Winning the Hardware Software Game Winning the Hardware-Software Game - 2nd Edition

Using Game Theory to Optimize the Pace of New Technology Adoption
  • How do you encourage speedier adoption of your product or service?
  • How do you increase the value your product or service creates for your customers?
  • How do you extract more of the value created by your product or service for yourself?

Read more...

Latest Comments

  • Anonymous said More
    Great explanation for the relationship... 4 days ago.
  • Anonymous said More
    nice analysis, thanks Wednesday, 21 October 2020
  • Anonymous said More
    The fact that CBD from marijuana is... Sunday, 14 June 2020
  • Anonymous said More
    This was excellent and extremely... Tuesday, 21 April 2020
  • Anonymous said More
    Well written. Well constructed. Tuesday, 13 August 2019

John Quelch, Professor of Business Administration at Harvard Business School, recently quantified the impact of the Internet on the U.S. economy:

A recent study we prepared with Hamilton Consultants for the Interactive Advertising Bureau uses three methods to value the contribution of the advertising-supported Internet to the U.S. economy:


1. Employment value The Internet employs 1.2 million people directly to conduct advertising and commerce, build and maintain the infrastructure, and facilitate its use. Each Internet job supports approximately 1.54 additional jobs elsewhere in the economy, for a total of 3.05 million, or roughly 2 percent, of employed Americans. The dollar value of their wages is about $300 billion, or around 2 percent of U.S. GDP.

2. Payments value.The direct economic value the Internet provides to the rest of the U.S. economy is estimated at $175 billion. It comprises $20 billion of advertising services, $85 billion of retail transactions (net of cost of goods), and $70 billion of direct payments to Internet service providers. In addition, the Internet indirectly generates economic activity that takes place elsewhere in the economy. Using the same multiplier as for employment, 1.54, then the advertising-supported Internet creates annual value of $444 billion.

3. Time value. At work and at leisure, about 190 million people in the United States spend, on average, 68 hours a month on the Internet. A conservative valuation of this time is an estimated $680 billion.

 

The Value of the Internet vs. the Value the Internet Creates

Both the title of the article, “Quantifying the Economic Impact of the Internet”, and the description of what the study purports to do, “value the contribution of the advertising-supported Internet to the U.S.” economy”, are inaccurate. There is a subtle, yet critical, distinction between the value associated with the Internet, which is an absolute value, and the economic impact of the Internet, which is a relative value. Yet, this distinction is critical if the purpose of the analysis is to decide how value much the Internet creates.

The distinction becomes clearer, if I revert to the legal way of thinking about the matter, that is, the But-for value of the Internet: But-for the existence of the Internet, how much value would there be? In other words, the economic impact of the Internet is more precisely quantified as the difference between

The value of economic activity in the U.S. as it is today with the Internet

and

The value of economic activity that would exist in the U.S. today had the Internet not been created.

This distinction recognizes the fact that if the Internet did not exist, then a lot of people who are performing economic activities associated with the Internet, say buying books online at Amazon, would, instead, be performing similar activities in the “No-Internet World”, say buying books at their neighborhood bookstore. In other words, you have to account for the fact that the Internet cannibalizes on other parts of the economy. Of course, the extra value to the buyer of being able to buy books online through Amazon, rather than having to schlep down to the local bookstore, should be attributed to the existence of the Internet.

It might seem like I’m nitpicking here by making a distinction between absolute and relative values. However, this distinction is critical when you’re trying to put a value on a new product, project, technology, or whatnot. The relative value of any new product, project, technology, or whatnot over existing alternatives will necessarily be less than its absolute impact. It follows that if you consider the absolute impact of that new project instead of its relative impact, you will end up pursuing projects that really don’t create new value for you. (I emphasize this point in my book Winning the Hardware-Software Game in the context of optimizing the pace of new technology adoption.) As a case in point, the government often claims that its new programs create new jobs. Yet, it doesn’t really count as creating new jobs, if the people who fill the “new” jobs are taken from existing jobs elsewhere. On the other hand, if the total value to society associated with having people do whatever it is they’re now doing for the government is greater than the total value to society of having those same people work in their previous capacities (however unlikely this may be), then the government can, indeed, be credited with creating value for society.

