The Three Drivers: Connectivity, Data and Attention

Abstract

DCT has unleashed three powerful drivers: connectivity itself; the collection and parsing of voluminous data and a newly recognized resource bottleneck; and attention. These drivers present opportunities as well as challenges, which enable the network economy to innovate and develop. Connectivity generates transparency as information transfer is more efficient; data enables the creation of patterns and stories about individuals; and the trading of attention (or eyeballs) as a commodity, the central feature of advertising, reveals attention as the new scarce resource. Together, these forces propel a reconfiguration – unbundling and repackaging – of markets and products. Manifestation of DCT across markets is subtle and economic growth is uneven, sticking at the challenges in some sectors, but the race to adapt is enticing and we move forward.

Digital technology fires on three cylinders to power the network economy: connectivity, the creation and sharing of data, and scarcity of attention.

Appendix – Cooperation and Internet Architecture

The drivers of the digital revolution – connectivity, data, and time conservation – are themselves born out of the ethos of cooperation. The Internet as we experience it today is only twenty-four years old – it was founded in 1991 by Tim Berners-Lee at CERN. Connecting distributed computing systems, transforming data into the packets of binary code, and routing the data transfer in non-obvious, circuitous paths to conserve time were elements embedded in the history of the Internet. This history is also a story of collaboration and sharing and a prelude to a network economy that is based on cooperation rather than competition. Replacing the linear structure of text with a networked structure is one of the greatest inventions of the digital revolution but these Internet protocols were devised by peer collaboration, and the resulting architecture was one of distributed decision-making and control. It is useful to consider this process of innovation so as to get an overview of the technological landscape.

The Internet is an example of a General Purpose Technology (GPT), the hallmark of which is positive feedback between the technology and associated applications. These co-inventions are generated by customer experimentation and innovation. In this GPT, various computing tasks are assigned to components that are independently or jointly produced. A critical feature of this architecture is modularity, which means that critical components have a limited number of interfaces.

Consider Adam Smith’s pin factory and his conception of specialization of labor along different parts of the production process permitting workers to become more efficient at their task and thereby speeding the assembly line. In an important sense there is a coordination problem since workers must specialize along different parts of the assembly line so as to facilitate production. So each worker’s choice of specialization depends upon choices made by others. In Adam Smith’s world this was made easy by the owner/manager, who assigned work to different individuals. In the world of the Internet, design constraints are standardized by internal trade groups or standard setting organizations (SSO) – the two principle ones are the Internet Engineering Task Force (IETF) and the World Wide Web Consortium (W3C). The former dates to 1969 when the first Request for Comment, a form of collaborative innovation, was published. The International Telecommunications Union is a larger body, currently debating the governance structure of the Internet [23].

Modularity is displayed as layered architecture or a layered protocol stack, which is a sequence of communication and computations commands. The five layers in this architecture are the physical layer consisting of copper or fiber optic cables, the link or router layer, the network and transport layers, and the final application layer. The key feature of this GPT is that it facilitates the process of co-invention via user experimentation and co-discovery. Modularity in this system arises because the five component layers have a limited number of standardized interfaces – sort of like blocks of Lego. The advantage of this system is that as innovation proceeds within a module, it needn’t be synchronized with the process in other modules – it can move at a separate speed across modules. Diffusion of an innovation from one module to another is necessarily slower than within modules for this reason.

As a consequence of this asynchronous innovation across modules, economy-wide diffusion of the basic technology is gradual. Apart from the actual hardware, the application layer itself requires supplementary developments in order to be fully implemented. To take an old example, following the discovery of the printing press, the exchange of written ideas could only be consummated after the development of an elaborate network of postal services in Europe by the Tassis brothers of Italy [24]. Similarly, in current times, Amazon has a massive online commerce market but the key link is delivery of these goods and Amazon is reaching beyond UPS, FedEx, and the US Postal service by teaming with Flywheel Software Inc., whose mobile app for taxi service competes with Uber and Lyft [25].

Each layer has its own norms of innovation, so agglomerating the layers for a process of collective governance can be challenging, limiting big push technological changes and allowing legacy systems to survive. This lag between the initial innovation and complementary applications might explain Robert Solow’s Productivity Paradox – despite recent advances in digital technology, labor productivity or output per worker in the economy has not increased. (See Chap. 4 for more on productivity.)

Open architecture of the Internet has survived despite the commercialization of content and communication. Neither IBM nor Microsoft, the pioneers, made major parts of the system proprietary. This is a miracle! Why did no firm appropriate the core technology (not the interface at the consumer level) and become a monopoly earning rents or royalties? Copyrights protect an idea, not a product, which is protected by patents lasting for twenty years.⁴ However, monopoly status can be conferred to copyrighted software that provides interface protocols and compatibility between itself and other software. For example, Microsoft’s copyrights on Windows and Office made it difficult for competitors to overcome the entry barriers into this industry [26].

Currently, there is great debate within the technology community over the value of copyright and the speed of innovation. On the incentives side, there is the argument that copyright confers the rewards of ownership to the copyright holder and hence provides incentives for innovation. Piracy reduces these rewards and could lower innovation. (But see Chap. 6 for more on copyright in the entertainment industry.) On the commons side, the argument is based on the observation that innovation is incremental and builds upon concurrent as well as past innovations and is a collective effort requiring sharing of information. In this case, copyright limits public access to information and hinders creativity and innovation. However, firms could license or cross-license their technology and earn royalties on their innovation, thereby placing it in the public sphere while not giving up revenue rights [18].