The Three Drivers: Connectivity, Data and Attention

Digital technology fires on three cylinders to power the network economy: connectivity, the creation and sharing of data, and scarcity of attention.

Abstract DCT has unleashed three powerful drivers: connectivity itself; the collection and parsing of voluminous data and a newly recognized resource bottleneck; and attention. These drivers present opportunities as well as challenges, which enable the network economy to innovate and develop. Connectivity generates transparency as information transfer is more efficient; data enables the creation of patterns and stories about individuals; and the trading of attention (or eyeballs) as a commodity, the central feature of advertising, reveals attention as the new scarce resource. Together, these forces propel a reconfiguration - unbundling and repackaging - of markets and products. Manifestation of DCT across markets is subtle and economic growth is uneven, sticking at the challenges in some sectors, but the race to adapt is enticing and we move forward.

Keywords Connectivity • Data • Attention as a scarce resource • Social capital

Most technology revolutions have addressed fairly practical problems. The steam engine and railroad enabled transportation; electricity enabled

© The Author(s) 2017 17

S. Bhatt, How Digital Communication Technology Shapes Markets,

Palgrave Advances in the Economics of Innovation and Technology,

DOI 10.1007/978-3-319-47250-8_2

production during non-daylight hours. What has the digital revolution done? DCT has enabled us to be virtually connected, and, by unleashing three key intertwined drivers on the economy, has transformed it into a network economy. First, we have instant, continuous, and ubiquitous connectivity, which has created a vast and complex network of connected individuals. Second, this information transfer enables the collection of massive amounts of data. Connectivity and data allow information to flow between market participants, thereby eliminating market intermediaries or traders. In this situation, buyers and sellers directly engage in transactions in a sharing economy where the surplus between the value of the product to the buyer and the cost of production to the seller is shared. Third, connectivity compels us to recognize attention as a scarce resource. The centrality of marketing, of advertisements, for the free consumption of information attests to this scarcity.

Let us consider each of these drivers in turn. What is the implication of the first - that is, of instant, continuous, and ubiquitous connectivity? Connectivity is both real and virtual. Railroads represent real connectivity while digitization generates virtual connectivity, but the underlying technology dynamic has accelerated. Consider that, in the industrial revolution, a whole century separated the 1769 invention of the steam engine by James Watt and the building of the first transcontinental railroad - the Transcontinental Union Pacific - in 1869. Less than a third of that time - only thirty years - passed between the introduction of the Apple II in 1977 and the iPhone (2007).1 In “The Dynamo and the Computer” Paul David introduces the “delay hypothesis” in a discussion of similar technological time lags: the introduction of electric machinery in the early 1920s took place some four decades after the first electric power station in 1882, two decades separate the discovery of the internal combustion engine and the development of the drive chain that transmitted power to the wheels. The idea is that it takes time for supporting adjustments to be made to the rest of the economic environment before the actual technology has a noticeable impact [15].

One of the most visible results of this new connectivity is “disruptive innovation,” or creative destruction, where many businesses from travel agencies and record stores to mapmaking and taxi dispatch have been disrupted. Disruption occurs when newer companies offer cheaper alternatives to products sold by established players and also when existing markets are redefined and the economic landscape reconfigured. Shane Greenstein makes the case that both structural and environmental factors played a role in this process of “innovation from the edges ... by suppliers who lacked power in the old market structure, who the central firms regarded as peripheral participants in the supply of services, and who perceived economic opportunities outside of the prevailing view” [16]. This economic fluidity extends to new markets with products, heretofore undreamed of, that displace entire industries.

For example, sharing of private goods has been a common feature of society but “sharing” for a price is a novel development. The firm Airbnb involves sharing an underutilized personal space with another person(s) for a fee, crossing the boundary between home and hotel. The hallmark of the network economy is the matching of underutilized resources in market A (to create the supply), with an undersupplied resource in market B (to create the demand). This is often referred to as the sharing economy because the underutilized resource is frequently a privately owned good that is “shared” with others. Another description of the network economy is the “on- demand” economy, which refers to the notion that direct links between buyer and seller create a sense of immediacy in fulfillment of wants.

