A Saturday Post: The Internet Devalues Everything It Touches, Anything That Can Be Digitized

I appreciate your attempt to summarize the macroeconomic trends -- it's good to have "big picture" views. I'm not as sanguine as you may be about this being neither bad nor good -- it's bad. The net is very good at destroying existing business models that took decades or centuries to develop -- but the result seems to be network effects gone wild and the concentration of inordinate economic power in very few entities (Google, Amazon, craigslist). It took Walmart decades to develop the kind of power that Amazon amassed in less than 10 years. I fear a lot of value will be lost in this disruption and not replaced.

Sprague: I like your example and you make an important point.

There isn't much we can do about this trend. The value will come if we can figure out how to share the wealth of value that Internet and other powerful technologies provide. It doesn't have to be a zero sum game. However, our society is not set up to deal with incredible stresses that will be placed upon it. I think we will eventually get to a better place . . . but the journey will be a rough one.

Well summarized, and I think you're right about all this.

Since I like the word value, and the classical economic distinction between "use value" and "exchange value," I wish you could find another word than value. "Reduces the price?"

I'd like to see the social, use values contrasted to the exchange vales--prices--that have declined.

In the case of Craigslist, the Net created a redistribution of wealth, from newspapers relying on classified ads to Craig Newmark. Do print newspapers even bother to run print ads anymore? I haven't read a print newspaper in print for so long that I don't even know.

Isn't this true also, regarding new wealth, Google, Facebook, etc., that has arisen as other wealth has declined?

To think about this deeply, I think one would have to question the commodification of everything, which the Net persistently resists.

Good piece Tom - I like the survey of areas where this is happening. And wasn't this always the destiny of the web? In the mid-1990s, the promise was to wring inefficiencies out of many different areas. It's happening.

Ann's comment above touched on one semantic issue. I think of "value" as the measure of what a consumer gets from a product or service. It doesn't matter what a seller charges, the value to the end user is the same. It just happens that the price for what people "value" is going down. E.g. Long distance calls. Skype brought the price down, but it hasn't devalued that call from your kids on Father's Day.

Tom,

This is an insightful post.

The internet has brutally driven efficiencies, while it has not been equally successful at creating credibility.

Credibility is the next big challenge.

While the collpase of business models/ companies built over decades is very painful - the internet has enabled access to education and all kinds of services that werent possible/ affordable at all.

This 'equalizing effect' is as intriguing as the degree of engagement that the internet allows you to choose. This is already in play, with a kind of 'reverse snobbery' where your power quotient is also reflected by the uniform and sketchy story that you put out in the public domain. The real story is still hidden and requires both people and technology to blow this cover.

We are living in an age where irreversible trends seem to be peaking synchronously - with a message we're still decoding.

Best regards,

Anita Lobo

Now I am waiting for the investment community to help develop cost reductions in other areas: energy, food, health care. I realize it is hard to develop new forms of abundant, renewable, clean, low cost energy, but we need that more than we need another incremental Internet improvement.

Very very interesting. A person I know, who is a top manager at the Italian Post, once told me that "not all saving is good".

He gave me this example. Say that for some reason we manage to send digitally all the stuff that still travels by surface mail.

That would vaporize some billions of postal revenues without - reasonably - creating a new Google.

What will each business and/or person have saved? Probably 0,001% of it's/her's daily spend. Will the businesses be much more efficient after that? Hardly.

Will people be much happier or "liberated"? Not likely.

Are we sooner or later going to digitalize 99% of what now travels by surface post? Definetely.

Tom,
It's good to have Saturdays to think big. Your observations are spot on. We see an explosion in the commoditization of products and services. Today, the Internet drives this process but it didn't start with the Internet. Always looking for the more efficient way to do things, is inherent to capitalism (I am stating a fact, not a value.) Look at outsourcing which was a popular practice before 1996. To your other point, I believe the societal change has started and it is called the social web. Last thought: How would you write this article if you lived in India and just landed a job in a telemarketing firm?

The problem here is your word choices. Value and price are not the same thing. Many things have value to a person, but no price can be assigned to them.

