The New Economics of Collaboration

August 16, 2008

Wikinomics: How Mass Collaboration Changes Everything. Don Tapscott and Anthony Williams. New York: Penguin Books 2008. 351 pp.

I beg your pardon, reader, but I need to start by asking you a question that is also the last sentence of the book: “Is your mind wired for Wikinomics”? I hope it doesn’t affect your reading experience. Wait. I do have to explain what Wikinomics is first. To the authors, Wikinomics is an art and science based on four ideas: openness, peering, sharing, and acting globally. They believe that if you, an individual or company, apply these concepts in your business, you cause innovation and collaboration, amplifying your chances to succeed in the market. Before you organize your thoughts and answer my question, I will try to answer it myself by showing you some pictures:

Most of these networks are examples of the Wikinomics concept in the book, so unpretentiously I would say: “Yes, of course my mind is wired for Wikinomics. Do you not see it?” However, thinking critically – I believe that being part of Wikinomics is not the same thing as “doing Wikinomics”. From the individual’s perspective, I believe the book lacks some explanations regarding how to make a profitable business using this art. On the other hand, it gives vivid and detailed examples of companies that are lucratively adopting Wikinomics, and it shows the full potential of a generation that is growing up digital.

The authors present limited ways for individuals to profit from Wikinomics. In chapter four, the authors explore the concept of ideagoras, i.e., global marketplaces that find uniquely qualified minds. To exemplify it they discuss InnoCentive’s purpose, which is to make industrial and business problems available to allow the global scientific community to solve them. Tapscott and Williams affirm that researchers from all over the world can use their skills to help these businesses and perhaps be financially compensated. Nonetheless, they do not consider that researchers need to have a complete infra-structure to work on complex research. You may argue that researchers can use universities’ labs to do their work, but if they are not rewarded by the company who purposed the problem, it is unfeasible for a university to donate, for example, expensive chemical substances to help one individual to build reputation or to be recognized for his or her capabilities.

Another example of individuals profiting from Wikinomics is in chapter seven, where the authors recount Paul Rademacher’s case. Rademacher was a developer who built his business on Google open platform, and was later hired by them. I think that his example is too restricted to suggest that others can also monetize good ideas utilizing tools for collaboration. How many people have ideas and how many angel investors are out there? Tapscott and Williams also don’t clarify that people need to have management knowledge or software background to successfully run a business based on the Internet’s democratizing tools. While I was reading the book, I also felt that I urgently had to have my own business and use the benefits and great opportunities that the Internet offers, especially when the authors used strong statements such as “a world where only the connected will survive” (pp. 12), “If you expect to be around in the next decade your organization will need to find ways to join and lead prosumer communities” (pp. 49) or “effectively, it’s globalize or die” (pp. 61). However, gaining visibility and running a business is more complex than peering, sharing, and so on.

On the positive side, Taspcott and Williams give examples of winning companies that use new models of production based on communities and collaboration. Proctor and Gamble is one of the companies utilizing InnoCentive to expand opportunities and increase its R&D capacity. Another example is Merck Pharmaceutical, which is working in a partnership with Washington University School of Medicine and creating a public database of gene sequences. I think the book is especially relevant to managers who want better understand how private companies are adapting to an approach of openness and using different strategies for creation. Business leaders can benefit from the details and evidence of the success of distinct industries that are using Wikinomics.

Another well-formulated insight is about the net generation. The net generation is the group of young people who is growing up immersed in the digital age. I think Tapscott and Williams are correct in arguing that growing-up digital changes a cultural orientation. People will compare and contrast different sources of information, they will be willing to share and to participate in diverse communities, they will want to act globally in the workplace. They will be open-minded and hunt for innovation and interaction everywhere. One point that was not clear concerns what I call “half-way net generation”. The authors argue that people born between 1977 and 1996 are part of the net-generation. However, I think a change of mentality, mainly in the work environment, doesn’t happen so easily if a person has already worked in a conventional workplace. I believe Tapscott and Williams are right only when refer to a generation who literally used its first computer connected to Internet when they were four to six-years-old.

Going back to my first inquiry, I would respond “My mind is partially wired for Wikinomics”. If I happen to be a business manager some day, I will be aware of many successful actions of companies who invested in openness, sharing, peering, and acting globally. Then I will definitely try to use this knowledge to profit and to find solutions to my company’s problems. However, if I remain a user, I will keep updating my Flickr, my Facebook, and the entire set I showed in the introduction. I will use Skype if the quality doesn’t decrease with its super-access. If I truly believe in my potential as a wiki-consumer-producer I may first pursue a business or computer science degree. Did this help you to decide if your mind is wired for Wikinomics? Leave a comment.