These direct links result from the elimination of intermediaries, creating a new way of consuming. Connectivity has reshaped the boundaries between markets and firms. Historically, intermediaries had been indispensable for trade to be consummated between individuals due to asymmetries in information, time, and geography. Now we have a TaskRabbit economy where people who want something are instantly connected with those who sell it. Technology has enabled detailed profiles, customer, reviews and rating systems about sellers on social networking sites, which create a compact of trust, reputation, responsibility, and rights (TRR&R), between buyer and seller. Firms have granular data about consumers and can differentiate products to accommodate diverse preferences.

Without intermediaries, the entire surplus, or the gap between value and cost, can be shared by sellers and buyers, with no leakage in commissions. How this surplus is allocated depends upon the bargaining process, and a reasonable outcome to this bargaining “game” depends upon the value of outside options to both parties. What is the buyer (or seller) giving up in order to enter the proposed sharing agreement? However, this is not an entirely rational calculation - emotion plays an important role. Neuroscientists have shown that the limbic system, the part of the brain that is host to attention and memory, is also host to emotion and reasoning. Hence, sellers have to activate emotion in order to capture attention and make a deal. In his acclaimed book, Antonio Damasio elaborates upon this crucial link between reason and emotion:

... work from my laboratory has shown that emotion is integral to the processes of reasoning and decision making, for worse and for better... It certainly does not seem true that reason stands to gain from operating without the leverage of emotion. On the contrary, emotion probably assists reasoning, especially when it comes to personal and social matters. [17, pp. 41-42]

The second key driver is vast amounts of static data, commonly called big data (BD), and new ways of acquiring information. Newly created links between individuals generate additional pathways of information gathering. Every connection and transaction, whether it is social, political, or economic, generates information. New links are context dependent - common friends, common interests, and social influence. Patterns emerge from all these nodes interacting and these patterns form the basis for new, dynamic data. These patterns may never be finished, so the network economy is an evolving, complex, and dynamic system and therefore more than simply a static knowledge economy.

BD, therefore, is real-time flow data, not just the stock of past data. It is important to distinguish between raw data and clean data. Clean data is data that has been processed, sorted, analyzed, and conceptualized. It provides information and increases transparency which reduces entry barriers. Transparency forces quick responses from firms, faster innovation, and customization simply to maintain market share, thus empowering the consumer. But it also empowers firms who can tailor their product offering to individual customers with the concomitant price increase.

However, and importantly, on the policy side, the question to be addressed is that of property rights to BD. In the absence of clearly defined property rights, individuals may violate privacy laws as articulated by the 4th Amendment, an issue discussed in detail in Chap. 7. However, there are instances where private data can be valuable public property. For example, in the event of a major health epidemic, vital information about location patterns of infected individuals is more valuable to the governing authority. This data could be accessed from the personal databank of individual smartphones. In the case of city congestion and environmentally sustainable transportation, shared information about traffic patterns and commuting schedules could allow organizations to create smart transportation infrastructure. The aggregation of private information, mostly unsolicited, from participants in the network is crowd sourcing of information, which creates BD. This aggregate body of private information cultivates a diversity of potential solutions to public problems. More generally, crowd sourcing encourages dialogue, develops public understanding of social problems, and motivates action. The example of Jun, Spain in Chap. 5 illustrates this idea.

The key to access any data and avoid privacy infringement issues is to create property rights over personal data so that individuals can voluntarily share their information at the right price. Then, like all personal property or private assets, this will give individuals control over their data. Lessig suggests just such a strategy in “protecting personal data through a property right. As with copyright, a privacy property right would create strong incentives in those who want to use that property to secure the appropriate consent.... people value privacy differently” [18]. It is quite possible that a market for this data might lead to exorbitant prices. On the other hand, as is the case today, when data are public property and easily accessible, privacy concerns may lead people to hide data. Like a public park, individuals may not appreciate the full benefits of this shared resource and therefore may not support sharing data or the allocation of resources devoted to its collection. So more thought needs to be given to what the right balance is between making data private property versus public property.

