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 Knowledge Economy
The Knowledge Economy, Digital Economy, Network Economy, Internet Economy and Information Economy are all interchangeable names describing our current economic system. Much in the same way land was the key resource in the Agricultural Economy, the Knowledge Economy utilizes knowledge and information as its key resources.
Fortunately Knowledge Economics are not of scarcity, but rather of abundance. Unlike most resources that deplete when used, information and knowledge can be shared and actually grow through application.
There are at least three interlocking driving forces in the Knowledge Economy which are forever changing the rules of business and global competitiveness:
- The information technology revolution
- The increasing pace of technological change
- The ability to distribute knowledge, or Globalization.
As the cost of computing and communication technologies sharply decreases, the reach to the consumers exponentially increases, putting these devises in the hands of more and more people and businesses. Technology is also constantly improving, getting faster and smarter with more relevant applications invented every day. With all of these devises networked together by the internet or other networking systems, there are unprecedented ways to utilize knowledge to produce economic benefits, such as knowledge engineering and knowledge management.
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| Wealth
- Wealth in the digital economy flows directly from innovation, not optimization. That is, wealth is not gained by perfecting the known, but by seizing the unknown
- The ideal method of cultivating the unknown is to nurture the supreme agility and nimbleness of networks
- The successful utilization of the unknown inevitably means abandoning what has worked in the past, and thinking outside the box
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| Relationships
The ability to individualize customer relations creates comfort, trust and eventually, loyalty. In the information age, the primary business unit is what we call the business web, in which groups of firms come together over the Internet. The primary business motivator is fulfillment, in which firms seek not merely to provide their customers with products, but also to build enduring relationships with them. While the virtue of deep relationships was always self-evident in theory, in the reality of the old economy, it wasn't practical. But now the ubiquitous, cheap, and interactive internet, coupled with enormous low-cost databases, enables producers to develop a direct meaningful relationship with each customer. Sellers and buyers maintain ongoing dialogue and customers expect products to be tailored to their needs and wants.
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| Mass Customization
Customization and individualization invariably become dynamic processes. By observing consumer behavior in real time, one can analyze consumer needs as they change and respond to them accordingly.
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| Information and Knowledge
The basic unit of exchange in the digital economy is digitized data. Everything which can be expressed as a sequence of ones and zeros is digitize-able (a bit in its smallest indivisible unit, is either a 1 or 0). This can be text, multimedia such as movies and music, and etc. Due to the capacity of ever increasing bandwidth, data transmission and its diffusion are accelerating even further. The endless vastness of cyberspace and ever-growing storage technology is providing an unprecedented capacity to ‘store’ this data, while its network effects see to it that the interactive data exchange increases exponentially. Starting from these new basic conditions, the positive loop effect of knowledge creation has greatly accelerated, and every variable of it is affected.
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Self Generated Content
One man gives freely and yet gains even more. Another withholds unduly, but comes to poverty." (Hagel, 1997)
eBay items, Youtube videos, Google searches and posted advertisements, and many other services like MySpace, Facebook, and Blog services have become very successful businesses based on user/customer generated content. Two key advancements in the digital economy are the ability of content generators to publish their content, such as eBay is doing, and smart applications that capture, organize, and then sell generated content like Google. Historically, content providers have tended to be very conservative with respect to the management of their intellectual property. The history of the video industry is a good example. Hollywood was petrified by the advent of video recorders. The TV industry filed suits to prevent home copying of TV programs, and Disney attempted to distinguish video sales and rentals through licensing arrangements. All of these attempts failed. Ironically, Hollywood now makes more profit from video than from theater presentations for most productions. The video sales and rental market, once so feared, has become a giant revenue source for Hollywood. When managing intellectual property, one's goal should be to choose the terms and conditions that maximize the value of your intellectual property, rather than the terms and conditions that maximize protectionism.
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| Economies of Scope
Economies of scope are cost-saving externalities between product lines. In the case of manufacturing, economies of scope exist when the production of good A reduces the production cost of good B (Tirole, 1988). In e-commerce, businesses can redefine economies of scope by drawing on a single set of “digital assets” (i.e. information about their customers) to provide value across many different and disparate markets (Rayport and Sviola, 1995).
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