit through an acquisition at an eye-popping premium.”
Here/s an interesting piece on value
I don’t see how Silicon Valley is any different than Hollywood in this regard. Neither are dealing in providing or distributing scarce resources. Information isn’t a scarce resource because it is easily reproducible with any number of non scarce resources.
Silicon Valley wants to give us an information buffet, because technology allows it. Hollywood, book publishers, and other traditional media corporations want to dole out little pieces of information to use for or against us at their whim.
Given these choices, I’ll value silicon valley more every time.
Here/s an interesting piece on value
I don’t see how Silicon Valley is any different than Hollywood in this regard.
The article is about bubbles and Silicon Valley valuations. Are you talking about that? I don’t think Hollywood factors in.
As for Hollywood, I think it is already a declining issue, so I don’t get into the copyright arguments. Fighting them is yesterday’s war, in my mind. I’m more interested in the future. I do think, however, Silicon Valley is shaping up to be the equivalent of Big Oil, Big Media, Big Auto, etc. Based on the articles/comments I have been reading in some of the tech blogs, I can already see people moving into the same kinds of “we’re important” thinking/justifications that every previous major industry has fallen into.
I’m more intrigued by the idea of using the Internet and networked culture/economics in preventing the growth of any major companies down the road. If society has really changed, why do we need big corporations? What do they bring to the table?
Here/s an interesting piece on value
Ah
I thought you were talking about comparisons between the valuation of different information brokers.
It’s naive to think large corporations are going anywhere. Large corporations may bring efficiencies that allow all of us to have a better quality of life. They may also bring massive inefficiencies that harm us. Bigness, by itself, is not inherently beneficial or harmful.
Here/s an interesting piece on value
Bigness, by itself, is not inherently beneficial or harmful.
Perhaps not. I have to say I am more comfortable with big government than big business. My father was career Navy and our lives were government owned. It was a good life, so I don’t inherently distrust government.
But I will continue to bring up the bigness issue because I see a lot of business news driven by it. As I have mentioned before, decentralization of power generation would be a very good thing. Of course we could have decentralization of delivery and still centralization of ownership, but if companies tend to act in their own best interests rather than the interests of society, then perhaps having an industry controlled by a limited number of players won’t necessarily produce the best outcome for society.
We could also go with a massive collective, where all the members are owners. It’s big, but ownership is widely spread. I’m not sure if that would be better than a local collective, but might work where you want to spread out the risks, like for health care. Of course, REI is a big collective, but I haven’t studied it to know how it is run. I am a member, though, and really like it.
Here/s an interesting piece on value
I said collective, but I meant co-op. I’m not sure if there is a difference, but REI is a co-op. A number of rural energy companies are co-ops.
Shareable: Co-Op Nation: Interview with Gar Alperovitz: “… 25 percent of the American electric system is either co-op or municipal, essentially socialized.”
Here/s an interesting piece on value
I don’t think I’d call it socialization. The shareholders are the customers. It sounds like a good way to ensure that both the shareholders and the customers get a good value for their investment to me.
Here/s an interesting piece on value
I don’t think I’d call it socialization.
I suppose he is using the term in the sense that a community-owned utility is a socialized utility rather than a privately run utility. And that would be different than a co-op, which is a collection of members.
Boulder just voted to take over its utilities if possible rather than use the private company that had been delivering them because the city wanted more control over how much renewable energy was being used.
Here/s an interesting piece on value
Now that is socialization. It may have been wiser to use a sustainability mandate or adjust the tax structure so the companies have to pay for the environmental damage the non-sustainable sources cause.
Incentivization is almost always superior to socialization.
Here/s an interesting piece on value
Here’s more background.
Boulder gears up for legal battle over the grid ? Cleantech News and Analysis: “Although Boulder thought about forming its own utility for a while, it began that process in earnest when Xcel sought to renew its franchise agreement. The city asked voters last November whether it should investigate the process and costs of running its own utility. Voters narrowly approved a measure to give the city a go-ahead and another measure to allow the city to collect $1.9 million in taxes per year until the end of 2017 and use the money for hiring legal counsel and consultants to figure out various costs.”
Re:
“if flip board can do what it does with out the economist, then have flipboard remove all economists content from flipboard”
…and if they do that and Flipboard’s user base isn’t affected will you admit you were wrong and Mike correct for once? Of course you won’t…
“adding value, is another mans leeching”
Like posting attacks on a site on every thread? You don’t add value, so are you simply stealing Mike’s bandwidth?
crazy talk
This article is just crazy talk. Of course you should squeeze every last bit of value from something you create! A bunch of movie studios are missing out on this. You know those previews that take up the first 15 minutes of every cinema experience? They should be charging viewers for those. Let’s face it, if it is a comedy, that’s usually where the best jokes are anyway.
Here/s an interesting piece on value
That’s a little different. The companies service contract ended and they assumed they could renew it. They shouldn’t have made investments to fulfill a contract they didn’t have yet.
Yes you do.
If you don’t capture every bit of value, you might get to see the wonder of culture. The RIAA is the Dr Whoopee of culture, making sure that it doesn’t spread where you don’t want to see your offspring.