The creation and proliferation of data presents opportunities in two key respects.

The first is recombinant innovation or combinatorial innovation, which involves combining disparate sets of information due to new links. Recombinant innovation is not invention, which is creating something new; it is not improvement, which involves a more efficient way of solving an old problem, much like tinkering along the margin. Innovation is a new way of solving an old problem. This builds organizational capital, which involves new ways of doing business: decision-making, hiring systems, incentive systems, and information flows. Companies “have dispensed with warehouses, trucks and full-time drivers and instead have become middlemen whose sole role is to connect customers with couriers” [19]. Note that this connectivity has eliminated one layer of intermediary along the supply chain - the transportation link. So in effect, the supply chain has shrunk.

The second is the creation of social capital, which consists of shared values and mutual trust. Social capital is created when individuals have repeated trading interactions, inducing a climate of TRR&R, and then form social links in a focal closure. Once formed, social capital generates the opportunity and incentives to create yet more links for transactional purposes (either social, economic, or political). The social ties that bind create membership closure as individuals build trading relationships based on these ties. Social capital enables cooperation in the network economy where economic tensions are resolved via negotiating differences - a point that I will return to later in discussing competition versus cooperation in Chap. 8.

Social capital is bonding capital in tightly connected networks and bridging capital in networks with low embeddedness. For example, the shadow-banking network, which is the unregulated banking network, relies on bonding capital. The network has high embeddedness, with traders having multiple neighbors in common; so mutual trust is the basis of most transactions. Social capital can also exist in networks with low embeddedness, where a strong connection or link between two individuals in two distinct components can foster a bridge, creating bridging capital. For example, in the wholesale diamond industry, social capital is the bridge connecting the wholesale diamond industry in Antwerp, Belgium and Surat, India. In both centers, workers such as diamond cutters, financiers, distributors, and salespeople have long-standing social relationships cementing bonds of trust. Packages of cut diamonds are simply handed over and paid for without inspection. The reputation of each party to this transaction carries sufficient weight so that the diamonds being traded are indisputably adhering to the specifications of the contract.

The third key driver is scarcity of a resource, attention. Monetization of various publishers’ digital presence compels them to trade eyeballs on advertising exchanges as they would stocks and bonds. The marketing industry is well aware of this feature. The product underlying real-time advertising exchanges is individual attention. When Google or Facebook places ads on their site, they have sold your attention to advertisers. Search entries on Google and data from Facebook’s News Feed, for example, are translated into targeted ads on real-time bidding exchanges.

If attention was private property, with all the concomitant property rights, then individuals could choose to sell their time but, like privately owned land, it would not be appropriated without consent, as done currently by attention-grabbing sidebars and headers on various sites.2 Encroachment of one’s attention due to unsolicited information is equivalent to a violation of property rights. To place this idea into perspective, labor became a form of private property that could be bought and sold for hourly wages only after the Enclosure Movement in the 1500s in Tudor England. Common land was enclosed and transferred to individuals as their private property. Peasants who worked on this land were now displaced and had to trade their labor in the marketplace. Land and labor were traded in a world governed by contracts rather than common custom.3

Milgrom and Roberts “interpret ‘owning an asset’ to mean having the residual rights of control - that is the right to make any decision concerning the asset’s use that is not explicitly controlled by law or assigned to another by contract” [21, p. 291]. In this view, unsolicited information packets are encroaching upon private property when they capture attention. Private data, like attention, is subject to similar territorial disputes. Sherry Turkle makes the case that the debate should be rephrased from

the language of privacy rights to the language of control over one’s own data... The companies that collect our data would have responsibilities to protect it... [But] the person who provides the data retains control of how they are used. [22, p. 328]

Note that we have two separate notions of privacy. One is ownership rights over attention so individuals have a right to not be addressed, or be left alone. Any information requires attention to be appropriately absorbed. When random bits of information seize attention, they infringe on private property. This could be considered a violation of Fourth Amendment rights to personal property - “The right of the people to be secure in their persons.. .against unreasonable seizures.” The other is ownership rights over personal data, which has nothing to do with attention.