Devalue means that something loses its value. A currency is devalued when it can be officially exchanged for fewer goods and services.

What you are saying is that the long term trend of any internet service is to cost less. Different people will like or dislike this fact. All this means that when there is an increase in the amount of any item, the less you can sell it for.

Another word for this is productivity; getting the same services at a lower price. This is universally accepted as good: it is how standards of living rise. What are you -- a Luddite?

Louis: I'm not a Luddite I'm merely describing a powerful trend. You are the one that seems to be making a "value" judgement about this essay :)

Anita: I like your imagery of irreversible trends peaking. But aren't we always in a period of irreversible trends peaking? At least in modern times of the past couple of hundred years.

Matthias: If I lived in India and I were benefiting from this trend then I think the article wouldn't be any different. Just as gravity is no different in India than it is here in San Francisco :}

Ann+Hutch: Yes, the term "value" has a semantic issue because of its common use in a cultural sense. Exchange value and use value are the way economists have sought to avoid confusion but not very successfully.

Suzanne: You put your finger on the biggest obstacle clean tech faces: it isn't a disruptive technology, it is incremental at best, which means it will face a long hard slog.

Fabio: Excellent story and point that you raise: Is it worthwhile to allow technology to destroy an industry when the distributed benefit is so small per person, per company?

I used to work for a technology subsidiary of GM. At the time I calculated the gross revenue per person at about $100K /year/person. More successful companies were doing $250K+/year/person.

Craig's list may do (your numbers) $3 Million/year/person. I would classify them as very successful. It looks like they represent the remaining value in the system, while the other areas are subsumed by technology.

I believe you are exquisitly right about the net being used for sharing and I know free is the exact opposite of the Grade A "consumer buy it model" that the world market is built on.
I think Craig is one of the best people on earth because of his choices, his morals. And the google boys with all their money who help china censor their people are the pigs of the planet, considering their father ran away from communist Russia to have a better life in america those google boys are true white trash ruining the world with their lack of morals.

The internet is a black hole devouring all institutionalized communications.

There is a very simple economic reason for your observation:

- The value of music has dramatically fallen
- Movies and TV shows cost less to watch
- Newspaper and magazines are available online for free
- We don't have to buy much software anymore

The cost of copying digital information (information = everything that can be digitized) is zero!

Producing digital copies of movies/music/news/software information for 10 people costs the same, as making digital copies for 100,000 people and offering them on the internet.

The cost of producing more physical products is much higher. In the old economy the company with the best access to resources and the lowest production costs will win.

The effect of digital information: If company A offers their information good for 20 dollar. Company B could offer the same for 12 dollar, company C for 4 dollar, and after some time in this competition, they all end in offering it for zero money, for free. Because every market player has the same production costs of more copies... zero.

The only way to get out of this circle, is to offer something truly unique. Because the competition in the 21st century is always global.

Tom-

Loved your article!

And, love the internet and its technology. But, just wondering:

If so many things are being devalued to free, where is the money going to come from to pay the workers to produce free content? (Newspaper advertising paid for the reporters.)

There will always be the "old economy" where food and other tangible goods are produced, but most of that is done outside the U.S. now.

All those people who are presently losing their jobs, might find that the jobs will not be there to go back to. How is our culture going to be able to keep it's current standard of living? It appears that is also being devalued.

Pessimist me thinks we are on a downward spiral. But, most of us could easily do with a lot less.

Just wondering- :)

konterkariert: Exactly. It's a race to the lowest cost denominator. Google makes sure no one can get below it's low costs of business. We used to talk of price umbrellas with IBM and its computer business - now things are more like a price manhole cover - you can't pry it up.
Zoe: Yes, the jobs won't be back, it's not a business cycle, it's a downward spiral if you are caught in the drain. We could figure out a way to share in the incredible productive capacities of our technologies but that's also a scary future, a regulated one. But that's the eventual direction.

"Value" has two meanings. MBAs are taught in business school that their goal is to "maximize value", but that means only monetary value. "Value to society" means zero to them.

Tom's essay is a good summary of many trends. Digitization lowers the costs to zero.

