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Tag: industry

Game Over

The first law of Gaming: If you can’t win a game playing by the rules, stop playing the game, or change the rules. It would seem that Egyptians would add a corollary “Change the Rulers”.

This is not trivial.

Billions of people are walking the planet Earth with the nagging feeling that they cannot win their game playing by the rules they are given.  If America was once the shining beacon of opportunity where hard work and perseverance were the main ingredients of success, and Americans are feeling that they can’t win playing by the rules, then you can expect two things to happen:  People will stop playing the game, AND the rules will change.

Interactive Entertainment

Looking on the sunny side, we see Gaming companies achieving astonishing valuations in Silicon Valley.  What is even more remarkable is that a similar thing is happening concurrently with Travel, Coupons, and Alternate Currencies.  Many people stand back aghast at the sheer size of some of these bets; $120M for Tripit, $5B worth Zynga, $6B for Groupon, $50B for Facebook.  The Market capitalization of Apple ($320B) is almost 2 times greater GDP of Egypt ($188B).

It would be foolish to underestimate the value the gaming component – now called “Interactive Entertainment” – as enabled by the Internet.  Gaming is an extremely mathematical science where designers predict the probabilities that a player will favor one strategy over another.  The better these prediction become, the more interactive and, ostensibly, the more entertaining a game becomes – at least to some people.

The Calculus of Gaming

It is no coincidence that the calculus of gaming and the knowledge assets deployed to the gaming industry are functionally identical to financial and marketing industries such as banking, insurance and demography.  Banks set the price of money based on the probability that you can pay it back (credit scores).  Insurance companies set the price on premiums based on the probability that you will experience a loss (actuarial data).  And Demographers predict what you will buy and who you will vote for. After all, a Bank is really just a game that bets that you will win and an insurance company bets that you will lose, and demographics keeps the game, well, unfair.  But together, they all hedge each other’s risk, not yours.

Watch The Integration, closely

From prior articles; The Travel industry is a proxy for how and where ideas are spread.  The Coupon Industry influences human behavior to accelerate the disruptive innovation and to create new value simultaneously. The Gaming Industry will define the rules by which the new game will be played and provide the ability to predict when, where, and how to value social capital. When the integrated is complete, the ability to capitalize and securitize a new social currency (next article) will emerge to hedge, and then replace, the dollar.

Game over.

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(Editor’s note: The above post is #4 in a series [1][2][3][4][5] introducing The Value Game to a new class of business methods.  The first real world application is Social Flights; a collaborative production / consumption game being deployed to the market.  If this works, the new business method class will be generalized throughout the economy to catalyze the convertibility of social currency.  Please join us at The Future of Money and Technology Summit in San Francisco on february 28th 2011 where we will unveil the work to the technology community)

Cluster Funk

I recently attended another one of those economic development summits where a bunch of people with long titles gets a chance to speak on a panel touting the mysterious benefits of a mysterious innovation clusters that create mysterious wealth that can only be realized if their mysterious department is funded.

Nearly every speaker concluded with the following paraphrase: “if only government would fund this or that, everything will be fine”, or, “if only corporations would fund this or that, then we’ll all be better off”

Uhmmm…sorry to break the news, it ain’t gunna happen.

Innovation clusters are all the rage in regional economic development circles. Actually, they are “industrial clusters” because several companies in similar industries collocate in the same geographical area. The industrial cluster then attracts supporting industry and often causes the migration of educated and motivated people to the prospect of jobs. I suspect the ‘innovation’ moniker comes from the notion that new ideas will somehow result from similarity of ideals and purpose.

Group Think Tanks

There are, however, a few drawbacks to industry clusters; they are vulnerable to stagnation, silos, and external shocks. As companies become organized and technologies mature, patents and trade secrets take hold. As they ‘go public’, SEC regulation effectively places a gag order on everyone and sharing slows while stagnation sets in.

Soon after, dozens of nimble companies consolidate into a single giant to achieve economies of scale. Finally, silos form under the weight of multiple layers of management while jobs are mechanized or outsourced.

Then, something somewhere happens to shock the cluster; the end of the cold war leveled the So Cal aerospace cluster. 9/11 busted the Seattle Aerospace cluster. The dot.com bomb stunted Seattle, Silicon Valley, and Route 128. Hurricanes and environmental disasters hit the petroleum cluster, stem cell and genetic engineering legislation stalled biotechnology, and corruption continues to shock financial institutions. At the end of the cycle, companies divest, people defect and a new planet starts to form someplace else.

