Friday, January 14, 2005

The Economics of Ideas

by Asim Jalis

I am much better at thinking up stuff than at doing stuff. I use a lot of little tricks to stay focused and to get things done. Thoughts and ideas are effortless. Execution is hard. In our conversations about entrepreneurship and money, we have focused on ventures that are based on tangible products. In fact most of the economy is based on tangible products so this focus is natural. Since tangible products require focused work, and the act of creation, it is hard, at least for me. Tangible products have a lot of tedious mind-numbing details that have to be taken care of. It's all hard work. But what if instead we focus on ventures that are not based on tangibility. What if we instead look at how to leverage ideas. Most idea-based ventures flounder because they assume that the market place of ideas works like the market place of products. This seems like a natural assumption, except it is not quite right. For example, while products have a cost of production and distribution, ideas can be propagated with very little expense. It is quite easy to leverage other people to spread the word about ideas. People voluntarily and unintentionally become meme salespeople. Consider, for example, XP. There is no product. It's really just an idea. And there are thousands of evangelist programmers and managers pushing for it in their companies. Compare the success of XP with other methodologies that are not freely available. Compare it with TSP and PSP which are only accessible through expensive seminars and courses. It is possible that TSP or CxOne work better than XP. But we will never really find out. The economics of ideas are so different that the traditional thinking of hoarding and hiding, does not make sense. The key difference between products and ideas is that products have a really weak second-order effect. The person who buys the product gets a lot out of it, but other people around him are unaffected. On the other hand, ideas can have a really powerful second-order effect, where each person who gets infected with it can share it with others for free. Based on all this it seems obvious that ideas that are freely given away are much more likely to succeed than ideas which are saved for later. Another neat thing about ideas is that they can freely build up on other previous ideas. The free economy of ideas allows this to happen naturally. In fact, it's much easier to collaborate on ideas than it is on products. It is even possible to collaborate with dead people on ideas, through their writings. Growing ideas in a stable specific ecology also gives the new idea some credibility. To summarize the basic principles of idea economics are: 1. Build on existing ideas and context. Leverage them. 2. Share as freely as possible. 3. Look for mediums where the ideas are likely to spread. 4. Focus on spreading the idea rather than making a buck.