Another good example: Rick Astley's song "Never Going to Give You Up" has been viewed over 100 million times on YouTube. Google's royalty payment to the songwriter? $17. Digitized media is not good for artists.

Maybe we'll see a move away from digital? I was at a music concert in Denmark last week. The rules: nothing electronic. No MP3s, no iPods, no recorded music, no loudspeakers. Everything was acoustic.

Advertising will also collapse. Google tried to do ads on AM/FM radio, but the bids were only $0.15 for 30-second ads. Radio stations can't live on $6 per hour so the radio industry quit on Google.

The same with TV. We pay $2 to run an ad on cable TV via Google.

Google's advertising platform will kill TV advertising (currently, a $70 billion industry). All of those ad agencies, TV studios, camera operators, etc., will lose their jobs.

The Internet has drastically affected the used book business, too.

Used to be that you could search for years to find that one title you wanted; this happened to me many times. In the old days, some bookseller in Idaho might have had a book that a guy in South Africa desperately needed, but they couldn't find one another.

Now, if it's available from one of the thousands of bookdealers who put their inventory online, you can find it in 10 seconds.

As a result, the price of a book has now dropped to whatever is the lowest amount somebody somewhere in the world will take for it.

Common books or ones that exist in moderate quantities have fallen through the floor to pennies.

But decent and rare books have gone up, as there are many more buyers for them, relative to before.

Interesting effects.

Chester: Thanks for the used books example. And yes, rarity is always valuable. And information about rarity can bring down the price of items, such as used books. De Beers approach is to control the rarity of diamonds, which are not as rare as you might think.

Tom --

Great article as always, and great comments, everyone. I am seeing these just today, and joining the conversation quite late.

The trend I see is that yes, information of all kinds has become commoditized.

This is bad for information professionals (my own career change away from pure info tech began with the commoditization of my field, email, in the mid 90's).

But it is potentially a huge boon for the challenging, information-dependent problem-spaces we face today. Addressing our crises in physical infrastructure and resource management, in healthcare technology and practice, in education and thought development -- all will be supported on a foundation of pervasive information. Information is far from sufficient to get us through the challenges ahead -- but it is critically necessary.

Developing a much deeper understanding of the natural world, and learning from its engineering prowess, will be another critical element. To break through beyond incremental innovation in clean tech, we will have to re-member and re-imagine our relationship with, for example, carbon -- that currently demonized fundamental-to-living-systems element. Learning to understand and engineer natural carbon cycles may allow us to break through our energy and climate challenges, and to disrupt our too-slow rate of progress in this urgent area. This is one of the areas I plan to watch.

This was a great article, Tom! I actually sought this out because there is a trend that I am seeing in terms of devaluation on the Internet, but it has nothing to do with digital (re)production or jobs.

No, I'm seeing the Internet as a forum for devaluing other people. I was waiting for this example to show up throughout the article, but found it to be conspicuously missing. It's true you mention in your title that anything "digitized" can be devalued. And, while a person technically can't be made digital, the expression of one's personality and identity can. Without any physicality on the Internet, a person in that setting looses a large part of what makes him/her human, and is susceptible to being reduced to an object.

The anonymity and elusiveness of this virtual world opens doors for easier ways to dehumanize other individuals. I guess my point is that it's easier to be hateful or inappropriate when you're guarded by an anonymous screen name and many miles between you and your target.

On the other side of the coin, it's worth mentioning the kind of community building that the Internet allows for that didn't exist nearly 20 years ago. You have to take the good with the bad, but I'm wondering if "people" can't be added to your extensive list of devalued internet objects.

Daniel: You raise an interesting point about "devaluing" persons. And you do see some of that happening -- attacks on a person's character, intelligence, looks, gender, reputation, etc. And it can be devastating especially amongst school children where cyber-bullying continues to be a big problem. I think such problems can be partially solved by deleting the hate. Yet so few web sites want to moderate what is said by their users. This is not a free speech issue, this is a hate issue and I believe you should delete nasty comments. Some people argue that anonymity should be banned and that this would decrease the amount of nasty comments and personal attacks. I don't see how you can prevent people taking assumed names. Active monitoring and moderating the content is by far the best way but it takes time, it takes work.

