The Ingenesist Project

The Next Economic Paradigm

Tag: ROI

Social Value Creation: How To Manufacture Wisdom

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On October 29, 2010

In General Information

We call this wisdom

In the old days, the hiring manager was the person to know if you wanted to get a job. They would read your resume and compare it with the “bell curve” in their mind.  This bell curve contains a statistical sample of all similar situations that the manager has witnessed, the variables involved, and a range of outcomes observed across their long and illustrious career…Ohhhmmmmmm

We Call This Simulated Wisdom

Modern HR systems try to simulate this wisdom through a series of innovations such as key word search, structured interviews, personality tests, and employee incentives. Now we can use Google (an information company) to derive sort of a proxy for wisdom as we assess search results in our own image.  Facebook and Linkedin go a step further by providing us with another filter through which to pass judgement upon a future employee or partner.  The problem is that the more we look into these systems, the more they deliver back to us a reflection of ourselves…Ohhhmmmmm

Social Media vs. Normalized Intellectual, Social, and Creative Capital

The Data need to be Normalized

The world has become so strange, complex, technological, and interwoven, that no single person can possibly posses such a vast and broad set of experiences as to arrive at an optimized outcome every time.   Innovation favors strategic combination of diverse knowledge unlike the Industrial revolution which favored identical packets of similar knowledge.  The Innovation Economy will require a completely new approach to social value creation.

The Social Credit Score

Not unlike the FICO score, the knowledge inventory is a collection of potential knowledge events where the social network is a reporting agency that has a vested interest in meaningful knowledge events. Unlike FICO however, the variables for knowledge can be infinite (think of the Dewey Decimal System).  Also, a Social Credit Score would respond to positive events rather than a finite set of negative “hits”.

The Percentile Search Engine

Instead of just returning information, this new search engine must return probabilities from which an entrepreneur may test scenarios related to the likelihood of executing a particular business process at a known time, cost, proximity, ROI, etc.

Example

Innovation Economics

An entrepreneur may want to know if her team has enough knowledge to execute a business plan. Perhaps the team has too much knowledge and they should try something more valuable. Maybe the team does not have enough knowledge and they should attempt another opportunity or accumulate training.

Valuation of Knowledge  The search engine can look into a network and identify the supply and demand of a knowledge asset. If it is unavailable or too expensive, the search engine can adjust for price, risk, or options that may emerge at a later date.

Business Intelligence Organizations can scan each other’s knowledge inventory and decide to compete, cooperate, acquire, or evade.

Knowledge management If a key person retires, the entrepreneur would simulate the knowledge that is lost and reassign people strategically.

The Secret Sauce  Companies such as Disney and Boeing both use Engineers, each would have proprietary algorithm of knowledge that represents their “secret sauce” of success. These recipes can be adjusted and improved to reflect and preserve the wisdom of an organization. Over time, these algorithms will become far more valuable then the Patents and Trade Secrets created by them – this will allow technologies to be open sourced much more profitably and shared across more industries.

Eventually, we will learn to manufacture wisdom …OhhhhMmmmmGeeeee

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Social Capitalism And The ROI For Social Media

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On September 9, 2010

In General Information

Social Capitalism can be summed up as Classical Capitalism except with the factors of production swapped from “Land, Labor, Financial Capital” to “Social Capital, Creative Capital, and Intellectual Capital”.

This video introduces a new way of looking at social media valuation. It should be obvious by now that people create value in social media – otherwise they would not do it. The monetization paradox is stuck on “how can this value expressed as a financial instrument”?

If you engage your clients in the same currency that they are trading among themselves, the greater the likelihood you will realize the value of the new media phenomenon.

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Social Capitalism and The Innovation Bond

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On August 18, 2010

In General Information

We know the Venture Capitalists look for returns of 1000% on their investments. We also know that Corporate innovation (as reflected by the S&P 500) enjoys a long term median return rate of about 9-10%

It follows to reason that all of the innovation that could return somewhere between 10% and 1000% goes largely un-capitalized. This does not mean that the innovation does not exist – it only means that it is invisible to any existing financial system, it is accounted as “intangible” – or worse, it shows up as a liability.