Remember “scrubbing bubbles”?

While occasional cleansing, in a Schumpeterian sense, is good for industries, the extreme volatility takes a horrendous toll on that invisible turbine of the economic engine – social fabric. Families, friendships, professional networks are strained or collapse and those who dedicate their life to a career path – the pure innovator themselves – can be left marginalized by obsolescence.

The term “Innovation Clusters” makes for a good soundbite for politicians because it fits on the “Jobs R Us” banner they can stand in front of (thumbs up) for the next election cycle.   The term keeps funds flowing to organizations to publish studies that conclude that more studies are needed. Maybe these summits ought to be renamed to Cluster Funks because that is largely what they actually promote.

Future of Money and Technology Summit

I was invited to present at the Future of Money and Technology Summit in San Francisco on Monday April 26. Representing The Ingenesist Project, I’ll be seated on a panel with two very important futurists; Chris Heuer and Micki Krimmel discussing non-quantifiable exchanges. The ever esteemed and respectable Ms. Tara Hunt will be moderating the session.

From the FMTS website:

The Future of Money & Technology Summit will bring together the best and brightest thinkers around money, including visionaries, entrepreneurial business people, developers, press, investors, authors, solution providers, service providers, and organizations who work with them at the convergence of cash and commerce. We meet to discuss the evolving money ecosystem in a proactive, conducive to dealmaking environment.

What I find especially interesting is the incredible collection of technologies for the storage of value and the amazing group of entrepreneurs corresponding to the exchange of value in future markets. The definition of currency is something that is used as a medium for the storage and exchange of valuable. As such, it would be quite the understatement that the FMTS will be a valuable experience.

A great deal of thought, planning, and money has gone into these ventures and now they are together in one room. This can only be attributed to the increasing inability of the current financial system to function as an equitable means to store and exchange value that drives entrepreneurs to new conclusions.

When I witnessed the Mexican Devaluation, the social reaction was to empty out the local WalMart. Those “goods” such as clothing, appliances, and furnishings became an intermediate currency that stored the prior day’s peso value for exchange with tomorrow’s market. The same is true for most financial crises with significant devaluation events in recent history.

The clear and present difference is Social Media.

We now see people busy at work to replace the old currency with improved systems and tools for the storage and exchange of value before the actual calamity arrives. In effect, the new systems are hedging the old one.

It will take many years for the implications and importance of events such as the Future of Money and Technology Summit to make it into the case studies of the major B-school curricula. Ironically, that does not mean that real history is not being made – or shall I say, old history is not being re-made.

So please consider joining us at the conference (details). If you are attending, please, please, please, find me and let’s talk about everything. As always, thank you dear reader because ultimately you are the only reason that people want to talk to me 🙂

Seeding the Clouds of Social Media

cloud seedingOK, so what part of: Governments and industries have no intention of fixing things that they broke are we still having trouble with? The climate change summit ended in a draw after Kyoto ended in party pooper. You can count the financial crisis, endless warfare, world hunger, slave labor, forest-to-dump consumerism among the same pile of sun dried bullshit. Does anyone still trust the “leaders”?

There is a way out. People need to organize themselves around their a social media financial system. This is actually a relatively easy thing to do. Social media is like a big cloud – a big gray mass with no beginning, end, center or physical boundaries. The only way to engage the cloud is to talk to it. If you talk to it the right way, it delivers rain. If not, the well stays dry.

Now here is the trick. As social media applications continue to integrate, a correlation between conversation and rain becomes “diversified”, the randomness begins to disappear. Steady, consistent, and sustainable conversations across a wide array of social action will delivers steady, consistent, and sustainable rainfall across a wide area of social landscape.

At some point, someone will notice the similarity between the social media rainfall and the behavior of large diversified cash flows. They will develop a financial instrument to “capitalize” this value because it has become predictable. Predictable value flows can then be “securitized”. Unfortunately, the dollar is a debt backed currency and a productivity backed currency will need to arise in its place.

