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Economists (and all of us) need to wake up to the fact that standard economic theories and models just don't work in today's global information economy. The interactive information industry () is rapidly evolving a new type of economy, which will gradually collapse value chains and distribution chains and drastically alter the roles of people along those chains. The global information economy is accelerating information flow, decisions made based on that information, and the speed at which decisions are carried out.

All this will bring significant changes in the corporate world and will force people in fields like advertising, research, accounting, and retail to rethink the way they will do business in an interactive, online world.

Introduction: School's out for the decade? Have you noticed how almost every week you can read a commentary by a respected, well-credentialed economist, and then the next week read one by another equally respected economist who completely disagrees with the other? Why is it that we have all these economists running around who can't agree on anything anymore?

Well, we think it's simply because the somewhat dismal science of economics just doesn't work anymore. Despite all its various schools of thought, classical economics has not yet been able to adapt to the huge impact and peculiarities of the information industry.

Old economics worked something like this: Galbraith had a pile of stuff, and Smith wanted some of it. Galbraith would sell a unit of stuff to Smith, so Smith would have a unit of stuff in his pile and Galbraith would have one less unit in his. It was a zero-sum game. Further, if Marx were making widgets from stuff, he could produce only a fixed amount of widgets from a given amount of stuff.

Insights: Old Economics Don't Work The problem with this is that in the world of I3, information doesn't come in discrete units: it multiplies by itself, and it grows. Information is never depleted. The value of the "pile of stuff" is dependent upon what other "piles" of information you own and what relationships exist among the piles. In today's world, there can be very complex relationships between units or piles of information.

There are all sorts of interesting interactions to consider, not the least of which is this: If I give you some information, I still have what I gave you, and now you have it too. No longer a zero-sum game. My pile has not shrunk, but your pile has grown. And in fact, the new little piece of information I gave you may have a multiplicative effect on the value of your information rather than an additive effect. Your stuff might be worth more than mine!

These are the interesting, perhaps bizarre, sorts of questions that economists need to be studying and answering today. Economists haven't incorporated these effects into their theories, but we can't wait. In the explosive world of I3, things are changing as we speak....

Insights: Information Drives the Rest of the Economy Economists need to admit that the information economy has become a major part of the gross planetary product (GPP)óin fact, it is fast-becoming the driving force for all the rest of the GPP. Information technologies from EDI (electronic data interchange) to email are enabling not just the services information sectors but the manufacturing, material goods, and mining sectors to become more efficient as well.

Opportunities: Faster, Better & More Decisions I3 is accelerating information flow, decisions made based on that information, and the speed at which those decisions are carried out. For example, most companies have a huge variety of databases they use to operate their businessesóhowever, most of these databases are not connected. An individual employee has access to one or maybe two of these disparate databases. Most likely, the employee is left in the dark about other functions within the company he or she may need to know about. This clearly must change in the new age of downsizing and re-engineering.

Imperatives: Establishing direct links What steps should companies take to begin adapting to the information economy?

1. The first thing companies must do in the I3 age, if they haven't already, is to,tie together their disparate databases, create usable interfaces, and allow employees to access all the information they need in a timely manner.

2. At the same time, companies should consider using EDI or other standards to connect suppliers and service providers to the company's database. This connection will likely produce improved responsiveness, inventory control, and quality control.

3. Companies should begin setting up an interactive link to their individual customers/clients. This will enable direct sales to the consumer via interactive systems.

Big changes in retail, advertising, accounting, and market research

Impacts: A Malaise of Middlemen This new information economy will collapse value chains and distribution chains and drastically alter the roles of the people in various positions along those chains. It will have a tendency to tie manufacturers directly with suppliers as well as to consumers. It will also enable employees to be more closely linked with all parts of their company and with external suppliers and customers.

This scenario presents a number of interesting and important side effects. One of the most noticeable effects will be the elimination of the role of the middleman. The role of the retailer will be retained (certain people will always want a real look at goods being purchased; a poor, low-resolution picture of the goods will never take the place of a hands-on, in-person viewing). But the retailer may evolve in the coming years to be a "showroom and order-taker"óshow an item and take order for itóas well as a customer-service center. The retailer would hold no inventory, because products would be shipped directly from the manufacturer upon receipt of order.

Impacts: From Targeted to Requested Ads Another potentially huge change is in the world of advertising. Advertising will expand in many ways, giving more value to the end user. Advertisers may become almost "sales counselors"ósomething of a cross between the Shell Answer Man and Mariam the Librarian. They will have to answer the tough questions and perform comparison shopping.

Image and fluff advertising will probably always be here, but the growth of infomercials and hard-fact pieces, as well as information on-demand about specific products, will become a major part of what advertising agencies do. As the Internet and the commercial online services move toward more and more retail transactions with end users, advertisers and agencies will need to adapt quickly to both enable and take advantage of the situation.

Impacts: New GAAP (Grossly Accelerated Accounting Procedures) Establishing a direct link with customers affects even business-related services like accounting. Take a look at accounting, for example. What happens to 30-days net when everything is on demand? What happens when you have 10,000 customers per hour instead of 10,000 per month? Accounting systems will clearly need to change in dramatic ways to take on both the complexity and the volume of dealing with online consumers.

Impacts: Continuous Focus Groups? A direct link with consumers presents a whole new world for market research as wellówhen you have direct contact with customers, you won't really need sophisticated market research in the way we use it today. What you'll need is a means to track every transaction and record data about it. The focus of market researchers will shift to tracking large real-time databasesóthere is no substitute for real-time information, coming directly from the consumer, about purchases.

Market researchers will need artificial or human intelligence to analyze the database information. Research can be done in either a clandestine way, in the background, or can be done with full knowledge of the user. The privacy issue can be overcome with a quid-pro-quo. Generally, if you give something of value to the user, they will allow you to gather all kinds of information about their purchases, previous purchases, demographics, and usage preferences.

Impacts: Re-enabling the individual The I3 also vastly accelerates the "underground" economy that exists today and is a major unmeasured portion of today's GNP. This is because everyone who is on an interactive service can become an information provider himself. Just look at the Internet today and how it is used by the average end user: by far, most of the information that flows across the net consists of email messages, chatting, file transfers, databases, and document publishing. This is information created by individual end users.

These end users will be able to conduct commerce directly on the interactive services networks, and this will enable them to extend their reach far beyond the confines of their home, far beyond even their home state or country. We think this capability will re-enable the individual, the little guy, and will create whole new cottage industries all across the world.

In fact, we think it will bring rise to a redevelopment of the medieval concept of guilds. We'll see virtual corporations and virtual guilds develop spontaneously, drawing members from all over the globe. The multiplying power and the global reach of interactive networks will create a whole new way for small businesses and individuals to meet customers, qualify customers, and sell to customers.

The character and value of information grows mightily when it is easily accessed, widely distributed, and instantly transferred. Future winners in the business world will be the early adopters of I3 technology and cybereconomics. Companies need to look closely at the impact of cybereconomics on their business plans and models. Understanding a company's position in the value chain--and getting ahead of the chain's collapse--is essential.

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