Tag: peril

Putting the System Back into Social

On March 12, 2009

Social Media is a demanding master with the uncanny ability to determine the absence or presence of checks and balances. As a self correcting market, what you do not say can have a greater impact than what you do say.

Of Profit and Peril:

There are great perils in getting social media wrong and great profit from getting it right. Kids posting negative images can be haunted forever. Corporations hawking wares can erode their brand. Egocentrics touting their own magnificence can find themselves isolated. Yet every day, people are controversial, people are selling stuff, and there are is no shortage of egomaniacs in social media space – what are they doing right?

Family Values:

Corporations and individuals are finding out that the social media space requires a much larger degree of disclosure than traditional media simply because markets are most efficient in an environment of perfect information – that is, when the buyer and the seller have the exact same information as the other when negotiating a transaction. Only then can the magic of supply and demand arrive at one correct “valuation”.

By contrast, an inefficient market of imperfect information cannot arrive at a true price, rather, somewhere in a range of prices. This is defined as volatility. When the price is unknown, transactions fail to occur, and markets devalue. Volatility is the enemy.

Perfect Strangers:

As entrepreneurs have increasingly perfect access to information, it is no longer a successful dominant strategy for corporations to withhold information. The corporation no longer competes with their nearest competitor; they compete with perfect information in the reputation market. So what may seem like the wisdom dance of an enlightened industrial complex is really a shrewd and long overdue acknowledgment that perfect information is in the best interest of everyone.

Neighborhood watch organization:

The next step for Social Media will be the most powerful manifestation of perfect information ever to be crowd sourced; systems of checks and balances. Where checks and balances are in place, information improves. If not, information decays.

An easy way to determine the presence or absence of checks and balances is to remove one element form the relationship and see if the other two become disassociated. Inversely, one way to creating checks and balances is to associate two elements by means of a third:

Triangulation:

1. Information, knowledge, and innovation; Without one, the other two have little value.
2. Social Capital, Creative Capital, and Intellectual Capital; Without one, the other two have little value.
3. Openness, communication, and accountability; Without one, the other two have little value.
4. Trust, self expression, and connections; Without one, the other two have little value.

Etc.

Putting the System back into Social

The difference between success and failure depend your ability to systemize the social media presence. Sound confusing? It shouldn’t be. When you think about it, there rules are not much different between managing social media relationships and off-line personal and business relationships.

Social Media; An Alternate Universe of Wealth Creation

By Admin

On December 21, 2008

In General Information

The Known Universe

Computer enabled society has been called an “alternate universe“. If Social Media intends to make serious money, perhaps it should act like one as well. In finance, Risk is also often called an alternate universe.

Beneath the surface of this little 4 letter word resides a complex network of financial instruments that do far more to channel and direct the flow of money than any commercial trend, marketing campaign, or hot new web app.

Risk is actually a very simple thing to understand. All you need to do is answer all three of the following simple questions:

1. Can I identify the peril?
2. What is the probability that the peril will get me?
3. If it does get me, what are the consequences?

The Insurance industry is absolutely gigantic – too important to fail – yet it produces nothing that can be held in the palm of one’s hand. Insurance lives and breathes in an alternate universe of information. Any place where these three questions cannot be fully and completely managed, you will find an insurance product. Where there is no insurance product, there is no capitalism.

Here is how it works: suppose there are 10 identical cabins in the woods. Each cabin is worth exactly 1000 dollars. There is a 100 percent probability that 1 of cabins will burn down every year, but nobody knows which. Therefore, each cabin owner needs to have 1000 dollars sitting in a savings account in case their cabin burns that year. Together, 10,000 dollars sits in a bank not being invested in productive enterprise. Along comes an insurance company to reorganize the assets by offering to replace any cabin if all 10 cabins agree to pay 100 dollar per year premium (plus an admin fee). Now each of the cabin owners can pay 100 dollars per year and release 9000 dollars to the economy as productive capital.

Insurance opens the floodgates of wealth creation; bankers lend, investors invest, and entrepreneurs innovate where risks are reduced to zero; all bets are hedged. But there is a trick; the peril must be identified (fire), the probability must be known (10%), and the consequences must be quantified ($1000). This only works if the assets are pooled in identical lots that have the same probability of loss and suffer the same fate. This is valuable information and it’s worth a whole lot of money.

Social Media is poised to open the floodgates of wealth creation in a similar way – by connecting local communities, neighborhoods, peers, and colleagues with computer enabled society. Today, it is often easier, cheaper, and safer to make friends online than in person, but nothing tangible can really happen until the rubber meets the road; people need to congregate. The Ingenesist Project suggests that the 3 dimensions of human capital, creative capital, and intellectual capital can be identified, normalized, quantified and pooled into risk sharing cooperatives through social media as a means of eliminating innovation risk.

The trick is for society to organize itself in a slightly different way – this is where Social Media needs to position itself with the next generation of applications. If so, the business model for social media will become hugely important to an innovation economy – too important to fail.

The Next Economic Paradigm

Tag: peril

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