China accuses the weakness of the US dollar for driving speculation bubbles in anything and everything of “value” that is not a dollar. The problem is that the dollar is the only game in town. If there were an alternate currency with superior representation of human productivity, all dollar denominated assets will be converted to the new currency. The entire 50 Trillion dollar debt pressure on the US dollar will convert to a productivity backed currency forced to drive innovation at a comparatively astonishing magnitude – almost on the scale of the problems that face humanity.

A productivity backed currency means that those who are most productive earn the most money. Think about that for a minute, then go read The Next Economic Paradigm.

Building a Better Entrepreneur; Google 10^100

Google 10^100 award voting is Launched.  There are two sectors that we believe would have the greatest impact on the greatest amount of people; building a better banking system and funding social entrepreneurs.  You can’t have one without the other – if Google funds these two sectors in concert, the outcome would be incredible.

Build A Better Bank

In the old banking system we assume that we have the knowledge to execute a business plan and we go to the bank to borrow the money.  In the new banking system, we will assume we have the money and we go off in search of the knowledge.  Social Media is an excellent “public accounting system” for knowledge assets.

Our current banking system has gotten it backwards.

Technological change must always precede economic growth. The supranational currency may be backed by productivity and not debt.  Social media provides an excellent platform upon which to design such a banking system. People trade “social currency” at a tremendous rate.  This is evidenced by the amount of destructive innovation is occurring in many legacy sectors due to social media.

Better Banking Tools for everyone

“Partner with banks and technology companies to increase the reach of financial services across the world. Users submitted numerous ideas that seek to improve the quality of people’s lives by offering new, more convenient and more sophisticated banking services. Specific suggestions include inexpensive village-based banking kiosks for developing countries; an SMS solution geared toward mobile networks; and ideas for implementing banking services into school curriculums”.

Suggestions that inspired this idea

1.    Enable prepaid cell phone bank accounts for millions of people working in the informal economy
2.    Create a community-level electronic banking system for rural areas
3.    Build IT-enabled kiosks which provide access to financial services
4.    Create a single world bank or supra-national currency, uniform rules and transparent public accounting

Fund Social Entrepreneurs

Venture Capital is ridiculously expensive. Corporate innovation serves shareholders value over social priorities.  Some say that the financial risk of funding innovation is too high. The top ten reasons why start-ups fail are due to knowledge deficits, not money deficits.  A new banking system that trades knowledge as currency would solve this problem.

The key is to match most worthy knowledge surplus to most worthy knowledge deficit.  Google is perfectly able to build a search app for knowledge assets if there were an inventory of knowledge assets.  With the most worthy match, Risk can be reduced and new financial instruments can be developed such as the innovation bond, innovation insurance, tangential innovation markets, and destructive innovation transition contingency options, etc.

Help social entrepreneurs drive change

Create a fund to support social entrepreneurship. This idea was inspired by a number of user proposals focused on “social entrepreneurs” — individuals and organizations who use entrepreneurial techniques to build ventures focused on attacking social problems and fomenting change. Specific relevant ideas include establishing schools that teach entrepreneurial skills in rural areas; supporting entrepreneurs in underdeveloped communities; and creating an entity to provide capital and training to help entrepreneurs build viable businesses and catalyze sustained community change.

Suggestions that inspired this idea

1.    Provide targeted capital and business training to help young entrepreneurs build viable businesses and catalyze sustained community change
2.    Create a non-profit, venture capital-like revolving fund to invest in high-impact local entrepreneurs
3.    Send young American entrepreneurs to underdeveloped communities to help create small businesses that would economically benefit those communities
4.    Create schools in rural areas to teach local people how to become entrepreneurs
5.    Create a private equity fund to help immigrants in developed countries finance business development in their countries of origin

The New Reverse World Order

Bank-of-Wal-Mart-Note--40279The New Reverse Order

If someone can track your spending, they can predict your behavior.  It is also true that if someone can track your behavior, they predict your spending.   The next economic paradigm is simply a higher order of the same.

On the next higher order, if someone knows your “Knowledge Inventory” they can predict how you will manage changing conditions – that is, how you will innovate.  Likewise, tracking how people innovate exposes the development of new knowledge assets (the ‘gold-standard’ of conversational currency).

Everyday some new headline shows that we are getting closer and closer to that point – for better or worse – where humanity learns to manage an innovation economy.

Profound Issues Arise.

