Dion Moult Seriously who ever reads this description.

The economics of technology

The long-term success of a company is caused by its people. The long-term success of a product is caused by the producers. Consumers are not the cause of success, they are a symptom of success.

That was the ideaology I got into a debate with my friend the other day. I was pro and he was con – mainly citing how the age-old laws of economics don’t simply break down in an industry and should be the be-all and end-all. I still disagree and have always believed there was something very fundamentally wrong with the whole science of economics. Before I continue I will have to admit that I’m not a fan of economics – you cannot put people on a graph. Even if you were dealing with statistically large enough numbers of people to create an average behavior we must still look to the very core of our behavior – why we do what we do.

A while back I told people why you do what you do – in a nutshell, every action you take is the action that you believe will cause yourself the most happiness, given the conscious or subconscious knowledge you have at the time. If being sad will make you happy – be sad! If you purposely choose to hurt yourself to prove me wrong, it is the satisfaction you gain from proving me wrong that gives you that happiness. If you sacrifice yourself for the benefit of others, it is because you prioritise the happiness of others, and following your belief will make you happy. If you choose to stab yourself, it’s because you believe stabbing yourself is the best thing you could possibly do (otherwise you would’ve have done it). This creates the question on whether or not “which” happiness is the best, but that’s a highly subjective question and thus we must leave delusion to a topic of its own. For this reason instead of referring to it as happiness I would refer to it as the “best”, to remove confusion as to the actual definition of happiness.

When applying this mentality to a society, it still doesn’t change one bit – and will never change no matter how large the sample. When looking at this from an economic perspective, for example in the labour market, we understand that people choose jobs because of this very same trait – and will not leave the job until the benefits of leaving are greater than the benefits of staying. For the factor of production enterprise, we understand that they take the risks and shape the market from what they believe is best. Capital and land are simply instruments of the former two and are therefore only tools that will accelerate the choices of the former two. When looking from the demand-side of things, we see that consumers purchase what they believe is the best to purchase – and it is empirically evident that their purchases will affect the choices of labour and enterprise.

However what I propose is that this influence is very much a short-term effect. If somebody invents a product, that product will exist as long as there is developer interest in the product. The greater the developer interest, the higher potential success of the product. In the long-term, seeing as all factors of production are variable we see that there will always be developer interest in the product as long as one person believes it is the best thing to do at some point to develop the product.

Developer interest is what causes the product to evolve. The product can evolve in either a market-orientated view or a product-orientated view. The market-orientated view is when the actions of labour and enterprise are being influenced by consumers, whereas the product-orientated view is based solely on the producer’s own beliefs. For a product to be successful in the long-term it has to undergo innovation – without this it will be pushed out through the process of creative destruction. Innovation by definition, no matter what its orientation must be producer-originated – and fundamentally the producer will produce what they believe is best. If other developers believe in the same, they will contribute and offer support, causing the product to grow, continue to innovate, and ultimately succeed in the long-run. Why? Because the very reason consumers will buy the good or service is due to this growth and innovation.

The conventional view is that this is a circular process – that consumers influence developer interest and developer interest influence consumers. However I believe otherwise – that producers have the final say in the long-run, but more importantly, in the very-very short-run. The reason is that there two root causes of what might seem to be a circular process, society and money.

From this we see that the circle is merely a single line of processes. What consumers buy depends on what producers make. How much a consumer will buy in the short run depends on the magnitude of developer interest. In the medium-term consumers will determine what happens to the product but the product will only survive in the long-run if developer interest is maintained.

A quick look at today’s market shows that this “long-run” period is indeed extremely long – almost synonymous with the business cycle. This inability to survive in the long-run is understood, yet disregarded as it is too far into the future to infer any meaningful derivations. This is very true – for most industries. However for the technology industry simply because it is at the forefront of progress this business cycle has been shrinking at an alarming pace, meaning that understanding how ultimately goods and services are producer-determined becomes very important. The implication is that trying to influence consumer-related symptoms, such as advertising, prices, quantitative or qualitative restrictions should be given second priority to trying to influence the mindset of producers.

