Books & Arts | Published:

Valuing the digital economy

Nature volume 462, page 165 (12 November 2009) | Download Citation

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Wired for Innovation: How Information Technology is Reshaping the Economy

By  &

MIT Press: 2009. 134 pp. $18.95, £14.95 9780262013666

Information technology has clearly had an impact on our daily lives. It has also altered the global economy. But how can you measure the worth of a web search or an electronic file format? In this slender volume, Erik Brynjolfsson and Adam Saunders examine the links between innovation, productivity and value.

Web-based wonders: Google founders Sergey Brin (left) and Larry Page (right) and chief executive Eric Schmidt. Image: D. STRICK/REDUX/EYEVINE

Wired for Innovation contrasts information with tangible goods. Unlike a physical product, information is not limited by its transportability or the number of times it can be used. Yet a consumer who uses a web search to book a holiday, for example, adds real value to the economy — and more than 8 billion web searches are made each day in the United States alone. Forming a demonstrable relationship between web activities and dollars generated is becoming increasingly important.

To illustrate why traditional economic measures are inadequate, Brynjolfsson and Saunders examine the impact of web-based products that seem, to the consumer, to be free, such as Google's search engine or Adobe's portable document format. These, they explain, follow two-sided markets: many search engines receive funding from keyword-based advertising, and Adobe makes money from selling other software products that use its file format. But the connections between the two sides of the business are invisible. Because Adobe doesn't sell its Reader, the contribution of that software to a traditional metric such as gross domestic product cannot be determined.

However, networked technologies also offer new ways to manage and analyse economic data at an increasingly fine-grained scale. The authors propose a tool kit for the emerging economics of the digital business world. Different devices are needed to monitor and test the market as it evolves. Some of their suggested indicators are not new, such as customer surplus — the aggregate net benefit that consumers receive from an item or service above what they paid for it — but they take on a new role in the digital environment.

The combination of mobile phones, global positioning systems, online maps and restaurant reviews, for example, has opened up possibilities for revenues whose value exceeds that for each technology alone. Measuring that surplus requires further technologies to track links in the economic decision chain, such as smart 'sociometric' badges that monitor interpersonal interactions. Such developments would allow us to monitor flows of information through the economic and social system at a detailed level.

The human side of innovation must also be understood. Brynjolfsson and Saunders explain that information systems are meaningless without the ability to manage and accrue benefits from them. They propose “pillars” that should underpin a successful digital organization — where people are supported by technology, rather than the other way around. Open information access, rather than an excessively protective communication policy, is cited as one way for an organization to draw benefit from the human skills available to it — what you can't see, you can't extract value from.

Future economists and computer scientists may look to this decade as the beginning of a digital global economy. Small, light and portable, like the technologies it describes, Wired for Innovation will form a valuable reference for scholars searching for markers of this fundamental change. Those wishing to become a formative part of the new economy — rather than merely a footnote — should read this book.

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  1. John Gilbey lectures in computer science at Aberystwyth University, UK.  gilbey@bcs.org.uk

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https://doi.org/10.1038/462165a

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