The following article about Wal-Mart adopting the debit card (Wal-Mart to Staff: Bye-Bye Paycheck, Hello Debit Card) as a means of issuing paychecks represents a quantum leap in the monetization of knowledge assets.  We expect many more will closely follow in one of the most important financial developments in financial history – virtual currency.  If food stamps can be delivered on a debit card, why not frequent flier miles, Disney Dollars, coupons, rebates, tulip bulbs, beanie babies, or a new global currency such as the Rallod?

A Vetting Zoo

The only questions that remain are related to Vetting.  By all accounts Social Media is developing into the mother of all vetting mechanisms.  Who controls the card? What system is it replacing? Who can pull money off?  Who charges fees to whom and why? Who gets the business intelligence?  What is the PR spin?  Can advertisers interact with the card to apply discounts and rewards?  What types incentives motivate what types of people and can it go on a debit card?

A Steep Departure

Each of these questions, and the companies they spawn, will live or die by Tweet and Blog – this is a steep departure from the past.  For example; 30 years ago, if every American were told that their social security number would be tied to a credits score that is tied to their driving record, employability, insurance premium, health care, mortgage rate, and, yup, their debit card – the cities would have burned in protest.

Nobody could have seen this future except those who designed it.  Today, the designers are you and I – see the future now, see the future here at Conversational Currency.

Trust as a Social Currency

The idea of trust as social currency is appearing in more articles, conferences, and books.  This is all highly consistent with the TIP thesis on Innovation Economics which describes the necessity of a vetting mechanism among the knowledge inventory as a means for the emergence of a currency in a market – that is, a conversational currency.  People need to trust the currency if they are to trade the currency.

Shefaly Yogendra provides some excellent insights below.  Keep in mind that American Culture does not have a monopoly on the definition of trust.  It should not be an American expectation to define the conversational currency in our own image.  Indeed, convertability of such currency will be, and must be, global.

I kept the analysis sparse on this article because it is a valuable exercise to form one’s own perspective on trust prior to diving into someone Else’s opinion.  After all, it’s your currency – you own it.  Good luck.

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by Shefaly (please see her Bio here)

Trust is a non-negotiable essential in business. The post linked here refers to web-based business-to-consumer interactions. But as social currency, Trust is the most significant in interactions amongst organisations, customers, employees and regulatory bodies.

Definitions

Wikipedia defines social currency as “information shared which encourages further social encounters“. Social currency is different from social capital which refers to “connections within and between social networks and individuals“.

Social currency – some characteristics

a) No distinction between ‘physical’ and ‘virtual’ worlds

b) No distinction between ‘individuals’ and ‘corporate entities’

c) No distinction between validity of negative or positive normative labels

Determining the value of Trust as social currency

a) Verifiable Identity and antecedents

b) Consistency

c) Reliability

d) Peer recognition

e) Value of the network

f) Individuality and collaborative consciousness

The original article can be found here and it elaborates on each of the points above.

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Does Social Relevancy Matter?

The Ingenesist Project Community concerns itself with the value of social reach since this will most certainly impact he relevance of  those conversing as well as the relevance of the conversation to some business activity.  Obviously, innovation is about having the right team in the right place at the right time.

Furthermore, business activities such as marketing and advertising need to make their communications more relevant and less wasteful of their audience’s limited bandwidth – lest they risk being perceived as “anti-social”.

Stated somewhat more clinically; the most worthy knowledge surplus must be matched with the most worthy knowledge deficit in order to produce the most valuable outcome.

Brynn Evans offers the following observation:

The future of search  involves social networks, social graphs, or social filtering in some capacity.  Companies will live or die by whether they get the “social” part right: creating the right level of intimacy, trust, reliability, social connectedness, and accuracy in their results listings. Of course, this specifically means that their user experience must at least meet or, preferably, exceed that of Google’s.

To achieve this, we must first stop arguing over the different flavors of search.

Real-time search. Social search. Semantic search. These distinctions are essentially meaningless, especially when we can’t even agree on definitions and when each of their boundaries remain undefined. Instead, we should recognize that they’re all part and parcel of personalizing and contextualizing search for individual users. Let’s stop playing the “name game” and start thinking holistically about how each (and all!) affects and improves what we think of today as “search.”

Defies analysis, defies control:

Ms Evans’ excellent analysis continues to identify numerous problems with attempting to classify Social Relevance – each system is merely trumped by new issues related to semantics, context, and proximity.  It seems as if the more you try to “control” social media, the more it defies control.  The more you try to study it, the more it shows you a mirror of yourself.  Introspection is the irony of extroversion.

