Software AG and Esther Dyson

September 11, 1995

San Antonio: This city stifles me with its heat and humidity, and I think the much-vaunted downtown river-walk area is over-rated; it was a lot better 25 years ago, before it got so commercialized with sleazy plastic imitations of Venetian gondolas floating along something that looks more like a large drainage canal than a legitimate river. It reminds me of the "It's a Small World" boat ride in Disney World: there's no riverbank per se, no dirt, no grass; it's all concrete...

But no matter: I've enjoyed the past two days while being holed up in the air-conditioned comfort of a complex of Marriott hotels and the San Antonio convention center, where I participated in the annual Software AG) (SAG) user conference. I was here to give a one-day seminar and a keynote presentation on the new OO analysis/design methodology that I've been helping SAG develop over the last couple of years. (The Mainstream Objects book describing this methodology is listed on my Web page of publications).

Among the highlights of the conference was a fascinating opening-night keynote presentation by Apollo 13 astronaut Jim Lovell. In addition, several folks from the SAG management team put on some interesting presentations, and SAG introduced some interesting new products like LIGHTSTORM, a rapid application development tool. The president of the U.S. SAG operation, Mike King, gave a presentation in which he suggested that over the next few years, IT departments will evolve to the point where they focus on three different kinds of systems:

• infrastructure systems -- tools, networks, software packages, etc., where the decisions will be based largely on cost, because these systems are rapidly becoming commodities.
• application systems -- where the emphasis will be on "process competency," and where the priority will be reducing the time-to-market.
• divisional systems -- which involve helping the organization adapt to new infrastructure systems and new application systems. The emphasis here will be on business performance. But by far the most thought-provoking part of the conference for me was Esther Dyson's presentation on "intellectual value." It was a variation on her July 1995 Wired magazine article that I've listed on my "cool links" page. If you get a chance to hear Esther present this in person at one of the many conferences she attends, don't miss it; otherwise, go find it in Wired magazine. I scribbled a bunch of notes on the back of an envelope during the presentation; here's a brief summary of her thesis on intellectual value:
• In the agricultural period of human history, land was the primary source of value; but it was people who worked and tilled and fertilized the land to make it valuable. And during the industrial age, machines and "capital assets" were the artifacts of wealth; but it was people who built those artifacts, maintained them, and helped establish and preserve that value.
• In the post-industrial age, it has been argued that knowledge, or intellectual property, has now replaced land and capital assets as the valuable artifact. But it is people who create, interpret, analyze, filter, and process knowledge.
• Because of technologies like the Internet, intellectual property is rapidly becoming free, but the intellectual process is valuable. Knowledge has no value until it's part of an intellectual process in someone's head.
• There is an over-supply of information and knowledge; and that's one of the primary reasons why the market price of most information is going down rapidly. Thus, the popular Internet paradigm that "information is free" is not about violating copyrights or contracts, but rather a recognition that if there is an oversupply of information, then in a free-market economy, the price will be driven down.
• Esther told us to write this one down: Information consumes attention. And there is a shortage of available attention: we're all so busy and so bombarded with information that we don't know what to pay attention to.
• Thus, one of the primary purposes of information and knowledge is to serve as a form of advertisement to gain the attention of customers, consumers, prospects, etc. Esther noted that attention can be negative, too -- e.g., a product or a company that everyone consciously hates. In any case, it helps to think of attention as an asset.
• An example of a business organizations that are based on this new paradigm of intellectual value: Esther is on the board of a company called Cigna Systems (? I don't know if this is the correct spelling) that sells support and service for "freeware" software. It's an interesting point: even if software is free, it has no value if you can't figure out how to use it. The value comes from the service associated with helping people install it, customize it, debug it, use it, etc.
• In the future, companies will create the "illusion of attention" -- e.g., by providing automated e-mail services to respond to complaints that we send (by e-mail, of course) to the customer service department. But customers will become savvy, and will begin demanding "real" attention. And there will be an ongoing race to supply and demand adequate levels of attention.
• Where is value created? In people's minds. You have to build loyalty in the minds of customers and also employees.
• One of the big issues we're facing now involves redistribution of assets. In the agricultural age, peasants could revolt and seize the land; in the industrial age, workers could revolt and seize the factories or the buildings in order to redistribute the commonly accepted form of wealth. In today's world, the Internet provides us with a way to redistribute information and knowledge, and in so doing we redistribute the wealth currently associated with intellectual property. But even if information and knowledge become free, we don't know how to redistribute intelligence and the intellectual processes that know how to deal with the information. During the question-answer session, someone asked if the Internet represents a threat to Microsoft. Esther replied that Microsoft has become somewhat like a government and is able to take advantage of the standardization represented by the ubiquitous presence of Intel boxes and Windows operating systems: it essentially imposes a tax on hardware manufacturers to cover the pre-loading of Windows into every new machine, whether they want to or not.

But the Internet doesn't value this notion of standardization in the same way; contrariwise, diversity is valued on the Internet. So this does indeed represent a challenge to Microsoft, which until recently might have thought it could "own" (or at least dominate) the Internet. But if Microsoft adapts to the Internet culture, it could help prevent the ossification that comes with large monopolies, and it could stay lean and agile and aggressive.

What does all of this mean? Well, it suggests that there is a new and different economic model for consultants, authors, analysts, information-providers, and "knowledge-workers" who have enjoyed a fairly comfortable income over the past 20-30 years by jealously guarding the actual information content that they create; the profit has often been derived by making physical copies of the information (in the form of atoms, rather than bits, to use Nicholas Negroponte's metaphor) and earning fees or royalties on each copy distributed to a consumer.

In Esther's economic model, information-providers and knowledge-workers will devote a considerable amount of time and effort creating information which they consciously and deliberately distribute for free. A case in point: the modest, but slowly-expanding, set of Web pages that I've created has taken a considerable amount of time and effort on my part, and so far, nobody has paid (or even offered to pay) a penny for it. So either it's a silly and time-wasting hobby, or I'm making a voluntary contribution of my knowledge for the advancement of the human race :-) or I'm so egotistical that I think the human race really wants to know what I think about San Antonio ... or I've already instinctively concluded that Esther's model is correct, and that the eventual "intellectual value" of my work will occur in a deferred, indirect form.

I sure do hope Esther is right.