Parents caring for children, Children caring for elderly parents, Mentors educating proteges, groups of people organizing, sharing knowledge, and growing families – all increase the net productivity of society. Legions of people creating options and opportunities for themselves and each other in communities, social media, and extended networks – all increase the value stored in communities.   Billions of people-hours inventing better ways to do the things that they do, compensating for the shortcomings of governments and corporations – all of this innovation falls into the range between 10% and 1000% ROI, yet, remains invisible and un-capitalized.

Social media as a whole is growing at well over 200% per year where every single interaction creates incremental multiples of social value – otherwise people would not do it (to say that people are irrational is to say that markets are irrational).  Where is all that value going?  Meanwhile, in the current Global financial debt crisis, institutions that hold huge amounts of cash are scouring the globe for pockets of low-risk productivity as sanctuary from volatile financial markets.

Now, suppose that an innovation bond were to come along which produces a risk adjusted return of, say, 15%. This means that human productivity is being reliably increased somewhere in a community by only 15% per year. If this were the case across a broad sector of inter-related communities where productivity were denominated in a fungible currency, investors would seek refuge in the Innovation Bond.  If the Innovation Bond returned say, 20% or more – all the money in the world may drop the debt based currency in favor of the innovation based currency by seeking refuge in innovation bonds.  Yes, I said it – “all the money in the world”.  Now, get over it.

Proceeds would be distributed to organized communities whose knowledge inventory is formatted like a financial instrument in the form of entrepreneurship. Proceeds would go to communities where the probability of success is known long before the bets are made in the form of Cheap Venture Capital. Proceeds would go to communities where productivity is defined by an un-corruptible algorithm through decreased volatility coefficients. Proceeds would go to communities where assets are valued accurately by true supply and true demand.  Proceeds would go to less developed communities with the highest social arbitrage potential rather than those with the most powerful marketers and lobbyists.  Most importantly, money would go to corporations that adopt the innovation economy. The stronger the institutions of Social Capital become, the greater the value of an innovation bond.  New production of goods and services would reflect these social priorities in the True Value Game.

In effect, Social Priorities will drive Wall Street priorities instead of Wall Street priorities driving Social Priorities – that is Social Capitalism

In the future, there will be only one sustainable investment left – people, communities, and their natural willingness and ability to be productive with their time. The rest is history.

***

Material based on video series here

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Calculating The ROI of Social Media

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On January 18, 2010

In General Information

This video introduces a new way of looking at social media valuation. People find value in social media otherwise they would not do it. How is that value expressed as a financial instrument? If you engage your clients in the same currency that they are trading among themselves, the greater the likelihood you will realize the value of the new media phenomenon.

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Freedom of Speech; Use it Wisely

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On December 3, 2009

In General Information

The recent Google quandary involving that most unfortunate rendering of Mrs. Obama led to many interesting articles about the invisible line between freedom of speech and profiting from indecency against another person (or group of persons).

Among the more intriguing conclusions is that those who exercise their freedom of speech should do so at the price of their anonymity.  As such, the community can likewise exercise their freedom of speech in response…sort of a market incentive system, it seems.

So what exactly would happen if the offensive content were accompanied by the name, address, business, and email of the person who created it?  How would their personal freedom be enhanced or restricted based on their contribution to the “self-discovery” of society?  How does a social medium enhance or restrict the inalienable rights so preserved in our nation’s constitution by our infinitely wise founding fathers?

I suppose that the founding fathers also had an issue with anonymity.  By virtue of their signature on the declaration of independence, they were willing to pay for their freedom of speech with their lives. This singular act is what empowered the document most. They bet their skin to preserve their oppressor’s freedom of speech regarding the same matter of independence.  Today we call that courage but in most communities it is common practice:

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USocial = SUPER SPAM

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On December 1, 2009

In General Information

USocial is now going after YouTube. These clever guy and gals have figured out a way to bypass the democracy of social media to bring is a new form of merchant class capitalism…SUPER SPAM.  For a small fee, you can get your message to the head of the line – in effect pushing the rest backwards.  Presumably for a bigger fee, you can get ahead of those who paid a smaller fee, and so forth.

Once the bastion of lobbyists and special interest groups, anyone with a few bucks can now pull themselves up the ladder by pushing other people down the ladder.  Once the domain of high powered PR firms and Marketing agents; just a few dollars cast among the USocial Gods delivers those long elusive eyeballs of the old radio/TV marketing paradigm.

