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It's a communication and connectivity revolution; vive la revolution!

Leo Mullins, Information Age

12/05/2007 14:55:11

Recent social history of the world is marked by change points evidencing the bifurcation of social eras. The industrial revolution was the first, followed by the technical revolution and now by the connectivity or communication revolution.

As with the previous revolutions the connectivity or communication revolution is impacting the social fabric of society. These impacts will be more severe, global and will happen at higher speeds and frequency, affecting primarily, the current dominant social institutions and political power blocks that developed out of previous eras.

Without responsive change these institutions will not maintain their relevance to the communities they serve. The industrial and technology revolutions have shaped our institutions as we know them today. Our education, healthcare, legal, and governance institutions and activities developed and were organised mainly to support the needs of commerce and the multinational corporation (MNC) entities of the times.

As we enter the 21st century we are now experiencing a different revolution: it is the age of the knowledge worker, of global data access and instantaneous transactions, the empowerment of the individual, the blurring of technical enterprise boundaries and democratisation of the MNC. The power of MNC dictatorial control over global trade and domination of mass markets is waning . This is due to the communication or connectivity revolution consolidating the increasingly valuable global digital economy.

The growing commercial power of individuals and small and medium enterprises (SME) able to operate globally enable them to compete with MNCs. As transaction costs fall, more sophisticated processes become better able to be performed by smaller specialised entities and individuals than MNCs. This is the age of cooperation and integration.

This revolution is changing the world's concepts of value. It is generating a growth in awareness of environmental costs, the health and well being of participants and the environmental sustainability of commercial activities. These are becoming vital components to be accounted for together with traditional financial metrics in the more appropriate, fuller, measurement of value of the future. This revolution is demanding the collation of yet more information from commercial systems.

The driving force of the communication or connected revolution is the Internet; this networked anarchy of networks is connecting the globe. Its primary effect is on the size of effective commercial entities, and corporation size is related to transaction costs.

Before, corporations grew to their present size in order to optimise their ability to minimise transaction costs. Smaller entities and individuals are now able to handle complex transactions. Serious competition to MNCs is being provided by smaller, swifter, integrated, SMEs and individuals working together, quicker and cheaper.

To take advantage of the new opportunities created by the global reach of the Internet, governments have an important role to ensure that their communities are appropriately educated and have access to the necessary infrastructure, information and intellectual property rights (IPR) to enable them to accumulate knowledge locally so that they can participate in the increasingly connected world economy.

Communication, connectivity, law, government, and the economy To be relevant, governments of the future need to be fully supportive of their communities' commercial digital activities. This requires intense communication and understanding in the areas of communities' educational, legal, commercial and environmental needs to fully develop adequate interfaces with the digital economy. Any failure to ensure their communities, competitiveness in the global economic and commercial trading environment undermines government's relevance and ultimately threatens its existence.

Connectivity is the central agent of this change. Today, Australia is considered to be lagging the world with only 70 percent of its population being somewhat connected to the Internet. Sweden, Iceland, Japan, Korea, and many other countries outstrip Australia in both actual connectivity and data volume access capacity with Australia and the US dropping to 19th and 10th in the ranks of the world's OECD's communication infrastructure environments.

With communication and connectivity now a prime requirement for economic competitiveness, these issues become a real cause for concern.

The role of IPR, digital products and the economy Digital product and electronic commerce is an increasingly significant sector of the global economy. Intangibles account for 70 per cent of the current value of equities in the United States: A Federal Reserve study found that 47 percent of all intangible investment lies in computerised information (software and databases).

The growing value of the knowledge economy makes access to and protection of knowledge crucial. Government's role in IPR governance is vital. Communities need to be assured of fair and strict enforcement of IPR law to protect their own and others' intellectual property. Without secure ownership rights a community has no incentive to generate value or attract externally owned IPR.

The value of good IPR governance in the digital arena is undisputed. Countries with bad IPR reputations, especially with regard to digitally-based products, and underdeveloped or weak legal institutions, poor legal governance and enforcement, are now severely disadvantaged.

Unless these countries make serious attempts to improve their IPR systems and the global perceptions of their IPR governance they will be permitting a huge disservice to their citizens. In failing their community they threaten their own existence.

The problem with digital product and the Internet There are many perceived problems with value and identity of the Internet. It is viewed simultaneously and alternatively as a new medium of communication, entertainment, sales and education; as the new way of business, from worship to terrorism.

The Internet, however, is simply a global network of computers. Approached at its most basic level, like all business problems, the problems of digital product and Internet are about value.

Digital product value is directly associated with exchange of utility. The increasing ubiquity of the Internet and connectivity convergence towards the Internet is having increasing impacts on all value concepts concerning use and ownership of digital product and digital assets.

People's needs are met and generate value by trading wants and surpluses. At its root, trading is based on the fundamental concept of "fair exchange". A fair exchange is one where a party gives up possession of a good or services in reciprocation of another, taking possession of an equivalent value good or service and vice versa.

Commercial trade results in balanced transactions recording and measuring people's perceptions of value exchanged by the parties involved. In short, the primary nature of trade is its consensual agreement of value-based on perceptions of fairness and equal dealing. The digital age has introduced new products, extended the geographical reach of traders and increased the speed and volume of trade transactions to create new value and information never before available. The impacts on the economy are significant.

