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Welcome to the Google Economy

by: Jeff Jarvis October 13, 2008 | about stocks: AMZN / EBAY / GM / GOOG    

Jeff Jarvis

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In the financial crash, we are seeing two forces at work: first, a corrupt system of unregulated leverage gone mad — virtual value (which is to say, bullsh*t) created in derivatives — but second, a world whose fundamental structure is changing in ways we can’t yet fully fathom.

I can’t yet get my head around the new structure; no one can. So I want your help in cataloguing differences from a high altitude (and calm heart) as we figure out not only their dangers but also their opportunities and as we try to understand the new architecture of things.

I can’t help seeing this through the lens of Google, having just finished my book, What Would Google Do? Google is built for this new order - and not necessarily by design. That’s why I try to reverse-engineer Google to figure out what makes it succeed. I used those rules to re-envision various industries and institutions. Where do we land if we use them to reinterpret the ways of our world? Here are some of the laws I intuited:

* The link changes everything. We live in a hyperconnected world. Look at the financial crisis as a metaphor for what can happen in systems of information, news, commerce, regulation, education, culture, design. It’s not that one piece of information can spread fast; it’s that information is connected to information in interdependent and complex ways impossible to unravel.

But don’t see just the danger in that; see the opportunity. If we could build this tower of bullshit in derivatives through connections, what of worth can be built? Knowledge, wisdom (about, say, medicine), new understanding of the world (through data about our behavior)? And what efficiencies can be found because we can do what we do best and link to the rest?

* Atoms are a drag. "Stuff " stinks. GM could collapse into GMDaimlerChrysler (or eventually ToyotaTata). Nobody wants to be in the business of stuff anymore: building cars, printing newspapers, selling CDs, making gas.

The digital economy, Google’s economy, is far more appealing. In a sense it, too, is derivative as it creates value on such intangibles as knowledge and behavior. Except unlike financial bets, Google’s metaknowledge creates real value. There’s the other side of the coin of the virtual value that is tearing us down now - a way to build assets quickly and without dependence on and the limitations of stuff.

The reflexive response to this collapse of finance would be to return to the real: Buy real estate. No, not anymore. Buy into manufacturing. Nope, not now. Atoms aren’t safe. Dollars aren’t safe. Now the retreat has to be to knowledge of value.

* Small is the new big. On the one hand, big has never been bigger: Wal-Mart (WMT), $100 trillion derivatives markets, Google itself. But big is, more and more, made up of networks of smalls. Countless small retailers on eBay now make up a market bigger than our largest department-store chain, Federated. The long tail of culture (and the big butt to which it is attached, as Google’s Matt Cutts calls it) adds up to huge attention. Or, as I say in a law in the book, the mass market is dead; long live the mass of niches. We know this already and have discussed it here on the blog.

The added implication of the networked, small-is-the-new-big world today is a loss of control. A single CEO and board do not manage those commerce and entertainment markets. They are open marketplaces. And though marketplaces may have bad karma right now, that’s because they were manipulated by the few. Large, flat markets that can control themselves will be safer.

In business, we still need to reach critical mass. But we won’t do that anymore by buying up companies and going into debt to do so. Not gonna happen. No, we will reach critical mass by building networks: Google AdSense, eBay (EBAY), Glam…. The key is no longer to control scarcity but to manage abundance.

* Be a platform. In an economy built on networks, you want to be a platform. Google is. It enables countless businesses to run thanks to its revenue (AdSense), its content (Google Maps), its functionality (Google Docs), its services (Google App Engine), not to mention its distribution. Amazon (AMZN) has become a platform for businesses, first stores and now anything. Add eBay, Glam, Skype, craigslist, PayPal. They’re platforms.

In the book, I make a fanciful argument that a car company - any of the once-big three - could become a platform for more car companies to build atop it - if it came out with an open-source car. If it did, its capital needs and risk and labor and benefits coasts would decline; it could grow again without going into debt to do so. I have other ideas for what a car platform is. Universities should become platforms for aggregated educations. Doctors’ offices should be platforms for health. In this new world, you don’t want to own everything - indeed, if you’re like Google, you want to own as little as possible. Instead, you want to enable everything.

* Be transparent. We got into this mess thanks to opaqueness. At every stop along the financial trail, somebody was hiding something: homeowners their bad histories, loan sellers their bad loans, financial instruments their toxins, financial institutions their stockpiles of poison. The solution we hear more often than any other is transparency. If only we’d had - or rather required - disclosures, so much of this wouldn’t and couldn’t have happened. The tower of bullsh*t that is collapsing around us now was built on willful, wishful obfuscation and ignorance. Ignorance is both their indictment and their alibi.

Transparency will come through regulation: decrees that require financial institutions to reveal their holdings. But it will also come through the transactions themselves. That is what appeals to me about Prosper: I know who I’m lending to and for what. Prosper’s not going to replace Citibank (well, I didn’t think it could…). But Citibank (C) has much to learn from Prosper.

