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A New View of Economics

Classical economic theory is largely irrelevant to the early stages of a new information industry. Economics assumes that resources are finite and that there is enough time for markets to reach stability [2]. Three things are wrong with this picture: information is not finite, there is no single stable point--there are many, and there is little time to reach stability before there is another major change.

Standard economics applies to finite-resource markets like agriculture, mining, utilities, and bulk-goods. Such economics has little to say about information markets like communications, computers, pharmaceuticals, and bioengineering. These markets require a large initial investment for design and tooling, but enormous price reductions with increasing market growth. This growth is further compounded by positive feedback: with increasing market growth the production process gets more efficient, therefore returns increase.

And that growth increases both the number of people attracted to work on the remaining problems, and the number of people desiring the improved products. Which in turn fuels the development of better products. For example, the more people with facsimilie (fax) machines, the more people who wanted fax machines to talk to those who already had them; and the more people who had them, the more people who worked to improve them.

Finally, this exponential improvement is being applied to a group of synergistic technologies; each improvement in one technology improves other technologies in the group, which in turn help improve the original technology. For example, better computers improve communications, which improves science and engineering, which improves instruments, which improves computers.

Most U.S. firms seem to see the world in the order: shareholder, supplier, shopper, staff, society. This order reflects a world where capital is the most important thing, and it works well in a stable industrial economy. But in a rapidly changing industry, placing investors first can lead to short-sighted financial cannibalism. Instead, in a fast-changing market the priorities should be: shopper, staff, society, supplier, shareholder. The stock market debacles in October 1987, October 1989, and November 1991 show what happens when short-term gain is valued more than long-term development. Fortunately the financial markets matter less and less to the economy; capital will remain important as a risk softener, but the thing that has become more important to continuous improvement is knowledge.

Anyone in an information industry who clings to 19th century techniques is unlikely to survive long. Today, above all else, it is necessary to be able to cope with change. Achieving this will take great care since most people are afraid of computers and of change.

In light of these observations, publishers should acclimate their staff using internal training programs, salary incentives for mastering technology, and an internal electronic communications network. The biggest asset today is a computer-literate and interacting staff; such a staff is the best source of ideas on ways to navigate changes. And while other firms can quickly reverse-engineer and copy systems, technology, and products, they cannot quickly copy a well-coordinated, committed, intellectually stimulated, and productive staff. Paradoxically, because people can no longer change faster than technology a productive staff is the linchpin of success.

Equipment is now less important than almost anything else because of plummeting prices and increasing power, flexibility, robustness, and reliability. Even though the equipment will be obsolete in 3 years, spending $3,000 per employee to buy computers and an office network is money well spent. If everyone gets one and it is presented as a natural change it is likely that staff members can help each other over the initial humps--and there will be many. Once employees start using their machines for things as approachable as personal electronic mail to each other their resistance should decrease.

Publishers should also develop a subdivision of one or two technical people who gather information about and experiment with different ways of packaging and distributing electronic books. The subdivision can also function as a source of technical help for the rest of the company during the transition period, thereby partly defraying their salary cost.

next up previous contents
Next: Why It Will Work Up: Gearing Up Previous: Gearing Up
Gregory J. E. Rawlins