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Technomics: How to get rich and save the world in the digital economy

Is your company a bystander to the digital economy? Understand the three characteristics of digital goods, says an MIT Sloan professor, and you could be on your way to becoming filthy rich (or better yet, saving the world).

Erik Brynjolfsson, the Schussel Family Professor at the MIT Sloan School of Management and director of the MIT Initiative on the Digital Economy, was not at the recent EmTech 2014 conference in Cambridge to talk about how to make your company filthy rich. Rather, shared prosperity was his point. (By the way, that's Em as in emerging, not Dorothy's Auntie Em, although the whirlwind of cutting edge technology presented at this annual assembly of smart people certainly makes you feel like you're not in Kansas anymore.)

A professor of information technology, Brynjolfsson studies how businesses can effectively use IT in general and the Internet in particular. His latest book, The Second Machine Age, co-written with MIT Sloan colleague Andrew McAfee and a New York Times bestseller, is a serious examination of how digital technologies are remaking world economies and the implications of this revolution for our future state of employment. Vast swaths of jobs will be mowed down by digital technologies, leaving vast swaths of people with potentially nothing to do if they don't start adapting to this new economy.

Described by reviewers as ultimately an optimistic view of the future, the book warns that the seeds of economic discontent have already sprouted, and this is where Brynjolfsson began his talk at EmTech.

For the technologists in the audience who don't read the business pages, Brynjolfsson explained that productivity is at an all-time high. Household wealth in the U.S. climbed above $80 trillion in 2013, a new high. Gross domestic product (GDP) per capita has never been higher. Yet, as economists and the history books attest -- and 99% of us, give or take, are experiencing -- neither the wealth of nations nor the productivity of workers is a good measure of personal income. Median income in this country is lower now than it was 15 years ago -- for men, make that 30 years ago. Upward mobility is mostly the province of a miniscule minority. Brynjolfsson presented data showing that even the 1% has its own 1%, whose incomes in recent times have risen even higher and faster.

Erik BrynjolfssonErik Brynjolfsson

"It's been actually a pretty bad two, three decades for typical workers, and not just in the United States, but in a lot of other countries as well," Brynjolfsson said.

Or, if I may paraphrase the biblical verse, the rich are getting richer and the rest are out of luck. Maybe, Brynjolfsson said, but not necessarily.

Technomics

Technology has its role in the growing disparity between the haves and have-nots, Brynjolfsson said. In a digital economy, the automation of routine information processing means fewer information processing jobs for people. Robots write the earnings reports we business journalists used to churn out literally by hand. These machines do game-day summaries too. And now they are on to higher callings: Robots are learning to make medical diagnoses. Advances in machine learning are making robots more adept at physical work, too. The automatons busy stocking warehouse shelves today will one day become chauffeurs, driving the cars that aren't already self-driving.

We are on the cusp of another economic revolution, is Brynjolfsson's point -- technomics. Software and hardware and networks are creating more wealth, but not everyone is going to get a share of it -- fewer, in fact, than during any other economic revolution.

"It's possible that 50%, 60% [or] 80% of people will get a smaller share. For most of history, that has not happened," he said.

The audience at EmTech, many of whom by dint of their excellent brains are creating this new world labor market, should keep in mind that technology is "merely a tool," Brynjolfsson said. What we decide to do with it is up to us. (An important aside: The percentage of trust-funders on the Forbes 400 list of the wealthiest Americans has fallen from 60% in the 1980s to 30% today, due in part to the growing ranks of self-made tech billionaires.)

"Shame on us if we do not use this increase in wealth to create shared prosperity," he said. "We need a new grand challenge, not just to make a self-driving car or a robot, but a new grand challenge to reinvent our organizations, our institutions [and] our whole economy to use these technologies to create not just wealth, but shared prosperity."

Three characteristics of digital goods

It was a little like being at Sunday school, or in my case, eavesdropping on a Sunday school lesson for a privileged (and hardworking) class. And I sincerely hope the technocracy takes the speaker's message to heart.

That said, what stuck out for me in this talk was Brynjolfsson's excellent advice on what it takes to capitalize on the digital economy. Brynjolfsson explained that digital goods have three characteristics:

  • They can be replicated for almost no money.
  • The copy is an exact replica.
  • The replica can be transferred anywhere, almost instantaneously.

Digital goods are essentially free, perfect and unbound by time or space, in other words, almost godlike. Inventing a digital template that is first-in-class -- the easiest-to-use tax preparation software program, for example -- is a surefire means to wealth for the creator, because it costs nothing to replicate and the winner takes most markets. Consumers benefit by having cheaper, faster services. The people who lose out are the humans who used to prepare the returns.

Think about it. What software could your company create that everybody wants? (It would be especially good if it added as many jobs as it takes away.)

Let us know what you think about the story; email Linda Tucci, executive editor, or find her on Twitter at @ltucci.

Next Steps

More on technology and society:

The adoption principle in disruptive technology

Kurzweil: IT is changing our brains 

Christensen: Successful managers are programmed to fail

This was last published in September 2014

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Has your company invented digital goods that are making money?
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The bigger challenge with digital goods as compared to others is the fact that they are immediately obtainable, and the cost of giving them away is negligible. Previously, if a book publisher wanted to get a review copy out to people, they had to ship a paper copy and incur a real expense. Today, a PDF file costs almost nothing to distribute. That's good for supply side and having a product people can purchase, but it also allows for easy piracy and mass distribution where previously it was impossible. Digital goods are fine, but genuine engagement and a desire to buy those goods will make the difference.
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