Disconnected

August 3, 2008

The Weatlh of Networks: How Social Production Transforms Markets and Freedom. Yochai Benkler. New Haven: Yale University Press 2006. 515 pp.

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Four of my classmates and I at the Federal University of Rio Grande do Sul, in Porto Alegre, Brazil, engaged in a social program with criminal juveniles last year. They were 14-17 year old boys who came from poor families. They were in a semi-open prison because of diverse crimes from shoplifting to homicide.

Our plan was to teach them how to use a blog and incentivize them to write. They would go to the Communication’s School once a week for a course with us. There were 10 participants when the classes started, but only two completed the course, and neither of them created a blog.

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Yochai Benkler writes a detailed book regarding the importance of the networks’ development. He believes that low cost computers and the rise of information technologies has led to a new stage in the information economy. According to Benkler, there are great opportunities in nonproprietary markets. People can make use of technologies to “reach and inform or edify millions around the world” (pp.4). The author argues that the networks facilitate a large number of collaborative efforts, especially in peer production of information, knowledge, and culture. He believes this creates growth and welfare opportunities in developing countries. Even though he states that the networks will not eliminate hunger and poverty, he exaggerates the benefits these countries will obtain with the new information economy.

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The students had less than six years of education. They would not absorb our explanations and would fall asleep while we discussed blogs, the Internet, and networks.

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In the chapter 9, Benkler presents commons-based strategies for development and agricultural research. He argues that “software developers from low-and middle-income countries can participate in the growing free software segment of this market” (pp.332), but does not consider the number of people actually capable of programming or utilizing advanced software. In Brazil, the number of potential free software developers that could produce specific programs responding to government and private-sector necessities is very low. Although he mentioned Brazil as one of the important developing countries in this sector, he omitted that less than 5% of the total population has a college degree and a high level of education is necessary to program computers.

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The second topic that Benkler doesn’t analyze adequately is food security and research on genetically modified (GM) food. Biogenetic laboratories, especially those sponsored by private companies, have less incentive to develop more nutritious seeds than more resilient ones. In the case of soy, corporations have created more resistant seeds that prevent plagues from destroying crops, not more nourishing beans. Moreover, the effects of GM food on humans and their impact on the natural environment are still unknown. Benkler cannot take for granted that production of transgenic food will be beneficial for humans. Also, there are serious economic implications on the establishment of genetically altered plantations in agricultural areas dominated by small family farms. In Brazil, plantation of GM soy was very controversial because the farmers who produced the conventional soy could not compete with those who had seeds from Monsanto.

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In one of the classes, we brought the Spanish movie “El Laberinto del Fauno”, intending to ask them to write a reflection afterwards. Although Spanish and Portuguese are similar enough to be basically intelligible by these native speakers, the participants could not completely understand the movie because it was not dubbed and the subtitles were too fast for their reading skills.

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My third concern on the book relates to the Babel objection or information overload. Benkler’s response to the Babel objection is coherent, but he missed a central point in the analogy he used: the language per se. I agree with Benkler that growth of networks will not cause discourse fragmentation. The large amount of information and connections that Internet provides is valuable for those who have access and users will create mechanisms to find what interests them. However, becoming a part of the global network requires more than computers and regular education. Individuals also need an international language to share information. Looking at Wikipedia, for example, the number of articles in English is about three times bigger than the second most common language, which is German. How can Benkler argue that a new global culture is being created if most of the world cannot even understand what has been said and written?

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Benkler’s attempt to explain the importance of networks in developed economies makes the book worth reading. However, he is far too optimistic about the efficacy of networks as tools for economic development in poor countries. Investment on education should be a higher priority than information technology. Moreover, his studies on food security and transgenesis don’t address the unintended effects and dangers of GM food. Finally, it is important to consider a common language as an essential tool in a global economy. Developing and poor countries should invest in a second language as a core part of the educational system to make global communication possible to the most part of the world.

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The classes ended after four months and the result was one handwritten text that five students wrote in collaboration. The participants didn’t show up on the weeks they should be in the computer lab, two of them escaped from the prison, and one of them died in a gang fight when he went home. For the certificate’s delivery, there were two boys. After the end of the course, we had a sensation that we were even further away their reality then we were before.

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Benefiting from Wealth of Networks requires more than cheap computers and fiber-optic cables. It requires a common language, literacy, education and the economic freedom necessary to take advantage of individual initiative and creativity.