I often say that transparency is a key ethic I learned online in blogs. This is just my symbol of it. Transparency is a system of trust and what we lack right now is trust. Transparency is the solution.

The ethic and attitude of transparency reaches into society and our lives. I say in the book that life is public now and so is business. Value is built now on being found - everybody needs a little Googlejuice - and on listening to the data our constituents create by their actions. Friendships will be maintained and built differently because of our new publicness.

* Give the people control and we will use it; don’t and you will lose us. I call this Jarvis’ First Law. It will become the law of the lands as we no longer have cause to trust our leaders in finance and business or government. We will not just demand control; the internet gives us the means to exercise it. Trust will not be restored from the top but from the bottom.

David Weinberger saw that when he decreed his own law:

* ‘There is an inverse relationship between control and trust.’ I come out of that saying that before the people can learn to trust the powerful, the powerful must learn to trust the people. They won’t get away with treating us like idiots who just wouldn’t understand derivatives and credit default swaps.

Return to my list of successful enterprises and you’ll see that many of them build platforms for trust: Google knows which sites we trust with our links and clicks and which are trying to spam it; eBay sets up the means for customers to anoint merchants with trust; Amazon learned that we will trust the opinions of fellow readers over reviewers; PayPal and Prosper help us to make trusted transactions. We don’t trust banks anymore; hell, they don’t trust each other.

* Don’t be evil. Why should it be surprising and rare - even amusing - that a company would make that vow as Google has? Shouldn’t it be assumed? No, it isn’t. And that’s a key to the mess we’re in: the bullshit was always someone else’s responsibility and that responsibility could always be passed on to the next and bigger fool.

Google executives say that they use their vow just to enable the question to be raised in discussions. Wouldn’t it have been wonderful if somewhere, anywhere, just one loan buyer or seller or financial institution had just asked whether knowingly buying and selling assets they now so freely describe as toxic would be evil?

There are more lessons from Google and its age that I explore in the book, such as our new speed. Life is live and mobs and problems can form in a flash. Middlemen are doomed by the direct connections the internet and Google make possible. Simplicity is an ethic; complexity is what masked our problems from us. To innovate and grow, though, we still need to make mistakes well. It would be a mistake to clamp down and outlaw every risk. It’s not the mistakes that matter so much as what you do about them. Life is a beta.

It’s dangerously short-sighted, I think, to focus on home mortgages and bank stocks to explain and solve this crisis and rebuild. I fear that we are seeing the implosion not of a bubble but of a void that is the fake value built into a $100 trillion market in derivatives that are nothing but gambles on margin. It’s a fiction and I don’t know how we find reality, how we erase perceived - only perceived - value that is far greater than every stock market in the world. But that’s the crisis. I don’t know how we will come out the other end.

I do know that when we come out the other end, we will see - or finally recognize - a different world. We have to see differently. When we do, we can build new value on platforms of openness, transparency, collaboration, networks, connections, knowledge, niches, abundance, trust, speed, and innovation. Success tomorrow will not be defined by controlling us - whether you are a bank or a cable company or an entertainment conglomerate or a politician - but by enabling us.

Our myth was that credit did all that, enabling innovation and growth. It didn’t. Credit was merely a tool.

The good news is that in web 2.0 - where you can build a useful application, product, and company on Google or Amazon or eBay or Etsy or open-source tools as platforms - you won’t need money and so won’t need credit and so you’ll keep control. You only need what you’ve always needed to succeed in a rational world: intelligence, insight, innovation, courage. That much won’t change.

Welcome to the Google economy.

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This article has 11 comments:

  •  
    Oct 13 02:50 PM
    Good analysis, but not entirely correct with regard to "stuff" being bad. The problem with manufacturing, real estate, etc. is the paradigm for viewing what is being sold. Manufacturers should shift into a view of selling the utility of the stuff rather than the stuff itself. Large networks are in a better position to extract residual value from an asset (car, computer, etc.) than individuals. Not to mention, owning stuff doesn't always guarantee you the utility that you need. A car, for example, is generally useful, but many individuals have periodic need of an SUV, truck, van, or some other vehicle that they probably decided to forgo buying when they bought a car. The car retailer that solves this problem by leasing an electric car that comes with the periodic use of an SUV, van, truck, etc. shared among a large network, will boost their sales numbers and be in a position to extract residual value from the car after the lease is up.

    Networks of pure information have the bonus of being exceptionally flexible, but there is still a hardware infrastructure underlying every scrap of code in the world. "Stuff" isn't bad, but the centralized, unwieldy networks that disseminate its true value (utility) are inefficient monsters. Franchising everything, possibly even down to manufacturing, (like the note on "linking" above) is the way to go.

    Making networks that are able to shed parts and extract residual value after the consumer gets his maximum utility from a product, that's the future of "stuff."
    Reply
  •  
    Oct 13 05:19 PM
    Nice article. But may be it is more better if we say as 'Internet Economy" instead of google economy.

