The Knowledge Economy

I was having lunch yesterday with Candice and Josh G. (I have to mention it’s Josh G, because if it were Josh R the conversation would have been shorter and more definitive.) Candice brought up a company she knew that was building a marketplace for a certain type of information. The plan is to auction the information. We had a long discussion over whether this would work, after I asked if auctioning a non-rival good was the most efficient solution. I’m sure there’s an analytical answer to this question, but that isn’t my point here (although I’d be curious for any pointers to research, as always.) The interesting thing is that we could have the conversation at all. As all of you know, I’m an economics geek, but Candice and Josh aren’t, and we’re all primarily businesspeople.

I think it’s fair to say that everyone who is reading this could have had that conversation, in some form. That’s easy to say because there aren’t that many of you, but I think it’s also fair to say that 99% of the hundreds of people I have worked with in the past five years could have and would have been interested in having a conversation on this point. We’re all steeped in information economics, it’s become second nature to us.

It’s been interesting for me to think about information products in a business context. When I went to business school, there were almost no information products. Music was a physical product, news was a physical product (unless you worked at an investment bank), etc. The few information products at the time (stock price information, sports scores, direct mail lists) were insignificant in the scheme of things.

I’m not going to argue the point that this is no longer true. It is, or it soon will be, depending on how you define significance. I like to apply standard economic thinking to information products. Write out the formulas and then drive the variable representing the cost of information transfer to zero and see what happens. As I’ve mentioned previously, marketing changes completely, for one thing. The media industry changes completely. Any industry that depends on innovation changes completely.

Information economics drives several other ‘economics’: the Attention Economy, the Entertainment Economy, etc. It drives them in the same way that physics drives chemistry or biology: in a fundamental but not very useful in practice sort of way.

I’ve been reading Advancing Knowledge and the Knowledge Economy edited by Brian Kahin and Dominique Foray. I’m finding Knowledge Economics a much more useful framework for dealing with the issues I’m sorting through. I’m going to be blogging about the essays in this book quite a bit in the next few weeks as I work through it.