Sorry, I could not disagree more. The Internet brings much value. This is like saying "TV devalues books". Such a sweeping statement is naïve and narrow minded, smacking with tunnel vision and a pinch of western elitism.
Just a few examples:
1. I am sure citizens of a developing market like India or China were new jobs were created do not feel that outsourcing has devalued their jobs, quite the opposite. The simple fact is that sitting in silicon valley with inflated prices all around makes developers too expensive. A gallon of gasoline in California is more expensive than most other places in the US. Many other things are also. Other costs such as medical are insanely high in the US. Its not the internet – the US is to blame for pricing itself out of the market. The market has simply responded by looking for better value, rather than inflated value. Consider this – the benefits (medical etc) paid to employees in the US to build a new car in a US motor plant costs more than the entire cost of Tata’s new budget car in India. When you price yourself out of the game, crying foul when someone offers new value is not a viable solution.
2. The music industry has failed to move with the times and adapt to the market demands. The Apple music store has done very well selling the songs people want at $1 a piece – a good move. Surely this is not devaluing that music, it’s a new channel. Even that new channel fails however when in many markets Apple will not accept the purchase. You can not buy from most places in Asia. You examples of lala.com and others – these are new businesses that have moved with the times – yes, they may have replaced a bricks and mortar music store – but the odds are they are making more money than those stores – i.e. more value and probably more jobs.
3. With videos, it most certainly has not been devalued. Its about efficiency. Its far more efficient to deliver via a stream than a physical store and disk. Are the profit margins of Netflix lower than a bricks and mortar store? This company is staying in business for a long time – i.e. makes money, which in your narrow definition equals value. Other companies like Hulu are moving with the times and making new value as well. Don’t make the mistake of lower cost equals lower value, its simply not true. Efficiency and productivity changes along with new deliver models enabled by the internet make new revenue streams viable.
4. Graphics designers – now have much more work because of the Internet. Did all the graphics, layouts and artwork on millions of web pages just magically appear? No, graphics designers did the work. Work they would not have done without the Internet. New value was created.
5. News papers online for free is a good thing. I have many friends in the publishing industry. Many of them for physical news papers. The online versions are generating for many more revenue/value than the print versions. Not just through advertising, but access to back files and other innovations provided by the internet.
6. If you don’t have to buy much software, then I guess all those software companies should be going bust???? Instead there are more software companies today than before the internet. Many have web based models or sell via the web. Many sell components to build software. Many distribute their software online. Many sell their software, while others make money via other means such as subscription or embedded ads. Access to software is easier and software of value is still being purchased. Only with the Internet it can be found easier and purchased easier – i.e. more value.
7. Cost of distribution is less. Yes, this is true. Does that mean that the housing market devalues. Online real estate sites have helped to add significant value to this industry and many others all because their housing catalog can be distributed more efficiently. Many websites like www.gizmag.com used to be paper first, but moved to online because they make more money and distribution is cheaper. This is one example of a paper magazine that switched to the web and ditched paper. Today this company like many others reaches more readers and makes more money than when they did not use the internet and are now internet only. Blanket statements like the “The Internet Devalues Everything It Touches, Anything That Can Be Digitized” as simply wrong.
8. Telephone is less expensive, not because of Skype, because of many technologies. The amount of calls that can be placed through an undersea cable is now vastly higher because of fibre optics, more cables creating competition and many other factors. May parts of the world don’t have sufficient connectivity to even run Skype reliably. VOIP is a contributor, but not the cause.
I could go on with flaws in just about every argument you have put forward. The fact is the statement “The Internet devalues everything it touches” is wrong. Even most the examples you have provided are wrong. The reality is that the Internet has bought about new business models and greater efficiencies. This in turn has created millions of jobs world wide. Industries that fail to adapt to a change in market demands, irrespective of the cause (Internet or otherwise) are doomed to failure. As Charles Darwin said “It is not the strongest of the species that survives, nor the most intelligent that survives. It is the one that is the most adaptable to change.”
Value is not about cost, its about return. Nearly every example you have provided has given “better value” to consumers and better value to the industries when the industries have adapted instead of watching the change and doing nothing about it.