The Internet and digital IP rights Contrary to the usual expectation of decreased value from increased supply, the digital age has seen increases in value from increases in the supply of information. The value of this information is growing and now far exceeds that of traditionally traded physical goods. In the digital environment new complexities are introduced to the trading process. Without adequate IPR protection the most obvious is the almost costless capacity to replicate valuable digital product. Other complexities relate to: the high-speed degradation of data's value, instantaneous transactions, global transactions, transaction volumes, and logistical technical problems attributed to the incorporeal intrinsic nature, transmission, storage and retrieval of digital goods. Digital trading, the very system responsible for creating value now becomes the system that can instantly destroy the value created if effective IPR governance is not built into the digital economic environment. Unless the ability to replicate data is kept in the hands of the supplier, the value of a surplus data commodity vanishes once trading commences.

The Impact of the Internet on the value of digital property The scale of the IPR governance problem grows as the Internet expands and connectivity increases. This is creating demand for effective implementation of proper digital management (DM) of IPR by users and owners of digital content.

The scale of the problem is evidenced by the current debates: • File sharing - "who owns the music?" • Open source code licensing - "free or open code licensing versus propriety code licensing". • Patenting software code - "ownership of ideas and application of copyright law". • Software on demand, software as a service - "price of access to software" • Copyright of data and content ownership - "stopping piracy without destroying distribution channels".

An example of the importance and relevance of the digital IPR governance phenomena is most clearly illustrated today by the struggle of the MNC establishment to prevent the collapse of their traditional music and movie industries in the face of digitisation.

A solution to trading and exchange of value in the digital market is urgently required.

Digital product administration and digital IPR governance Any solution must lie in recognising that the utility value of data cannot be efficiently traded at the "point of physical exchange". It has to involve recognising value at the "point of utility exchange". This is where and when data or information are accessed or used by the buyer.

The source of Internet discontent is attributed to the lack of an Internet-based commercial layer required to measure this "point of utility exchange" value. Without a commercial layer there is no inherent security and no business metrics to administer the ownership of digital product and thus control their use at their owners' direction.

A system of trading digital product administering the "value produced" or "utility value" of a digital product (pay as you use) rather than the traditional "media transfer" types of exchange is fundamental to the future of digital IPR governance and proper integration of the Internet.

This requires digital trading platforms of the future to: • secure data and information continuously, • authenticate access at a digital product's point of use, • use accurate and flexible measurement metrics to measure and report all and any value exchanges, • enforce trading rules over access to uniquely identified digital product value events governed by auditable legal agreements between suppliers and consumers, • and to provide evidence of agreement terms and conditions of values traded. The system has to work in real time or near real time on a global basis in order to support proper trading of digital product now and into the future. Dynamic digital IPR systems and dynamic DM are central to the future of the digital economy. DM will support the market's fast growing realisation that the future is SaaS (Software as a Service), SoD (Software on Demand), and PAYU (pay as you use). DM of IPR revolutionises accounting and administration of all the economic and commercial aspects of digital intellectual property. The implementation of DM will demand new specialist paralegal/accounting services to support IPR governance requirements of communities and governments, such as: • Meeting improved digital product deployment goals • Development and analysis of selling models • Optimum pricing levels and selling strategies • Treasury and accounting administration • Global tax compliance and statutory obligations • Billing and collection services via payment and banking portals • Automatic integration of ecommerce and electronic banking transactions with financial accounting systems For the information technology industry itself, DM will be of significant and direct benefit, since the software sector is by far the largest producer and seller of digital products.

Conclusion The future of the traditional software industry, based largely around boxed software product, the enterprise software industry of big deals, and concentrated corporate and local computing, is untenable. The next generation of digital product value builders is going to be serviced-based. Hardware value is becoming dependent on the services that it supports. The move to trading digital product and data at its point of use is inevitable. The technology to support point of use data exchange and to administer IPR metadata already exists and the market is increasingly demanding it. Software on demand, software as a service, and pay as you use are terms that were unknown a year ago but are now common terms and concepts in the digital product market place. Above all, economic value is all about measurement. Government, accounting and consulting professions must also take notice. The centre of this digital product trading revolution will be the development, implementation and use of a commercial billing layer on the Internet. This is the "Digital Land Titles Administration" aspect of the cyber world that has yet to happen in order to enable proper ownership of digital property and supporting efficient and effective business metrics required to account for "digital rent" that underpins the accumulation of ultimate digital capital and facilitates the growth of the economy. Footnotes 1. Charles Handy (2001) The Elephant and the Flea, Random House 2. James F. Moore (1996) The Death of Competition, John Wiley and Sons, New York 3. Ronald H. Coarse (1937) The Nature of the Firm, Economica Chicago 4. Romer, Paul (1993) Economic Growth" in the Fortune Encyclopedia of Economics, David R. Henderson, ed., Warner Books. 5. ITU Digital Access Index: World's First Global ICT Ranking. Education and Affordability Key to Boosting New technology Adoption [http://www.itu.int/newsarchive/press_releases/2003/30.html] accessed 1 December 2006 6. Robert J. Shapiro and Kevin A. Hassett (2005) The Economic Value of Intellectual Property [http://www.usaforinnovation.org/news/ip_master.pdf] 7. ONE HUNDRED NINTH CONGRESS SECOND SESSION (2006) Annual Report of the Congressional-Executive Commission on China, p. 16

Leo Mullins is a specialist in digital management and the inventor of Optimiser's patented Web service technology for "point-of-use" control of deployed digital assets. Before founding Optimiser as a Chartered Accountant, he was an independent financial/MIS systems consultant and public company finance director. lmullins@optimiser.com

Copyright  2007 Author Leo J. Mullins. The author grants a non-exclusive licence to the Information Age to publish this document in full on the World Wide Web (prime sites and mirrors) and in printed form. Any other usage is prohibited without the express permission of the author