Corporations and Cloud Sourcing

By Kurt Cagle
March 8, 2009 | Comments: 1

The news out of the Bureau of Labor Statistics (the BLS) was grim this weak - the unemployment rate had reached 8.1%, climbing two whole percentage points in the last quarter. This rise is even more stunning given that unemployment had reportedly been stable for the past several years at around 5%, though this may also be simply a reflection that the numbers haven't been cooked quite so vigorously.

Should that 2% a quarter trend continue through the next year, there is a disturbing possibility that the US could be faced with 15+% unemployment, with that many again "partially employed" - working only a few hours a week, and some vulnerable populations could be looking at 25-30% or more completely unemployed (and as much as 40% underemployed)

This has a host of implications. People who no longer have jobs no longer have the money to pay mortgages or rent, put food on the table, pay for gas, or to buy goods, which in turn fuels the spiral downward as these force businesses to close, force tax revenues down which in turn forces governments into bankruptcy, and so on. This great unravelling may continue unabated for some time as people lose confidence in the institutions of their life, and become increasingly self-dependent.

One thing that this recession (depression?) has done, however, is to force people to start questioning first principles, which usually comes down to more closely examining one's dependencies? Do I need this cell phone service, or can I get both with VOIP through something like Skype? Do I need to make this trip by car, or can I get by with my bike and the bus? Which groceries do I really need, and which are luxury foods?

Slowly at first the loosest of dependencies get trimmed, then the deeper ones, yet curiously, the one thing that doesn't get cut is that Internet connection ... you hold onto it for as long as you can, then you try to arrange things so that you find out where Internet connections can be reached for free, even it involves stealing signals from your car.

I think there is more than just addiction here. For many, the Internet is a lifeline - so long as you have that connection, you have a chance. With Internet you have connections to job listings, you have a way to network, a way to announce that you're available and interested in finding work, even if it's not full time, or strictly above board. It lets you know where free-cycle goods are available so that you can put off making those purchases that you don't have to, lets you stay connected with others to keep your spirits up and perhaps most importantly, it provides a way for your to create and to share your creations with others.

Crowd sourcing is an interesting phenomenon, one that corporations have had difficulty grasping for some time. People contribute their time, their expertise, and their creations for nothing but a bit of name recognition. When crowd sourcing works, it can make a website or service worth millions or even billions of dollars, a phenomenon which many in the corporate world quickly learned to exploit, but it can also be seemingly fickle and evanescent. Where is the value in Facebook or Twitter? It's not in the code - the architecture for either is almost absurdly simple.

Rather, the real value in such applications is the crowd-sourced part - the creativity on the part of the participants. It's interesting to note that of the software projects that have had any staying power over the last two decade, most are ultimately crowd sourced (Linux, Apache, Perl, PHP, Drupal, Mozilla, Ruby, AJAX, the web itself) - they were created by people not because they were paid to do so, but rather because a real need existed and a particular person or group of people took the initiative to fill that need. For all that companies are jumping on the "cloud" bandwagon, the cloud itself, for the most part, has simply been a continuation of the same crowd-sourcing impulse that's gone on for the last fifty years.

The proprietary solutions are far more ephemeral. There's perhaps a good reason for this. Software development is a human endeavour, a creative endeavour with very tangible results. You are adding value with the work that you put in, but the value of this work is defuse - it takes time for such software, which ultimately is the creation of structures of language, to become sufficiently well embedded to support using it as a foundation for additional software, for the value to mature. In essence, it is an investment, and like any investment, it takes time for that investment to mature.

Proprietary software doesn't allow that maturation process to take place, because the goal is to sell the software then upgrade pieces and sell it again, preferably for a greater price than you sold it the first time. Some of that money goes back to the creators in the form of salaries, but more (far more) goes to investors seeking better yields on their money. In essence, much of the long term value of that software is extracted before the software becomes foundational, reducing the long term benefits that the software provides in the name of paying the ever-rising bills because the same process of value extraction is going on all throughout society.

Over the course of the next few years, much of the world will become value-based again. You work harder for less. Your reputation becomes your bond, and you get paid based upon results, not the number of hours you occupy in a chair. In that respect, cloud-sourcing is an investment for you - a calling card that gets you work, keeps you fresh, helps the community, and not so coincidentally enhances your reputation in that community. Money to pay the bills will increasingly come from a need for customization of what you create rather than a guaranteed wage, but even though you're making less, demand collapse causes price collapse as well - and other forms of wages, from reputation to barter, also tend to rise.

This works in both the virtual world and the real one (which increasingly are converging). Art becomes more valuable (after decades of it becoming less so, except as items of speculation) but the value of this art is ultimately a function of talent and skill of the artist and a reflection of the work they put in. Art is appreciated more for aesthetics, and less for its commercial appeal. We are, in many ways, entering an age of individual patronage, after an age where artists were paid primarily to sell goods by corporations.

Indeed, this is the crux of the current crisis, more than any other. Corporations are disaggregating, and in many cases disintegrating. Advertising, which was the mechanism that corporations used to promote their goods and services, has disappeared, which is a more telling indictment of the body blow that the corporation has received than any stock-market chart. Proprietary software (and hardware) is increasingly falling victim to the same trend - and without the ability for companies to promote their products, the advantages of proprietary software become far less obvious, if they existed at all.

Corporations proved successful in the twentieth century because they aggregated wealth, making it possible to gain huge advantages of scale, but that ultimately came at a price that may have proved to high. Such corporations also concentrated risk and political power, to the extent that it introduced extreme imbalances in the economy that are now causing the system to collapse worldwide.

If the economy were to rebound today, it's likely that the impact upon corporations would be minimal. Yet if the economy continues to deteriorate, as more and more of the middle class slides into poverty, the desire to place strong limits on such corporations will begin to grow dramatically, from forced transparency of assets and transactions to a fixed time limit for a corporation's charter to restrictions on size. These changes will make corporations more distributed, and will end up with more workers essentially in shorter term contractual arrangements with a constellation of smaller corporations, often remotely.

Meanwhile, the best contributors within crowd-sourcing (cloud-sourcing?) communities will be drawn closer in to these next-generation corporations via incentives and additional opportunities, assuming they don't nucleate communities of their own (or do both). In other words, there is a good possibility that within the next ten to fifteen years, most corporations will be indistinguishable from crowd-sourced projects.

In a hard recession, debts get worked down or are defaulted upon, expectations get reset to more realistic values, people become more thrifty and save more, real capital gets built up, rather than the illusion of capital through the manipulation of debt. Ostentatious wealth, often lionized in the previous era, becomes a point of derision, disgust and even hatred. Hard work, skill and talent become more appreciated. The only real difference this time around is that, just as the foundations of twentieth century capitalism really took off only after the Depression of the 1930s, the foundations of twenty-first century cloud economy, will evolve in the wake of the lessons learned in the next few years.

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1 Comment

Well said properitory technology value degrades when it reaches market but not crowdsourced technologies.

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