    Definitely web 2.0 has made significant impact to form platforms you have listed. If one thinks carefully, the DOT COM burst we had in 2000 to 2003, the over hype of internet technology, actually has become a reality in last 2 years!!

    Reply
  •  
    Oct 13 06:01 PM
    Good post, full of suggestions, but very dangerous idea. If America Googles-up, as suggested it should, things will deteriorate sharply. "Atoms are a drag" "Stuff stinks" and things like that are old currency in current strategic thinking in America. Faced to increased competition in world markets, the only plausible strategy that American business strategists have developed -and that nobody contradicts- is to follow the "mental", "intellectual property" road. We do the "thinking", sell the thinking, and with that we buy the "stuff" the not so clever people in the rest of the world needs to supply. That´s the general idea. Now, improving on that, the "networks" will also do the "thinking".

    To sell profitably intellectual property not attached to specific goods is not a very good business proposition. You do not get much money out of it, perhaps in a few of the successful projects, but taking the losses in the unsuccessful ones. Biotechnological companies that do not develop final products are discovering that.

    At the national level is, obviously, worse. You cannot survive selling 20 billions of car "technology" and importing 200 billions of cars. And nobody pays for Google (final consumption); as at now the income of Google in intermediate consumption (companies’ money). This difference is vital, but nobody see it.

    We have to network, invest in "technology" and make good use of it, which means creating something that (mainly) final consumers will really pay, which means they really value. And to keep the value added in America.

    Reply
  •  
    Oct 13 06:50 PM
    why cant people see that goog is still the best co. of its kind. I think it is about to reach new highs any day now. Do not be suprised to see it go up 50 points in the next session.jerry w.
    Reply
  •  
    Oct 13 10:34 PM
    While reading your comments on the credit mess I was reminded of my own decision to sell my stocks and remain in cash. I did it about a year ago.

    I started receiving spam mails inviting me to be a signer upper for loans. Everybody and his brother was handing out money over the Internet and getting folks like me to get the papers signed for a fee.

    That reminded me of an old saw about a business man who sold all his stock on the eve of the great crash of '29 because his boot black touted stocks to him while polishing his shoes.

    The correlation was all too scary. Like all those folks who bought stocks in the twenties, rocketing their prices to extreme multiples, there were just too many people handing out credit and things were gettng crazy. Taking into account that credit and interest rates rule the market, my stomach knotted up and I bailed out.

    For all the complexity of the credit problem, the decision to sell stocks was based upon really simple reasoning. In the market, finance rules and finance was heading for trouble.

    Reply
  •  
    Oct 14 06:31 AM
    Bruce Timmons,
    I like how you said that: "Manufacturers should shift into a view of selling the utility of the stuff rather than the stuff itself."
    When I interviewed VC Fred Wilson for the book and asked him about a Googley car company, he thought for a second and said it was Zipcar. Right: utility over stuff itself.
    I then riffed on that with a new vision for a car company as a getting-you-places company.
    That, indeed, is a network as you describe it.

    Reply
  •  
    Oct 14 09:22 AM
    For a Googy car company based on utility, try Philly CarShare. Parking lots all over the city and suburbs, with various sorts of cars for members to rent by the hour; no need to own or store your own car, and a nice well-maintained car always available nearby for grocery shopping or a trip to Grandmas.

    And then there's the whole category of social/professional networking. I like LinkedIn, but there are many, depending on what you're looking for.
    Reply
  •  
    Oct 14 09:25 AM
    jonbob, I got a mortgage earlier this year, and 3 months later, the same bank solicited me for a HELOC! There's been way too much credit floating around.
    Reply
  •  
    Oct 14 01:12 PM
    Well, this is good research to support the theory of the changing landscape. I said it before and I'll say it again, the internet will change the world the way Johanus Guttenberg's movable type changed Europe.

    We are going through a money reformation. Wow imagine that bring ethics to the business world.

    I'm still doing well because I've always practiced the Golden Rule. Treat others the way you want to be treated.
    Reply
  •  
    Oct 14 03:06 PM
    hery
    Reply
  •  
    Oct 14 03:15 PM
    Well two things. One is that human nature doesn't change so neither does fear or greed. And two, I have tried to get google to mow my yard but it just doesn't happen. All this virtual crap is just that; crap. Google is built almost like a ponzi scheme of links and advertising and while it is quiet amazing, it is still just a tool. Myspace and Youtube are amazing also but really they are just enterntainment and a huge waste of time and productivity unless your actually watching training videos.

    The last 6yrs was about the illusion of wealth through debt and asset appreciation. We inflated housing to the moon, inflation soared but the government did nothing but keep rates low. People felt rich as their jobs went to China and as more jobs were created to build up China. Of course China bought our debt and funded our fantasy. Now the gig is up and the bill has arrived in the mail.
    Reply
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