My Take

From an individual perspective the critical issue is that of autonomy. Economic agents want to have control over the decision to share attention and data. They want to decide if and how attention and data are to be used by others. The question of privacy then becomes one of allocation of control and decision-making authority. Subjecting attention to infringement by unsolicited information is equivalent to one’s private data being compromised. Both can be thought of as invasions of privacy.

Notes

  • 1. Bill Gates has said, however, that, “the Altair 8800 is the first thing that deserves to be called a personal computer” [15]. The Altair was a machine that hobbyists and hackers, and members of the Homebrew Computer Club in Menlo Park, California, received in a box containing parts that they could solder together and use.
  • 2. Lawrence Lessig makes a more general case that “the protection of privacy would be stronger if people conceived of the right as a property right. People need to take ownership of this right and protect it, and propertizing is the traditional tool we use to identify and enable protection” [18].
  • 3. In medieval times, when each village’s economy was isolated, common field agriculture was the custom and institutions were developed such that each laborer had a reasonable land allotment in the common fields. These allotments were scattered and no individual was able to experiment with new ideas or adopt any improvement without general approval but there was also no perceptible social gap between the laborer and farmer. The lord of the manor instituted the process of enclosure, primarily as a means for dispute resolution. Thus originated the institution of private property. The early acts dated to 1773 and were more local than national. However, surrounding a piece of land with hedges and ditches produced “rural depopulation and converted the villager from a peasant with medieval status to an agricultural laborer entirely dependent on a weekly wage.” The farmers who owned the enclosed private property benefited due to the increased rents [20].

4. However, due to the 1998 Copyright Term Extension Act passed by Congress, copyrights remain in effect until seventy years after the author’s death.

Bibliography

[15] David, Paul. “The Dynamo and the Computer: An Historical Perspective on the Modern Productivity Paradox.” American Economic Review (Papers and Proceedings), 80, no. 2, pp. 355-361 (1990).

[16] Greenstein, Shane. How the Internet Became Commercial: Innovation, Privatization, and the Birth of a New Network. Princeton, NJ: Princeton University Press, 2016.

[17] Damasio, Antonio. The Feeling of What Happens: Body and Emotion in the Making of Consciousness. New York: Mariner Books, 2000.

[18] Lessig, Lawrence. “Code Version 2.0.” Accessed June 26, 2016 from http://codev2.cc/download+remix/Lessig-Codev2.pdf

[19] Miller, Claire. “Delivery Start-Ups are Back Like It’s 1999”.The New York Times, August 19, 2014.

[20] Slater, Gilbert. “The English Peasantry and the Enclosure of Common Fields.” PhD thesis, University of London. Retrieved May 26, 2016 from https://books.google.com/books?id=ACEpAAAAYAAJ&printsec=front cover&source=gbs_ge_summary_r&cad=0#v=onepage&q&f=false

[21] Milgrom, Paul, and John Roberts. Economics, Organization and Management, 291. Upper Saddle River, NJ: Prentice-Hall, 1992.

[22] Turkle, Sherry. Reclaiming Conversation: The Power of Talk in a Digital Age, 238. New York: Penguin Press, 2015.

[23] Isaacson, Walter. The Innovators: How a Group of Hackers, Geniuses and Geeks Created The Digital Revolution. New York: Simon and Schuster, 2014.

[24] Mokyr, Joel. A Culture of Growth: Origins of the Modern Economy. Princeton, NJ: Princeton University Press, 2014.

[25] Bensinger, Greg. “Amazon Hails Cab for Delivery Test.” Wall Street Journal, November 6, 2014.

[26] Varian, Hal, Joseph Farrell and Carl Shapiro. The Economics of Information Technology. Cambridge: Cambridge University Press, 2011.

 
Source
< Prev   CONTENTS   Source   Next >