The great big Sucking Sound

While nobody, including Ms. Evans can tell you how to increase your social relevancy, we can probably all agree on what does not.   If your message sucks, your social relevancy will also suck.  If you are trying to sell a product that does not actually save people time and increase their net productivity, your product will fail and your social relevancy will suck.   If you are in any way trying to match unworthy knowledge surplus with unworthy knowledge deficit, your social relevancy will suck.

Give up Control in order to gain control:

Business intelligence is the science of knowing what sucks and what does not.  Let Social media carry your message wherever it wants to carry it. The sooner the market tells you what it wants, the sooner you can adapt your products and services to meet the needs.  Things happen fast in social media space and the corporation needs to be faster.  This may mean corporations need to give up control in order to gain control of both the threats and opportunities of the future.  After all, even by the playbook of Corporate America : survival of the fittest is the only relevant social rank.

(Ed: Brynn Evans is a PhD student in Cognitive Science at UC San Diego who uses digital anthropology to study and better understand social search)

If it Quacks like a Buck…..

If it looks like a buck, and talks like a buck, and quacks like a buck – it’s probably a buck.

So when your money gets “free will” and starts walking out the door door, that’s bad enough.  When flies out the window en mass enabled by the same social media that  brings money in the door – serious management issues arise.  Should organization choose fight, flight, or cooperation?

Battle lines are being drawn:

  • “Among large U.S. companies, 33% have employees on staff to monitor e-mail messages — up from 15% last year, one survey found. The Proofpoint study also found that 31% of companies had fired workers who breached confidentiality via e-mail, and 8% had fired someone over a social-networking leak. The survey found 41% of respondents are worried about potential leaks via Twitter. ZDNet (08/10)”
  • “Marines banned social networking sites from their computers Tuesday due to security concerns, and the Pentagon announced a policy review. But Pentagon’s top officer will still tweet (Christian Science Monitor 08/05)

There are literally thousands of articles on this subject but none of the few that I read came to any conclusion, so I will:

Money is becoming intangible (cannot be contained) and Social Media is becoming tangible (has become the container)

The very structure of organizations is changing.  Trying to control the temperature of the room when the windows have been blown out will only destroy existing controls faster.  A completely new economic structure is emerging complete with new factors of production, incentives, institutions, accounting, and currency.

Swap or swamp?

Easier said than done?  Not really; all we need to do is swap the same methods that we use to manage tangible assets with those same methods that we use to manage intangible assets.  There are in fact people and organizations trying to do this (specifically this author) but you won’t find then in corporations anymore.

Companies have no choice but to understand migration patterns, flock actualization needs, motivation, and environmental issues.  Going from an economy where the corporate charter is only “to deliver shareholder value” to one of safeguarding the health and welfare of people and their property” is a huge leap.

The discussion of Conversational Currency is required to understand the underlying economic forces that drive social media and the emerging institutional structure for corporations to create value in a computer enabled society.

Social Media Staffing: $3 Trillion Opportunity

As the World Churns:

The cost of placing an employee approaches 30% of that employee’s salary.  In fact, most head hunters charge roughly 30% of the employee’s salary to find the right person to fill the job opening for a client company.  Sometimes the employee is recruited from a competitor causing a net productivity loss in a market due to disruption or “churning”.

The company also has a choice of hiring with the internal HR department.  In this case, they are paying HR personnel to place ads, review resumes, check references, and conduct interviews.  These costs can also run into a substantial percentage of the new employee’s salary.  From previous articles, The Ingenesist Project suggests that these methods may not even result in the best employee selection:

The Unnecessary Market Friction

Text only Résumé is no longer adequate in our complex business environment due to subjectivity, semantic inconsistency, and the time and resources required for fully interpreting the content. The cost of delivering a résumé has been decreased by computers and the Internet while the cost of reviewing the résumé has remained constant.  Keyword search programs often eliminate excellent and creative candidates based on criteria not related to the candidate.   Managers tend to hire what reminds them of themselves – from world that no longer exists.

Estimated wasted productivity:

Suppose that 50 Million professionals; doctors, lawyers, engineers, professors, administrators, managers, and directors are employed in the United States.  Suppose that the average salary is 70,000 per year.  Suppose that they change jobs 3 times in their career and that the cost of placement is 30% of salary, or $21,000 dollars per placement.

