When I studied economics in the early 1980’s, we learned of the Coase Theorem, which always fascinated me. The Coase Theorem, is attributed to Ronald Coase, who has since earned the Nobel Prize for Economics (1991).
It occurred to me recently that the Coase Theorem may have some fascinating implications for the property rights of information stored in the Cloud.
The Coase Theorem, as I recall it, goes like this: Regardless of who owns resources initially, given clearly defined property rights and zero transaction costs, resources will always be allocated most efficiently at the end of the day.
This makes for some really interesting discussions about the Internet and property rights to information. The theorem is particularly relevant for discussion for two reasons. Firstly, in the internet world, transaction costs asymptotically approach zero, meaning that the costs of transferring or asserting ownership of information is infinitessimally small, and getting lower all the time. Secondly, property rights are subject to a whole range of debates around privacy, rights to share, rights to mail, sovereignty, rights to access. So if property rights can be defined, the best allocation of resources, according to the theorem, can be ascertained.
For the first time, we have a situation where the theorem can be tested on a massive scale due to the low transactions costs being so low as to be unimagined when the theorem was first postulated. Economists are famous for proposing academic models, but here we have one that can actually play out in real life, where the focus is on the property rtights not the transaction costs.
So what does this imply – more research will be required on this I am sure, but initially there are some interesting trends emerging. We are seeing some stupendous valuations placed on the holders of the information we have. Facebook stands out as a particularly interesting case study because of the ownership debates and the sheer scale of data being pushed through that platform. Google is interesting because it can figure out what we are interested in and match that to marketers.
What does this say about the valuation of our personal data? Will a greater understanding of the Coase Theorem as it applies to the Web 2.0 put a value on our personal data? our spending patterns? There are already small examples of people receiving money for their data, their opinions, their search history, their web trails. Also, there are plenty of examples where people are paid in the forum of free software in exchange for the right to deliver advertising.
One thing is certain – we should not be giving up our rights to our data without fully understanding how valuable it is. The Coase theorem suggests that there is more value to than would appear on the surface and a little care should be exercised in the way we manage this intangible property.
I will have to think further on this.
Here’s a thought: Imagine needing a solution for processing diverse vendor bills or handwritten documents digitally with 100% accuracy. Imagine these come in continuously but without any idea of frequency. Obviously if you can provide some sort of API then others can hook into your system directly, but what if you are dealing with consumers who won’t use a computer? With Amazon’s Mechanical Turk you can programmatically assign these tasks to the public in a bidding system where you set the price of the request. You can make three independent requests for someone to enter the data into your database, compare the results for the three, and only if the three match do you consider the record processed. If one of them doesn’t match the other two you would go out with a new request and keep doing so until you get three that match. Any one who did not match would be marked with a demerit and if they earn enough demerits you would block them from accepting future tasks. They would also be incentivated to do well because it would affect their public rating.
The cloud enables all sorts of variations of this model. It provides a means to connect low-paid service providers with companies who require tasks to be completed quickly and efficiently at very low cost. In essence it is similar to the microcredit schemes initiated by the Grameen Bank in Bangladesh and others in the sense that it opens up avenues of empowerment, but this potentially opens up opportunities for corporates to benefit as well. Incidentally, the founder of the Grameen Bank Muhammad Yunus won the Nobel Peach Prize for his work.
For many businesses this scenario is a frightening nightmare scenario – the encapsulation of the very things that prevent them from considering the cloud. And in many cases, this is simply not an option. But it creates an interesting thought experiment – how far can we go in the interest of efficiency to open our systems up to micro-outsourcing arrangements like this?
I suspect that over time scenarios like this will become more acceptable. Today though, I can’t see many people signing off on an implementation like this. If it were me, I would be looking to SOA models and trying to get suppliers into a B2B relationship. Years ago EDI would have been the way – if you wanted to be a supplier to one of the big department stores, you needed to hook into their systems. But this is a digression – the example postulated was about non-technical integrations.
But it begs the question about why we are so focused on concerns about privacy in the cloud to the exclusion of the benefits – sure, the above example opens a Pandora’s box of privacy concerns and would be almost universally rejected , but what about the normal, regular uses of the cloud? For most scenarios the lengths the major cloud service providers go to to ensure data is accessible by only those who should see it should allay any fears – after all, typically, the big cloud providers have a lot more to lose if they leak corporate data.
It is not the cloud vendors we should be fearful of, it is the way we choose to use their services; it is the way we choose to run our companies, it is the way we choose to view the world in which we live.