Externalities of Openness and Sharing

Noted authors Don Tapscott and Anthony Williams in their book Macrowikinomics describe current system as the driven through networks leading them to describe it economy resting on networked intelligence. To them, collaboration, openness, sharing, integrity and interdependence emerge key success determinants in the networked information economy.   The emergent network intelligence was itself a product of rapid diffusion of internet downstream at a pace that surprised even its most exuberant adherents. Rather than irrational exuberance, the diffusion of internet seems to be an outcome of rational exuberance. Long deprived of information access, analysis and distribution thanks to the constraint of brick and mortar economy, internet threw open the floodgates.

The principles illustrated above without doubt have defined a new stream of thinking and practice. Dynamic environmental indicators have changed the way we perceive environmental impact of our socio-economic activity. Organizations desisting from engagement with their stake holders be it vendors or the customers might find the floor underneath them dropping quite fast. The importance of these principles have been discussed in depth here.

Yet as with any other thought or practice, there are unintended consequences. A case in point is Netflix adoption of openness and sharing. For firms like Netflix, recommendations are very vital in building an ecosystem of complementary products. The more refined and personalized the recommendations are the more likely customers will choose to watch those shows and adopt the platform as their primary platform. In an ecosystem of near infinite inventory, value creation is derived of these by-products and improvement of by-products necessitates the presence of what Chris Anderson describes as ‘Little Brother’. The ‘Little Brother’ builds you up the recommendations to fostering a ‘cornucopia of commons’. Yet the process of these by product creation would be tedious. Netflix approach was to utilize the principles of openness and sharing as illustrated above. The data would be anonymised and be made part of the contest which would involve hundreds of amateur enthusiasts. Sharing and openness were the mechanisms through Suroweicki’s Wisdom of Crowds would be in action.

Privacy was protected on paper, yet, to many who keep reviewing products on Netflix do not confine themselves only to that platform. Movie review platforms are numerous and it is highly probable that reviewers post on multiple platforms. With some rudimentary technical knowledge, it is possible for a participant in the contest to find out the identity of the reviewer. As it is there were instances where reviewers alleged a violation of their privacy. A closeted lesbian sued Netflix for potential revealing of her sexual orientation to her husband and children. Her lawsuit alleged insufficient anonymization of her data.

This makes potentially difficult for other companies to follow suit. For a financial services firms, putting out data in the domain of collective intelligence might save them costs of analysis and refinement of products yet the prospective privacy of customers being compromised might entail too high a cost. There is no doubt a certain trade-off that is entailed. The financial service companies often face themselves at the receiving end for the lack of transparency with reference to their credit card limits etc. Allegations often happen that there are inherent biases in these credit decisions. A smoother way of resolution of the same would be without doubt a movement towards openness and sharing. However, as the Netflix incident demonstrates, the pitfalls could make these moves a non-starter.

As pharmaceutical companies would reveal their data on patient trials for collective problem solving, the mechanism to protect the patient confidentiality is paramount.  In fact Novartis was one of the first to adopt sharing a key strategic tool in their research and development armoury.

In some cases, the externalities generated might be inconsequential but in case of firms dealing with highly confidential information, these might have to be factored in before moving towards the new economic principles. The catch however, is the alternative centred on traditional in house models would not just be time consuming but entails investment of large amount resources. The business idea behind the principle of collaboration, sharing and openness at some level conscious or subconscious is conversion of capital expenditure into non-recurring expenditure via operating expenditure. Nonetheless, a Catch-22 for those in play!