June 1996

Root Page of Article: The Three Laws of the Cyber-Economy, by Michel Bauwens

Law 1: The Price of Information Will Tend Towards Zero

The Internet creates a paradox. As it finally ushers in the heydays of the much-touted information economy, it destroys the very economics of selling information. Why? You can only sell well what is scarce, but because of the Internet, information is profuse. In less than a decade, estimates are that 90% of the world's digitally-produced information will have migrated to the Net.

Why is there so much information on the Internet? Besides the argued academic tradition that birthed the Internet and the still prevailing consumer-to-consumer (or rather citizen-to-citizen) exchange and self-help ethos, there are compelling reasons that force corporations and organizations to give away information. The Web is an invitational medium where the scarce attention and limited time-bandwidth of the user has to be earned by compelling useful content or services. Without a distinctive practice of what could be called the Principle of Intellectual Philanthropy, there can be no successful marketing. Hence companies are forced to use information as teasers. Also, in order to compete, companies are forced to enrich their products with networked-based features, usually information-rich features which enhance to value of the products they are selling.

Overall, because of the Internet and the Web, it becomes a magnitude cheaper to produce and distribute information. The Net combines the force of

  1. the need to give away content in order to attract attention in the first place; and

  2. the fact that it has become relatively cheap to produce information.
This means that it will from now on be extremely difficult to charge for basic information. For every company trying to sell information, there will be a competitor giving it away for free!

There are solutions for the information industry, based on advertising-based revenue strategies, based on moving up to information food chain (from databases to decision-bases), based on phased approaches combining free access with for-pay value-added services, that we will discuss in later installments.

[] Andreesen takes the view that economies of scale in the content business are hard to gain because of the flood of content.

Essentially, the first law of cyberspace will become entrenched: on the Internet the price of information will tend towards zero. Concrete examples are the strategies of Netscape (giving client software away but charging for server software), Sun Microsystems (giving Java for free to programmer's but charging licenses to companies), and Adobe (giving Acrobat away for free).

There is also a more profound reason for this first law which has to do with the basic logic of an information economy. As explained by Shumpei Kumon of the Japan-based Global Communication Institute, each civilizational phase had a particular way of distributing social power: military might was basic for the agrarian age, while money power was essential for the industrial age.

How do you get influence in the informational economy? Essentially through influence. And how do you get such influence: essentially by giving information away. This is termed the Wisdom Game by Shumpei Kumon, and its result, the company strategies just described above, was coined the "Internet Play" by Scott McNealy CEO of Sun Microsystems. The same principles also apply within organizations: one the keys to competition is the speed of innovation, which depends on successful knowledge transfer practices within companies. In a networked (groupware-enabled) structure, such transfer is totally dependent on the willingness of employees to share their expertise with the whole corporation through the company's cyberspace-based forum structure. Hence the cyberocratic logic is totally dependent on information-sharing practices, while the old bureaucratic logic was based on the control of scarce information. This is why visionary companies like Memphis-based Buckman Laboratories are no longer giving promotions to managers who don't participate in the online forums, while they are at the same time promoting the top one hundred network users in a yearly festival. These cyberocrats, who freely share their expertise are the new heroes of the corporation. --The second law of cyberonomics is equally powerful.

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