Author: BrainTrust
@RealEconomy.Org · April 9th, 2009
How Information Flow is Shaping the Economic Landscape
The Internet has radically changed the availability and cost
of information. The Internet isn’t just moving advanced technology across town,
or across the nation. It’s moving it from one nation to another, from areas of
high concentration of technology to areas of low concentration. It is leveling
the playing field.
This revolution of information access is at least as
important as the other major revolutions, such as the Industrial Revolution of
the late 19th century. The graph below shows the exponential growth in
access to information via the Internet:
It’s an Economic Earthquake
Free flow information isn’t simply a technological change.
It represents a fundamental and massive economic force. The economy cannot
remain static in the presence of such a powerful shift. The strategies
that will work in tomorrow’s economy must take this revolution into
account. They must recognize the effects and harness the power of this
force in order to be successful.
What is the economic impact of free flow of
information? How does it affect today’s business climate? How does
it affect your job? What should be our national policy on information flow in
the years ahead? Let’s explore these questions in detail.
The Economic Impact of Free Flowing Information
Let’s examine how the flows of information have changed in
the past 15 years. Think of outsourced software development, and global
supply-chain management, and online patent databases, open-source software
projects, and Wikipedia. Think about AliBaba, the web-based global marketplace
for manufactured items. Everyone has nearly equal access to the latest
technological information, regardless of which society created that knowledge.
This has produced a sudden and accelerating shift in the relative capabilities
of whole nations, and has moved entire economies away from certain kinds of
economic activity and toward others. Manufacturing has moved to emerging
economies. Technical skill has followed via the outsourcing boom.
If manufacturing know-how and technical know-how has flowed around the world,
can other forms of know-how be far behind?
In addition to changing the worldwide competitive-advantage
landscape, the Internet has clearly transformed many areas of our society, such
as media, entertainment, commerce, and the retail shopping experience.
The presence of a mechanism to quickly comparison shop prices and get the
lowest one, or even to conduct online auctions has meant a huge shift toward
online shopping, at the expense of local retailers and, of course, jobs.
But the elimination of retail and other service sector jobs has not been the
only result of the internet explosion. The internet has also had a fundamental
impact on other forms of employment as well.
Leveling World Wage-Rates
Most studies place the percentage of workers that are
classified as knowledge workers anywhere from 30-50% of the workforce in the
most service-oriented economies, such as the UK and US economy. A
knowledge worker is one whose contributions depend on the development and
synthesis of ideas. While knowledge work has expanded and is expected
continue expanding, knowledge workers in the developed world are facing fierce
price competition from the places where the information is now more freely
flowing. This isn’t your ordinary price competition, though. A software
engineer’s salary in an emerging market can be 10% of the salary in a developed
country. In other words, an engineer in India may make $7,000, while his
U.S. counterpart expects to make $70,000. In a globalized economy, who
will win this price war?
Opening the Floodgates – Open versus Closed Intellectual
Property (IP)
On a recent trip to an aerospace museum in Tucson, Arizona,
I was standing in front of a Kaman HOK-1 Twin Rotor helicopter when I met a man
with an interesting story to tell. As I studied the design of the helicopter
and commented on it, the retired engineer standing next to me told me what
really impressed him about Kaman. It wasn’t their helicopters, it was
their bearings. He told me the story of his days designing landing gear
for companies such as Boeing, and how no company could match the Kaman
self-lubricating bearing products. Nobody knew what was inside, and for
the longest time, Kaman would not even file a patent on their technology,
because that would mean they would have to disclose how they did it.
Kaman shut others out of their market for years and successfully deployed their
bearings on many aircraft platforms.
(http://www.kaman.com/history/history_p.html) Kaman’s approach to
information flow was simple – trust no one because then no one can duplicate
what you do.
In today’s economic landscape, Kaman’s approach to IP
protection and business building is a relic from the past. Today’s
corporate strategy is usually built around a different set of criteria.
Instead of building basic technology and creating a product line around it,
today’s corporations add value to technology they buy. They may develop a
market by integrating hardware, and software and meeting an end user
need. Instead of technology differentiation, what is more important is
time-to-market, head-to-head price competition, and being in the right place at
the right time. What becomes deemphasized is the traditional model
of building a product line from company owned technology and owning the market
because your engineering and know-how is fundamentally just better. One
clear culprit in this changing landscape is the free flow of information.
Open development. Open Source. Open Access. Open
Architecture. Open Standards. The Open movement has elicited fundamental
changes in the way information is shared, especially in the technology
industry. The growth of open source software projects, for instance, has been
exponential in the past decade. What is interesting is to compare the
graph below to the growth of the internet. Clearly, the more information
flows, the more collaboration between people occurs. This is very evident
in the open source world.
Source: The Total Growth of Open Source Amit Deshpande and Dirk Riehle Proceedings of the Fourth Conference
on Open Source Systems (OSS 2008). Springer Verlag, 2008. Page 197-209.
While it can be difficult to assess the impact of open
source on, say, overall software employment levels in the US, it suffices to
point out that, overall, open source tends to move the software talent pool
away from fundamental technology development and toward a value-add support
model instead.
While the software industry has been significantly impacted
by the free-flow of information, the domain of computer circuit design has
proven much more resistant to this free information flow. So called IP
cores (blocks of hardware logic) have been a fixture of the hardware design
industry for some time, they are much harder to use in an open development
process. In the hardware arena, the notion of selling IP (in the form of
IP cores, Application Specific Integrated Circuits (ASICs) and silicon chips)
is much more developed. A well known example of IP reuse illustrates this
point. Consider the the graphics engine first introduced to the world via
the Sega Dreamcast.
Sega’s Dreamcast game console has been called many things,
but a roaring commercial success is not among the terms commonly used.
However, the PowerVR 3D graphics engine found in the Dreamcast has had an
illustrious history. Eventually taken over by silicon IP vendor Imagination
Technologies, the PowerVR IP now powers most mobile 3D applications on cellular
phones, including Apple’s phenomenally successful iPhone. In this case,
the same IP resulted in two very divergent commercial products, ........
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