Technology
For A New
Economic System
By Howard Rheingold & Robert D. Hof
18 August, 2004
Business Week
Howard
Rheingold is on the hunt again. With his last book, Smart Mobs: The
Next Social Revolution, in 2001, the longtime observer of technology
trends made a persuasive case that pervasive mobile communications,
combined with always-on Internet connections, will produce new kinds
of ad-hoc social groups. Now, he's starting to take the leap beyond
smart mobs, trying to weave some threads out of such seemingly disparate
developments as Web logs, open-source software development, and Google.
At the same time,
Rheingold is worried that established companies could quash such nascent
innovations as file-sharing -- and potentially put the U.S. at risk
of falling behind the rest of the world. He recently spoke with Robert
D. Hof, BusinessWeek's Silicon Valley bureau chief. Here are excerpts
from their conversation:
Q: Where do you
see the social revolution you've been talking about going next?
A: It's too early
to say. The question is: What does it point toward? Some kind of collective
action...in which the individuals aren't consciously cooperating. A
market is a great example as a mechanism for determining price based
on demand. People aren't saying, "I'm contributing to the market,"
[they say they're] just selling something. But it adds up.
Q: Can you give
me some specific examples of what you mean, beyond the market?
A: Google is based
on the emergent choices of people who link. Nobody is really thinking,
"I'm now contributing to Google's page rank." What they're
thinking is, "This link is something my readers would really be
interested in." They're making an individual judgment that, in
the aggregate, turns out to be a pretty good indicator of what's the
best source.
Then there's open
source [software]. Steve Weber, a political economist at UC Berkeley,
sees open source as an economic means of production that turns the free-rider
problem to its advantage. All the people who use the resource but don't
contribute to it just build up a larger user base. And if a very tiny
percentage of them do anything at all -- like report a bug -- then those
free riders suddenly become an asset.
And maybe this isn't
just in software production. There's [the idea of] "open spectrum,"
coined by [Yale law professor] Yochai Benkler. The dogma is that the
two major means of organizing for economic production are the market
and the firm. But Benkler uses open source as an example of peer-to-peer
production, which he thinks may be pointing toward a third means of
organizing for production.
Then you look at
Amazon (AMZN) and its recommendation system, getting users to provide
free reviews, users sharing choices with their friends, users who make
lists of products. They get a lot of free advice that turns out to be
very useful in the aggregate. There's also Wikipedia [the online encyclopedia
written by volunteers]. It has 500,000 articles in 50 languages at virtually
no cost, vs. Encyclopedia Britannica spending millions of dollars and
they have 50,000 articles.
Q: What will
all those trends produce ultimately?
A: All these could
dramatically transform not only the way people do business, but economic
production altogether. We had markets, then we had capitalism, and socialism
was a reaction to industrial-era capitalism. There's been an assumption
that since communism failed, capitalism is triumphant, therefore humans
have stopped evolving new systems for economic production.
But I think we're
seeing hints, with all of these examples, that the technology of the
Internet, reputation systems, online communities, mobile devices --
these are all like those technologies...that made capitalism possible.
These may make some new economic system possible.
Q: If so, it's
a good bet not all companies will be happy with the changes.
A: New digital technologies
are creating a crisis in the business models of the companies that depend
on having a monopoly on distribution. Look at MP3 blogs: We're now seeing
bands that are saying, "Please pirate my material. Here it is."
They make money from that. They get bookings from that. They build an
audience on that.
Q: Are there
more such conflicts and opportunities to come?
A: Assigning frequencies
to license holders...is an old-fashioned scheme...based on technologies
of the 1920s. We now have technologies that make it possible to use
the spectrum the way packets use the Internet. Instead of having a circuit-switched
analog system in which you have to have an end-to-end connection, you
just send your packets out with their addresses through this network
and they find their way. It's much more efficient. It makes for millions
more broadcasters in the Internet space. This is all pointing to a kind
of voluntary sharing of your property.
Q: Does the pushback
by companies threatened by these trends, such as the record and movie
companies, threaten innovation?
A: Yes. Never before
in history have we been able to see incumbent businesses protect business
models based on old technology against creative destruction by new technologies.
And they're doing it by manipulating the political process. The telegraph
didn't prevent the telephone, the railroad didn't prevent the automobile.
But now, because of the immense amounts of money that they're spending
on lobbying and the need for immense amounts of money for media, the
political process is being manipulated by incumbents.
Q: What might
keep these powerful incumbents from holding back this tide?
A: You've got to
have some huge force outside of the United States, where it's getting
locked down. What if China says, "The FCC doesn't rule us. We're
going to stop assigning frequencies within our borders. We're going
to regulate devices so that they play fair with each other, and we're
going to open up spectrum." That's going to make the U.S. an economic
and technological backwater.
Then there's always
the idea that maybe we're just beginning to see disruptive technologies.
Maybe something is just going to blow it away. Certainly we've seen
that over and over again in recent decades.
Q: Where will
we see that happen?
A: We now have a
world out there where billions of people have in their pockets technologies
for innovation that far surpass what entire industries had just a couple
decades ago. If you're talking about the communications industry, your
innovation is happening with 15-year-old girls. That was where [Japanese
cellular network provider NTT] DoCoMo (DCM) won big. I think the total
number of text messages sent is approaching 100 billion a month. Of
course, the revenues on that are only a fraction of a cent each, but
multiply a fraction of a cent by 100 billion, and it begins to add up
to real money.
You're seeing that
now with the picturephones. People are not using them the way it was
predicted. They're using them to share their days: Here's a picture
of somebody's haircut. Here's a picture of somebody's melon. Look at
this shoe in a store. It wasn't determined by an expensive R&D lab.
It was determined in practice by young people who appropriate these
devices in unexpected ways. There's nothing more inventive than a 15-year-old.
I don't think that's
going away. If I was a Nokia (NOK) or a Hewlett-Packard (HPQ), I would
take a fraction of what I'm spending on those buildings full of expensive
people and give out a whole bunch of prototypes to a whole bunch of
15-year-olds and have contracts with them where you can observe their
behavior in an ethical way and enable them to suggest innovations, and
give them some reasonable small reward for that. And once in a while,
you're going to make a billion dollars off it.
Q: A focus group
on steroids.
A: This would be
more like ethnography, where you let them loose and watch what they
do. If you want to think out of the box about innovation, let's not
put all of our bets on 50-year-old PhDs in laboratories. We now have
dispersed the means of individual and collective innovation throughout
the world.
Here's where Wikipedia
fits in. It used to be if you were a kid in a village in India or a
village in northern Canada in the winter, maybe you could get to a place
where they have a few books once in a while. Now, if you have a telephone,
you can get a free encyclopedia. You have access to the world's knowledge.
Knowing how to use that is a barrier. The divide increasingly is not
so much between those who have and those who don't, but those who know
how to use what they have and those who don't.
Q: Some folks
in the U.S. are worried about the competition from overseas that comes
from that dispersal of knowledge.
A: We should have
thought about it when we sold all those computers and chips overseas.
These aren't just widgets. These are the building blocks of innovation.
Copyright ©
2004 The McGraw-Hill Companies Inc. All rights reserved.