 

The Value the Internet Creates

So then thinking about it more precisely in relative terms, what value does the Internet create?

The real advantage of the Internet is that it radically decreases the costs to users of transacting or otherwise exchanging information with other users. This means that the value the Internet creates boils down to

1. The Marginal Impact of the Internet over Existing Alternatives: The Internet increases the value associated with any exchange that still would have occurred between users even if the Internet had not existed.

plus

2. The Full Impact of the Internet through New Creation: The Internet creates new value by enabling exchanges that would not have been possible if the Internet had not existed.

More Blogs

Cannabis Cultivation: Seeds vs. Clones

26-09-2020 - Hits:1763 - Ruth Fisher - avatar Ruth Fisher

Cannabis plants are dioecious, that is, they are either male or female. Plant reproduction occurs naturally, when male plants pollinate female plants, causing female plants to produce seeds. New cannabis plants can thus be cultivated by collecting seeds from fertilized females and replanting them, or by buying seeds generated by...

Read more

Cannabis Cultivation: Indoor vs. Outdoor vs. Greenhouse

22-09-2020 - Hits:1448 - Ruth Fisher - avatar Ruth Fisher

There are three basic locales for growing cannabis: indoors, outdoors, or in greenhouses. Greenhouses enable growers to benefit from natural light, while also being able to strategically block out light to induce quicker flowering. Budget-friendly greenhouse operations are more subject natural climate variations, while higher-end greenhouses are more similar to...

Read more

Would the Endocannabinoid System Have Been Discovered Earlier without the Ban on…

10-06-2020 - Hits:1588 - Ruth Fisher - avatar Ruth Fisher

Cannabis was used medicinally in the Western world from the mid-1800s through 1940, even though doctors did not understand cannabis’s mechanisms of action. The Marijuana Tax At of 1937 Federally banned the use of cannabis in the US for either medical or recreational uses, and it restricted scientific studies of...

Read more

How Regulations Shape the Cannabis Industry

16-05-2020 - Hits:2367 - Ruth Fisher - avatar Ruth Fisher

  The cannabis industry is highly regulated, and the various regulations play a powerful role in shaping the structure, and thus outcome, of the industry. This analysis examines the following questions: How do cannabis market regulations shape market structure? Are the resulting outcomes favorable to suppliers and/or consumers? What are the pros and cons...

Read more

Cannabis Industry Rollouts: Lessons Learned from States’ Experiences

27-04-2020 - Hits:1754 - Ruth Fisher - avatar Ruth Fisher

Bart Schaneman from MJ Business Daily recently released, “2020 Cultivation Snapshot: U.S. Wholesale Marijuana Prices & Supply.” The information contained in the report helped cement certain insights I’ve had about the evolution of the cannabis market. Background info In addition to the myriad other laws and regulations, all states essentially have two...

Read more

A Data-Generating System: A Framework for Data Assessment

14-04-2020 - Hits:1069 - Ruth Fisher - avatar Ruth Fisher

Suppose I gave you, the Data Analyst, a dataset of information on sales of Ford automobiles, and suppose I told you to use that dataset to predict total national sales of Ford automobiles for next 12 months. What would you want to know about the data you were given? If you...

Read more

Hemp and CBD Market Supply

06-04-2020 - Hits:1890 - Ruth Fisher - avatar Ruth Fisher

The information in this post was compiled in an attempt to understand 2 issues: Does the cultivation of hemp differ depending on the hemp product supplied (fiber, seed, or flower)? Is the CBD produced from hemp (cannabis with ≤ 0.3% THC) identical to the CBD produced from marijuana (cannabis with > 0.3%...

Read more

Trends in Cannabis Patents Over Time

08-12-2019 - Hits:2353 - Ruth Fisher - avatar Ruth Fisher

Patent Counts by Year I searched the USPTO patent database for all patents for which the patent abstract contained any of the following terms: cannabis, cannabinoid, marijuana, tetrahydrocannabinoid, or cannabinol. My search yielded 914 patents. As seen in Figure 1, there were only a handful of cannabis patents each year until the...

Read more