I agree that where value is destroyed new value is created. But the creation doesn't equal the destruction, it is not a law of physics where matter and energy are always conserved. I make no ethical or moral judgements I am bringing attention to what the Internet enables, to what is already happening.

I agree, value created does not equal the value destruction. Read the examples I provided above. In many cases, the value created is many times more than the value destroyed. This is the case with video, audio, new jobs in India and China, Graphics design, publishing, housing market and much more. Simply look at the examples like www.gizmag.com, which makes more money since it moved to web only than it ever did in the print business - and they no long have to kill trees and polute the environment with paper and plastic wrappings, ink in printing presses and fuel to deliver the printed magazine to do it - there is value for you right there!!

Your article is very narrow minded. Not once did you mention the millions of new jobs created by the Internet - is that not value? How many PCs do you think would be sold if there was no Internet? How much media would be sold? How many PC addons, printers, modems, phones, hard disks, joy sticks, scanners etc would be sold without the Internet? How much undersea cable would be laid? How many 3G phones would be manufactured? How many semiconductors would be manufactured? How much electricity would not be consumed? How many software companies have been created because of the Internet? How many people access knowledge that they did not have access to by any other means because of the Internet? This list can go on and on.... Don't all these industries and many more have new jobs and new value because of the Internet? I am sorry, but your argument is totally flawed and narrow minded, while completely ignoring the simple fact - with or without the Internet, industries change and evolve to meet market demand. As said previously, those industries that adapt get value, those that remain stagnant in old models decline. Its pretty basic.

But the real question is value for who? The consumer is certainly getting more value - something that was often over inflated in price from the outset. Perhaps its more of a case of businesses not delivering the value that the consumer wants and demands. Its a bit like Walmart. You dont see their customers complaining that things are cheaper when done more efficiently.

Bottom line - industries and businesses can complain all they want that the Internet is doing them an injustice. But the reality is that while they stick their heads in the sand and dont listen to their customers, charge overinflated prices because they have not adapted to the new mediums and markets that have been formed as a result, they have noone to blame but themselves with their inefficencies and outdated business models that fail to deliver in a modern world.

P.S. Sorry my English is not so good, its not my first language and I am still learning :)

One more comment to add to this. The US has a H1B Visa program. It was created for a reason - not enough individuals in the US with the right skills. This article from 1989 entitled "US PUPILS FARE POORLY IN MATH, SCIENCE TESTS" shows part of the cause (http://www.encyclopedia.com/doc/1P2-8106353.html.) 16 years later another article entitled "A fair comparison: U.S. students lag in math and science" (http://www.educationreport.org/pubs/mer/article.aspx?id=7036) in which the US was ranked near the bottom of 45 participating countries. Little has been done to improve the education situation and in many cases it getting worse. I have friends in the US who are teachers and they are paid so poorly its almost a crime - yet these are the very same people that are supposed to educate the future of the nation. My friends classrooms are so under resourced that they often have to buy supplies for their classes out of their own pay checks. Even they earn so little, they do their best to help. Meanwhile in Asia, my son attends a private school for less that US$1000 per month and has all supplies provided for and an adult to child ratio of 1 adult per 7 children. Now thats value on all fronts!!!

Perhaps some of the root causes should be addressed before the complaints bought forward - what is the modern US bringing to "value add" and higher up the "value chain" that cannot be done be done elsewhere better and cheaper. A legacy of success does not guarantee a future of one.

This is not an anti-US rant, this is a simple analysis of facts on the ground. Many countries have to run faster just to stand still, many are. The US should not be an exception to this rule. It used to lead, but now in many cases it follows. Its time to get moving again.

I totally agree. I think it is a disgrace that Silicon Valley's public schools are often basket cases when they should be showcases. We can't go around saying to the world "we are inventing the future" yet our own communities are so poorly educated and our schools so poorly funded. I'm fed up of super star Silicon Valley CEOs flying to Washington D.C to complain about education yet they won't walk down the street to their local school and help in their communities.