Tag Archives: oreilly

Economics of Expertise

[Ed Note: I started writing this more than four years ago, after seven months of semi-employment during which I was consulting for a large scale publishing site. The outline emerged after dinner with their CEO, a long-time friend, who is one of the most multi-talented people I know with skills ranging from guitar player to professional football player to software company executive. I placed myself officially in the “old fart” chronological category after lamenting our inability to find people who think in “big systems” or have kernel level understanding of operating systems. That seemingly unrelated set of facts gave rise to this musing on how scarcity and expertise are differently valued and measured.]

Value historically was tied solely to scarcity, driven by the economics of ownership and uniqueness. As my father in law once said, real estate by the beach will always increase in value because nobody is making more of it. Whether driving pricing in ancient coins, exceptional quality, never-been-in-bike-spokes baseball cards, or high end sports cars, scarcity dominates the world of atoms. Physical things are more valued when there are either fewer of them (Honus Wagner baseball cards) or over-stimulated demand for them (San Francisco 1 BR apartments).

Unless you are making, selling or arbitraging those items, it’s hard to make money in the scarcity market. Markets that were driven by and respected for their scarcity – world class journalists, for example – have been overrun by surplus where anyone who can publish a blog post is a news source, re-shared endlessly on Facebook creating a sense of authority backed by no real measure of value. Old fart category, indeed. I’m channeling Rick Wakeman more than listening to him now.

However, scarcity economics aren’t the sole engine of an economy driven by information, a world in which “Chaos Monkeys” author Antonio Garcias Martinez points out that in the future, you’ll either tell a computer what to do or be told what to do by a computer. Uber is a case in point: the scarcity of taxi cab medallions is replaced by information that matches riders and drivers, estimates wait times, provides pricing transparency and accepts credit cards. Information economies are driven by expertise: who creates and curates the information, and who knows how, where and why to act on it. Capture the expertise needed to efficiently organize a city’s taxi pool and you have a business.

It’s why Yahoo! died a slow death. During my semi-employment term, I spoke with a senior technologist at Yahoo! as something of a pre-screen for a senior role. I felt like my understanding of their business was fundamentally disconnected from the reality at the time, and nothing happened. I’m not sure Yahoo! was ever serious about trying to connect people (the point of communities, mail, Flickr), but on the other hand “connect” usually resolves to “create targeted advertising” which was the bulk of their business model. Online aggregations of high-end sports car fan boys perusing articles about the joys of owning a McLaren are shown ads for BMW repair shops in the local area. Yahoo! dabbled in content, but it really was an advertising company without a differentiator despite the various content curation plays. Had Yahoo! decided to truly play in expertise, to go from being an index of the internet to a market-making force in expertise, it may have carved out an identity better than being the pewter medalist in online search.

How do you monetize the expertise economy, aside from hiring people with particular expertise in your required domain? You create opportunities for skill development, for skill application (the true measure of expertise isn’t knowing something, it’s knowing how to apply it appropriately), and eventually for skill validation. It’s how you retrain vast swaths of the population who will be displaced by automation ranging from self-driving trucks to order-taking kiosks. It’s the business model of Code Academy, and prior to that, the effective business model of O’Reilly and Associates [disclosure: I am an O’Reilly author]. It’s how TopCoder crowdsources small scale solutions, creating a market of vetted expertise.

There are potential interplays between the bits and atoms worlds, where expertise guides choices and product selection. Attach the right experts to an eBay or amazon.com product category, and you’re likely to generate more transactions with higher satisfaction. It’s a refactoring of the grizzled guy with nine fingers in the back of the hardware store, who would take one look at whatever misshapen home repair project you brought in and tell you “10×24 thread, not 10×32, third bin on the left side, and get both the inch and the inch and a quarter lengths to be sure.” You aren’t getting that kind of help at Home Depot, and if you want it, Quora probably isn’t the right solution either. When you paid 20% more for your hardware at the corner store, it covered the cost of the expertise. It’s likely time to revisit that model, connecting purveyors of expertise to those who need it dispensed.

Apple Is Beat(s): Calling the Top

Disclaimer #1: I completely suck at picking stocks, and offering insight into the stock market, which is why I do not manage my own investments. Evidence is littered all over these posts.

That said, I’m calling something of a top in Apple on the basis of paying $3.2B for Beats. While the NY Times and O’Reilly editor Mike Loukides call out the two extreme views (Apple is a luxury brand, Apple wanted the streaming service), my view is much more cynical.

Disclaimer #2: Mike Loukides edited my first O’Reilly book, and I provided technical input on one of his, and he remains one of the most pragmatic technical writers I know.

The basis for my cynicism is that I’ve tried Beats headphones, in both the earbud and over-ear styles, and I don’t like them. I find them way too bass heavy, subtracting from the color and richness of the source material, and if you read the comments on amazon.com, their quality is lacking. I’m not sure of the actual demographics of their product sales, but a quick sampling on the NYC subway shows the Beats crowd is largely male and young. That’s a microcosm of, say, the iPhone demographic. Teenage and early-20s men are not a long-lived style-driven market; and likely not one worth more than $3B.

If Apple did buy Beats for the streaming service, why wouldn’t they just build their own? Backend technology mergers are always messier than they appear, and Apple certainly doesn’t need the online eyeballs (or earballs, as my sister used to refer to listening capacity). What I see is Apple buying someone else’s (possible) innovation, buying in deference to current high-end style definition, and buying a low quality product. If you believe that technology runs in cycles (either 25-year long cycles or waves of 10-year cycles), then the cycle begun when Jobs rejoined Apple at its helm is in its denouement. It’s just a very bottom-heavy tail end.