To illustrate how this mindset is currently not understood I will ask a simple question. You work for a company. Let’s say your manager comes up to you and tells you to create a computer program of your liking. You scratch your own itch, so to say, and develop a product. A few weeks later your manager comes back with the production department manager and takes a look at your product. Both of the managers say “I really like that! I think it’s going to be a huge success!”. Now is the manager a producer or a consumer? If you said producer, you are wrong – they are both consumers. They have the ability to consume the good, but not to develop the good. It is important not to confuse the accelerating properties of capital and land with the developing properties of labour and enterprise. For this reason the success is not likely until other potential developers recognise merit in your work.

Some examples of how success has been producer-originated is in the iPhone, where the main reason consumers buy it is due to the amount of applications available on it. The Windows Mobile phones, due to the large number of applications on it, but failing because there is a lack in core developer interest (the OS has not been updated in ages). Android by Google, whose producer-embracing philosophy of so-called open-source has spun up almost 20,000 applications since its launch and is currently seeing a huge acceleration in market share. Linux – whose stubborn developers continue to progress despite the desktop market saying the complete opposite is now appearing like hot cakes in the market. Firefox and their thousands of add-ons – and its current battle with Chrome, which has exhibited innovation in browsers (and will be pushed out of the market if developer interest is lost or transferred to Chrome). Internet Explorer 6, where developer interest is finally moving away because they finally realise they don’t care about the customers when making websites that much (thank goodness). You think you use Windows because it’s good? No – it’s because it became a standard (even though back then Apple’s OS was miles ahead), which is what attracted developer interest. The list goes on.

This trend is most easily recognised in the technology industry (software, specifically) but is starting to be seen elsewhere, especially in other creative industries. A simple measure to determine the extent to which this trend has progressed in an industry is to ask an employee “why did you choose the job in the first place?” In the future this trend will start to bleed into other industries due to the increasing mobility of factors of production, increasing integration of markets into a worldwide affair, and of course the results of mass-amateurisation.

Finally as a closing note I’d like to throw in the topic of dogfooding – when producers use their own products, thus duplicating the roles of consumers as well as producers (hint: used really extensively in Google for a long time). This is a recipe for a self realising upward spiral of developer interest and consumer interest – finally creating the conventional circular process we think will always exist otherwise.


8 Comments

hari says: (17 January 2010)

I think the “science” of economics is faulty as well. You cannot break down human behaviour (even collectively) into numbers and use that to predict future behaviour.

Because our basis of action is not numbers or even money. Often human behaviour is driven by so-called irrational emotion and that cannot be quantified. In fact, the effect of emotion becomes magnified and not neutralized the larger your sample is.

Economics is flawed. Economics tried to fit facts into their theories and not the other way round.

Dion Moult says: (17 January 2010)

The reason economics is as it is (in my opinion) is simply because we’ve already created a system that works through money and other intrinsic theories. Once this system breaks down none of the rules apply any more.

> Economics is flawed. Economics tried to fit facts into their theories and not the other way round.

I can’t agree more.

hari says: (17 January 2010)

Sorry, when I said “Economics” I meant “Economists” in the previous post.

Dion Moult says: (17 January 2010)

I think you also meant to say “try” instead of “tried” – unless I’m missing a paradigm here.

hari says: (22 January 2010)

By the way, have you read this essay of mine about open source?

I think I’ve said much the same as what you say in a different perspective.
http://harishankar.org/blog/entry.php/the-open-source-paradox-is-it-a-closed-loop

Dion Moult says: (23 January 2010)

Just read- thanks for the link.

I think delving too much into details of exactly how developer interest influences the project makes the whole theory of developer interest much too specific to be useful to other industries. It’s particularly easy to sample and analyse when looking at your regular open-source project – but what I’m trying to throw into here is that it’s not just the open-source software that is affected by this.

hari says: (24 January 2010)

Yes, my article was much more focussed, and to be honest, I didn’t think of economics or general business activity when I wrote it.

But your views seemed to fit well into what I had written earlier.

thinkMoult - iPad, what about you? « says: (28 January 2010)

[…] preach the economics of technology. Simply put I am mostly ridiculed for that theory by anybody who’s glimpsed at economics and […]

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