Complications of the Long Tail: choice, social behavior and costs

July 13, 2008

Chris Anderson, the editor in chief of Wired, was the first author to coin the phenomenon of the Long Tail. He published an article in 2004 in this magazine, and two years later, released a book entitled “The Long Tail – Why the Future of Business Is Selling Less of More”. According to Anderson1, The Long Tail strategy for a business is to increase profit by catering to numerous small niches instead of the “head” of the curve, which is made of few commercial successes or hits. Anderson uses large and flourishing Internet companies such as, as Amazon.com, Netflix, and Rhapsody as examples to support his argument. Even though Anderson succeeds emphasizing the recent changes in business led by Internet, the opportunities online retailers saw in an environment without shelves, his analysis is lacking in three main respects: he misinterprets the idea of choice, disregards human social behavior, and omits transaction costs.

According to Anderson, the tail’s growth would lead to more opportunities for costumers to find what they really want in niches. However, he doesn’t consider that personal choices can be related to immediate necessities and time. In the chapter 10, Anderson uses jam as an example to illustrate people’s desire for variety. He compares a supermarket (300 kinds of jam) to an online store (1200 types), arguing that consumers can get the kind they whish. This could be true for a jam connoisseur because this person doesn’t necessarily want to consume the product immediately, but not for someone buying their next breakfast. He also doesn’t evaluate consumer willingness to spend more time online to find all these niches. In the future of business, Anderson sees infinite choices; however, decisions in this environment may be progressively more difficult over time, and there is not enough data to prove consumer’s behavior in an unprecedented market.

The second problem is the inconsistency of his business analysis with the human social behavior. Anderson approximates human preferences as “consumption functions” when he takes for granted that filters are the best connectors of the new supply and demand.

The author says that in the internet era, filters and recommendations are important tools to help people to locate their niches. However, he does not realize that external (offline) recommendations can also modify the accuracy of the filters. One can have a DVD borrowed, a habit of buying two magazines per month in a news stand, and lent books from the local library. The perfect filters that Anderson so emphatically endorses and considers a powerful force of the Long Tail will never have complete data to determine what a person or a company really wants.

The author also discusses hits in the second chapter, highlighting that consumers still look for them, but this search is deemphasized as soon as consumers find their niches. Anderson has qualified data to show that micro-cultures have been growing with the Internet. However, he exaggerates when states that “we [Americans] are turning from a mass market back into a niche nation” (pp. 40). The author believes that the watercooler effect caused by television will turn into diverse virtual watercooler effects. However, many social interactions take place outside an environment dominated by social niches. Most water coolers are in workplaces, after all.

Thompson2 argues that there are different levels of interactions and the strongest type is the human and not the one mediated by computer. Discussions and recommendations of foods, music, and other goods that occur in person can do more than point out products that fit someone’s taste- they can change and create desires out of the need for shared experience. If we become a niche nation, will we have something to connect us besides the optical fibers?

Finally, there are some specific economic problems that the author does not discuss in his study. First, he believes that electronic transactions (B2B and B2C) will occur flawlessly. The growth in online transactions has created many opportunities for credit card fraud and requires sophisticated security to protect consumers. Anderson writes “online shopping is still less than 10 percent of American retail” (pp. 147). If the online retailers follow the tail’s growth, a larger infra-structure will have to be generated to support the new demand. Transaction costs are considerably higher if the item needs to be shipped directly to the consumer because of the complex logistics chain, labor, and fuel required to deliver individual items to addresses rather bulk shipments to bricks-and-mortar stores.

Another issue is that the tools of production are not entirely free and, therefore, not affordable to everyone. In the chapter four, he argues that “democratizing the tools of production” is another powerful force of the Long Tail. Even though amateur producers of digital goods have been popularized, he doesn’t recognize that to produce digital goods, people need to have a basic infra-structure (a relatively new personal computer, software, and bandwidth) and knowledge. Unfortunately, full-access to Internet is not a reality for most of people outside the US. In Brazil, for example, the Internet penetration is only 11% according to comScore.

The most important finding of Anderson’s that consumers have been moving from a mainstream to a niche culture during recent years. Nevertheless, his statements about consumer choices will need a deeper investigation, especially regarding the immediate necessity of physical goods and time consuming issues. The author overestimates the efficacy of internet’s systems and underestimates the importance of face to face human interaction, which has been investigated by other disciplines including anthropology and neurosciences. Finally, he omits important aspects of transaction costs that make the tail forces weaker and argue against its practicability. Living in a period of transition, the author starts exploring a possible tendency in the Internet business, but doesn’t examine the complexity of his own discovery. In a culture driven by hits, media conglomerates and high-technology monopolies, Anderson is naïve to declare that the Long Tail will resist and will not be cut off.

1Anderson, C. (2006). The Long Tail: Why the Future of Business Is Selling Less of More. New York: Hyperion.

2 Thompson, J. B. (1995). The media and modernity. Cambridge: Polity Press.