The total cost is $ 1 Trillion dollars multiplied by 3 placements in a career equals nearly 3 Trillion Dollars.  Now, divide this by 30 years in a career and we can see that 100 Billion dollars worth of human productivity are spent every year not necessarily matching the most worthy employee to the most worthy employer.  This does not include moving expenses, salary increases, disruption costs, or inflation.

The probabilistic electronic résumé system

The Ingenesist Project specifies a vetted knowledge inventory that resides in Social Media. The knowledge inventory, probabilistic electronic résumé system, and innovation bank together would make the paper and language Résumé obsolete.  The percentile search engine would scan the knowledge inventory of the corporation and scan the knowledge inventory of the labor market and seek matches with high probability of increasing net productivity – not unlike Amazon.com predicts what book you would like to read next.

Options, options, give the market its options

election criteria can be adapted to reflect social priority such as reduced traffic congestion or to reflect strategic objectives such as incremental or blue sky innovation requirements.  Trades across companies and industries can occur opportunistically not unlike interdepartmental transfers or even like trades in professional sports are conducted today.

Companies can manage peaks and valleys in employment by trading across diverse industries. avoiding layoffs all together.  Employees that can stay productive in diverse industries transfer new ideas and discover transferrable efficiencies.  Experience gained would be added to the knowledge inventory to enhance the probabilistic résumé inventory available for continuous improvement and tangential applications of innovation enterprise.

A virtuous circle? … A 3 Trillion Dollar opportunity nonetheless.

Social Media Strikes Back

Money represents human productivity.

Recent headlines declare that 78 billion dollars worth of fuel and productivity are wasted each year by congestion on highways. 1.2 Trillion dollars per year in productivity is lost due to past failures in education. The US spends 7% more of our GDP on health care than the average of other developed nations leaving nearly 1 trillion dollars of unknown ‘productivity value’ in vapor per year. 200 Billion dollars per year is spent on war, whether necessary or not, that has not increased American productivity in an economic sense.

2.5 Trillion Units of Human Productivity

Without even trying hard, 2.5 Trillion Dollars per year in stuff not produced is wasted on activity that does not increase human productivity (stuff produced). Obviously debt is a promise to produce stuff in the future. But we’re wasting stuff now? At some point the logic falls apart but no matter how you look at it, money represents productivity and the only way out of this mess is to innovate at an astonishing rate.

Conversational Capital

In an earlier article, we conjured up a rough tabulation of productivity gains due to social media:

One billion messages are sent on Facebook every day. Suppose that each Facebook conversation has a net value of $1.00 per person. That comes out to 730 Billion dollars per year of human productivity saved.

Twitter is worth a cool 100 Million tweets per day. Let’s assign a net productivity gain of $1.00 per tweet delivered. That is $36 Billion per year in increased human productivity.

Suppose each blog article published increases human productivity by $0.50 each. With over 100M blogs, that is 10 billion dollars per day – or1.8 trillion dollars per year.

The grand total is 2.5 Trillion Dollars worth of conversational currency.

In Search of Waste Economics:

Now, return to the waste side of the balance sheet let’s reflect on the areas of impact that social media has on: transportation, energy, education, health care, and world Peace:

Social media reviews automobile quality and drives social priorities toward green industry. Social media allows people to find work close to home, social media vets energy systems such as wind, solar, nuclear. Social media is driving journalism to value added roles and away from corporate collusion. Social media provides richer and more current content than textbooks. Social media is driving social priorities over Wall Street priorities in health care, energy, politics, industry, and science. You Tube is seeing a 1700% increase in downloads as people set up video cameras all over the world searching and reporting injustice.  Little Brother is watching.

Social media strikes back

In order to predict where social media will strike next all we need to do is look for the waste economy; areas where world governments, institutions, and corporations are inefficient, wasteful, co opted, or corrupt.

Social Enterprise; Innovation Clusters

Innovation clusters are all the rage in regional economic development circles.  Actually, they are “industrial clusters” because several companies in similar industries collocate in the same geographical area.  The industrial cluster then attracts supporting industry and often causes the migration of educated and motivated people to the prospect of jobs.  I suspect the ‘innovation’ moniker comes from the notion that newer industries locate near centers of venture capital, like planets forming from the dust of the cosmos.

