Tales from the Technoverse

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The Beginnings of Information Technology 3.0

December 8th, 2014 · No Comments · government 2.0, technology

In order to talk about Information Technology 3.0, it is necessary to explain what I mean by Information Technologies 1.0 and 2.0.

The first generation of Information Technology focused on replacing what was already in place by something more efficient and faster, but substantially the same in function. Thus computers initially, even though the beginnings of personnel computers effectively faster typewriters (word processing), faster calculators (spreadsheets) and bigger file cabinets (disk storage). The functions that were automated were in large part functions that were accomplished from combinations of those three things. While the result often, but not always, were improvements in the efficiency of performance of functions like payroll or accounting statements, and while the role of staff often were impacted by those changes, in general the new version of the functions looked a lot like the old version.

The second generation of Information Technology was initiated by the growing use of the Internet. The conceptual underpinning for the resulting impact results from what was called by the British economist, Ronald Coase, as Transactional Cost Economics. I first wrote about this in a blog post about Government 2.0 in 2009.  The thought is that all economic activities involve a transactional cost to implement. Some of that cost is a result of ‘friction’ due to inefficiencies such as imperfect information or geographic implications. For example, at one time knowing that a store ten miles away had a cheaper price for an item than your local store was often unknown to you. Also it would cost you in time and transportation costs to go over to the more distant store than to the local store. If the cost of getting that more distant item was more than the money you would save in doing so, then you just bought from the local store; if the reverse, you would invest the time and money to get the lower priced item.

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The Internet changed the transaction costs for many activities, lowering friction in many ways. It is now possible to find the least expensive alternative for almost anything, anywhere with a simple web search or the use of the get-the-less-expensive-thing app (or something like that). The implications extended far beyond just buying less expensive items. The classic example has been how obtaining services including functions like research and development support is more likely to be sourced externally than it was in the past.

Organizational structure has been dramatically impacted, with executive management able to interface much more directly across an organization, changing the role, or removing entirely, many layers of middle management. Classical intermediaries, such as the news organizations that existed in major networks or print journals, have been replaced by multiple alternatives and new intermediaries, with continuing and often hard to predict implications. Our ability to only listen to voices that we agree with is just one of the options that now exist, with not always positive social results.

And that leads us to what I refer to as Information Technology 3.0. My take is that this third step began with the increasing existence of customer, or at least externally, created content. The classic example of what I mean by that is YouTube. For all intents and purposes all YouTube provided an empty warehouse where customers created the product inventory (their video’s) which YouTube then could provide to everyone. This co-creation extend in many areas including restaurant and hotel reviews (Yelp, Trip Advisor), driving conditions (Waze), and news (comments posts, tweets, and Facebook entries; which often become part of modern news stories).

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By the way, I was discouraged to increasingly read that Facebook is only for the old, which makes sense since I use Facebook.

This fact, the co-creation part not the Facebook is for old people part, really came home for me when I read an article about Uber in the Washington Post. The starting point of the article was that Uber is now estimated to have a value of over $40 billion. That would be a remarkably high number for a start-up taxi-substitute, ride-sharing company. In fact, however, per the author that characterization of Uber misses the point that Uber is really a mid-sized car company. What is actually happening is not that Uber’s impact is on other taxi companies, it is that it is starting to change car ownership and buying habits.

Younger customers are driving less and thus have less need to own a car. The savings of using Uber is not just single transaction cost savings per trip, but a reduction in purchasing gas and auto insurance, as well as not-buying a car. Using that approach, Uber would be valued slightly less than General Motors, at $54B and somewhat more than Tesla at $28B (see the article for the graph).

My thought is the Post author missed another point. Uber is just one of the companies that have taken aspects of Information Technology 2.0, smart phones and mobile applications, and combined it with Information Technology 3.0, where the content, the cars, are brought externally. Uber, in effect, is sort of the Drudge Report for transportation. Drudge produces no news, doesn’t hire anyone directly to produce the news, but instead serves as an intermediary providing news services. Uber, while having to develop standards for drivers, is basically acting as an intermediary between customers and service providers. The resulting impact however, because of the much lower transaction costs, is having a much broader impact than traditional transportation providers have had, in this case potentially allowing the replacement of cars altogether.

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One wonders when someone will combine Google provided driver-less cars with Uber and the implications of that step.

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