Information economics

April 25, 2011 in Data

An excellent article in the NYT suggests that "information economics" is starting to have a demonstrably positive impact on businesses that harness data well. The most important observation, in my opinion, comes a bit earlier in the article:

In a modern economy, information should be the prime asset — the raw material of new products and services, smarter decisions, competitive advantage for companies, and greater growth and productivity.

Later, it is noted that:

Since 2004, productivity has slowed again. Historically, [Professor Robert] Gordon notes, productivity wanes when innovation based on fundamental new technologies runs out. The steam engine and railroads fueled the first industrial revolution, he says; the second was powered by electricity and the internal combustion engine. The Internet, according to Mr. Gordon, qualifies as the third industrial revolution — but one that will prove far more short-lived than the previous two.

I think Mr. Gordon's analogy is missing its pairing, its "killer app:" steam engine & railroads; electricity & internal combustion engine; internet & ... what? I don't disagree that the Internet (to use a rare capital "I") is analogous to those engines, but what form of device will it power? I continue to believe the answer will be "data", and the harnessing of that data is what will let the "internet revolution" last for quite some time.

In the absence of data, the internet is merely a means of connecting machines - akin to telegraph wires, radio, or satellites. Today, connectivity has become commoditized - but that alone does not a revolution make. The new class of internet-derived industrial mechanisms will be remarkable because of their software and data interpretation abilities, not merely because they communicate with other devices. If the internet revolution was driven solely by the internet, then it has already ended. Protocols may become faster and more efficient, just as mechanical engines have, but without a critical application there is no revolution. To underscore the point, Asia just ran out of IPV4 addresses. Have they therefore achieved technological nirvana?

The killer app will be data driven. It will be transformative. It will add real economic value. But in the meantime, we'll tell everyone how excited we are about whatever it is we believe it to be at the moment, 140 characters at a time.

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