There are, however, a few drawbacks to industry clusters; they are vulnerable to stagnation, silos, and external shocks.  As companies become organized and technologies mature, patents and trade secrets take hold.  As they ‘go public’, SEC regulation effectively places a gag order on everyone and sharing slows while stagnation sets in. Soon after, dozens of nimble companies consolidate into a single giant to achieve economies of scale.  Finally, silos form under the weight of multiple layers of management.  Then, something somewhere happens to shock the cluster; the end of the cold war leveled the So Cal aerospace cluster. 9/11 busted the Seattle Aerospace cluster.  The dot.com bomb stunted Seattle, Silicon Valley, and Route 128.  Hurricanes hit the petroleum cluster, stem cell and genetic engineering legislation stalled biotechnology, and corruption continues to shock financial institutions.   At the end of the cycle, companies divest, people defect and a new planet starts to form someplace else.

While occasional cleansing, in a Schumpeterian sense, is good for industries, the extreme volatility takes a horrendous toll on that invisible turbine of the economic engine – social fabric.  Families, friendships, professional networks are strained or collapse and those who dedicate their life to a career path – the pure innovator themselves – can be left marginalized by obsolescence.

The Calculus of Innovation Economics does not oppose industrial clusters; however, it does favor something called “technology clusters” in a business structure called the “tangential innovation” market.  For example; composite materials technology is very useful in many applications like aircraft, medical devices, transportation, recreation, and even musical instruments.   The airplane company has no intention of building cellos and the automobile company has no intention of building snow boards.  As non-competing industries, they can readily share technology and people.  The system is naturally diversified and inoculated against stagnation, shocks and silos; if one industry encounters hardship, people and capacity can shift easily to another industry preserving knowledge and expanding social networking benefit while the damaged industry heals or dies off.  Corporations may not like this idea, but social networks should.

The science of Innovation Economics goes a step further by modeling the business structure of tangential innovation markets as an integrated financial system.  Suppose and Originator Company has a promising new composite technology idea but is unable to meet the ROI requirements of their stockholders. Today, such innovation would be shelved.  In an innovation economy, tangential markets are factored into the business case.  The Percentile Search Engine can determine what other industries would be most worthy borrowers of your technology, if developed.  The Innovation Bank can estimate the return on investment that can be expected through the tangential market as if it were another customer.  The additional revenue projection would allow the originator to meet the ROI requirement prior to committing development funds.  Intellectual Property can be managed with contracts enforced through social network vetting.  The originator can hold an option to see further development conducted by tangential users effectively multiplying their R&D reach and further adding to the expected return.

Then something magical will happen. At some point, the value of the tangential innovation market would exceed the value of the origination market.  The originator will begin to specialize in pure innovation as a primary product and airplane applications as the secondary product.  As all industries in the technology cluster begin sharing technology among each other, R&D costs and risks are effectively spread across industries. As risk is diversified away, the cost of venture capital approaches single digit rates.

Then, another magical thing will happen. As the mixing of people and ideas accelerates, the definition of corporate boundaries will become more fluid.  Ownership will exist in the form of contracts among entrepreneurs now defined by social networks, options, and derivatives in a diverse innovation enterprise.

The knowledge inventory will house the assets rather than office cubicles.  The ‘secret sauce’ of knowledge asset allocation becomes more tangible, safer, flexible, and liquid than any patent could ever be.  Innovation will always be proportional to the rate of change of knowledge that the more diverse assets yields. The Percentile Search Engine will match surplus “secret sauce” to deficits of “secret sauce” much better than multiple layers of management in the past. The Innovation Bank will account for all transactions, obligations, and participation and distribute dividends (rather than hourly wages) to the owners of knowledge assets.  The system will regulate itself through social vetting rather than supporting a cumbersome HR department.

New ideas will get developed in the technology cluster where they would never have been able to meet ROI in the industrial cluster.  The innovation economy induces a multiplier effect on innovation by reducing risk, eliminating barriers to sharing ideas, and lowering the cost of capital.

While the boom bust cycle of Industrial Clusters has brought us a great distance in economic development, technology clusters in an Innovation Economy supported by social networks may turn out to be vastly more efficient at economic growth without the vulnerabilities of industry clusters.

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