Create More Value Than You Capture
Andrew Mcafee, Principal Research Scientist MIT
Tim O’Reilly, Founder, CEO, O’Reilly Media
Andrew introduces Tim O’Reilly, who interestingly put up Global Website Navigator which can be thought of to be the first monetized site on the web. Tim started the open source movement, eBooks, Web 2.0, Govt 2.0 and Big Data, among many other things including being a major publisher of web-based publications.
Tim: In 2008 we saw an industry change from living to serve society, to living to serve itself. Consider the banking industry which existed to help serve liquidity and society. At a conference called Money:Tech 2008 I learned sobering news, financial firms used to trade on behalf of their clients, but were transitioning to trade against their clients. They achieved great rewards for themselves, but at the expense of their clients.
This is a pattern in technology. Consider Microsoft. They were called the evil empire, but the early days when they had a vision of ubiquitous computing. Their vision was a computer in every home. Remember this was in the day when IBM “owned” computing, and computers were not accessible to everyone. Microsoft created an eco system of thousands of developers. But eventually they turned away from that ecosystem and people went somewhere else.
A pattern exists, entities build up, helping others, but eventually become all about themselves, thus losing that which they originally tried to gain. Economic failure is taking out more than you create, which you can see in the way certain companies, or governments fail.
Tim Berners-Lee created the web based on an open concept to benefit all of society. Value captured is the metric society uses to gauge success, yet you can destroy while busy trying to capture more value.
In 1994 the CEO of Microsoft at the time gave a speech in which he said there’s a few documents that are read by millions of people, and millions of documents only read by a few, and we at Microsoft network will be in the middle adding value. I thought at that time that the intangible economy came from sharing non-monetization. The monetization usually comes later. Value creation starts by having fun, and only later do the entrepreneurs see how to turn that fun into money.
If you understand it better, you can be better as an investor or entrepreneur. If there are people swarming around trying to make money then you may already be too late.
Unhealthy is when you see a huge number of startups focused on making a huge amount of money then making a quick exit. It’s like a road trip, a road trip is not a tour of gas stations, but there are lots of entrepreneurs out there doing that. Creating value and changing the world in a better way should be the venture model.
I’m proud that we never took venture capital at O’Rielly Media.
The biggest thing wrong is we don’t have enough people who are trying to make a difference.
Andrew asks: Do you see too many people trying to chase something and make an exit?
The open source movement has had such an impact on the world we live in. Often the creators don’t profit from this effort. The web infrastructure was built by people that didn’t make a lot of money for what they did.
The clothesline paradox (PDF). It was a paper I read in 1975, by Steve Baer. He was writing about alternative energy, which is sad considering we have the same issues today. The effort of being energy independent was going on in the 1970s, but we kicked the can down the road and never did anything about it. Anyway, about this paradox, Steve Bayer had a great insight. Hanging clothes on the clothes line instead of using a dryer is the equal to energy savings, but is not measured. We are not taking the energy savings credit of using the clothesline, instead it’s just energy that “disappears.”
The content economy is the same, with “free” and the subsequent take-away from paid sources of content not be measured accurately.
I think we have to re-set our economic thinking.
Mcafee asks, how do we measure economic theory to estimate the size of the “free” economy?
Tim says, “I don’t know.” (audience laughter to Andrew’s “darn!”)
If we were to connect SIRI to Moore’s Law, what will happen to people? Soon there will be customer service without people, it’ll all be automated. Likewise, the automated economy using online websites for shopping is a like idea.
Tim, we are losing the big middle class we created originally. At TED a couple weeks ago a speaker said he was tired of investors creating jobs, but they don’t. Customers create jobs. Investors are only needed if there’s too many customers.
If you have too small of a group capturing value then the whole ecosystem breaks down.
The gains from taking people out of companies seems to be going into the paychecks of CEOs, instead of back into the society. More and more jobs are being taken over by machines.
Tim says, the use of computing to add value to what were formerly lower jobs. Think about retailers removing sales people from their stores. Apple figures out that they can be successful by using people to help other people. Walgreens is doing the equal of a Genus Bar for healthcare. They are trying to move from paying for outcomes (money saved by people not being served healthcare goes back to the health care firm). Since Apple created people as genus level to help sell and take care of computers, why not add value the same way to the health care system?
Todd Park is our new Federal CTO.
The YouTube economy is where artists make a real living, in this case supported by advertising. Air B and B is mentioned.
Going back to economic cycles, a sharing economy does eventually get monetized. Like the web, at first we were sharing things amongst each other, but eventually it added advertising to monetize the experience.
Policy makers need to focus on protecting the future from the past, but are too focused on protecting the past from the future.
Advice to a young innovator, what is your advice?
First, work on stuff that matters. Work on stuff that you’ll look back on and be proud of.
Second, find people that are just as passionate about what you do as you are.
Q & A from the Audience:
Q: Absentee owners, is that good?
A: No, there needs to be a revolution in corporate governance.
Q: The old economy of scarcity of resources seems old, the new one seems about jobs.
A: Well, manufacturing will change. Like a lamp bought on ETSEY, it was a $10 lamp that had music notes added, i.e. added value, which I purchased for $300. That’s an example of people adding value in this economy.
Q: What do you think about collective advantage and the “biggest company wins?”
A: I think Google is a good example, they started out wanting to do well for their customers, but now they are focused on the dollar, and I think you’ll see them not be as successful because of that.