Watch this one carefully kids.  Social Media has long proven uncontainable.  Saying that you can beat  social media at its own game is like saying you can repair a credit score.  Like a credit score, you can do more damage than good trying to steal what does not belong to you in an effort to boost your income.

Those eyeballs, those followers, and those “friends” do not belong to USocial and are therefore not theirs to sell.    They belong to you and I and we control them – or we don’t play.  If USocial keeps their client list secret, this would be the capital offense in social media space.

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Coupon Search Engine – Are You Worthy?

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On October 9, 2009

In General Information

 

Are you worthy ?

What if many companies dropped their advertising spend into a several different buckets of cash representing various lifestyle segments?  Now, suppose that the cash was distributed  to social media mavens corresponding to their social media reach in the lifestyle segments.  The advertisers and the amounts contributed to the buckets are fully disclosed.  The Social Media mavens are compensated by their Alexa rankings – again, fully disclosed and objective. The Social Mavens are simply paid to blog their lifestyle experiences with no contract or commitment to any brand, nor retribution for any assessment – just like always.

A new Financial Instrument

The debit card serves as a financial instrument modeled after the insurance industry that replaces traditional advertising with managed ROI risk. Of course, we are not the only ones trying to find a way to make the 300 Billion dollar per year advertising spend more efficient….

Sticky Coupons

The following Rueters article demonstrates that the coupon is not dead – nor is it paper anymore.  ASK.com will compile coupons and help people to find savings.  This is good for advertisers since more can be given away on the coupon because less is spent on production and traditional media.  This is also good for the consumer as more valuable coupons is more money in one’s pocket.

Feed the Entrepreneurs, feed the economy

Now we need to ASK – as the coupon value increases and the redemption time decreases and If the minimum wage is 8 dollars per hour – at what point can a person earn 8 dollars per hour cutting coupons?   Can a Social Maven, in fact, earn a decent living doing other people’s shopping all on coupons?  Why not?

***original article here********

NEW YORK (Reuters) – Ask, the search engine owned by IAC/InterActiveCorp, unveiled a new service on Tuesday to help consumers seek out coupons for saving money when shopping online.

 

The new service, Ask Deals, helps users search the Web for deals available by aggregating the best offers to a proprietary database of more than 1 million offers from national and local merchants.

 

Ask’s management hopes by having a dedicated “deals” tab on its search engine page the feature will become a natural destination for consumers looking to save money with discounts on goods and services.

 

Ask has added features such as helping consumers share coupons and deals through email and social networks like Facebook and Twitter. Users can also sign up for “Deal of the Day” emails.

 

The majority of Ask’s revenue comes through a search advertising partnership with market leader Google Inc, which brings up links of relevant advertisers in response to a user’s search query.

 

The Ask network was the fourth most-used search engine in the United States with a 3.9 percent share of all search queries in August, according to Web measurement firm comScore. Google had 64.6 percent market share, Yahoo had 19.3 percent share and Microsoft’s new Bing search engine had 9.3 percent share.

 

(Reporting by Yinka Adegoke, editing by Matthew Lewis)

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Good Blogging is Good Business

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On September 24, 2009

In General Information

Bankers do not care about money, they care about the rate of change in money – Interest Rates, ROI, and CAPM make the world go around.

Static web presence is getting squashed by dynamic content.  The best party has the best conversation.  It’s not the quality of life, it’s the quality of living. Countless expressions in business and culture reflect this idea.

I would like to thank John Ryan for this analysis:

***

More proof that blogging is smart business. Just make sure that whoever is blogging is a good writer and is committed to being consistent.

Otherwise, it will be a waste of time. You can either have your developers include a blog in your web experience or use free tools like WordPress to link to your website.
From Hubspot:

If you blog, you know that it’s good for your business.

But how — and how much?

To answer to those questions, I looked at data from 1,531 HubSpot customers (mostly small- and medium-sized businesses). 795 of the businesses in my sample blogged, 736 didn’t.

The data was crystal clear: Companies that blog have far better marketing results. Specifically, the average company that blogs has:

* 55% more visitors

* 97% more inbound links

* 434% more indexed pages

Why are website visitors important? Because more visitors mean more people to convert to leads and sales.

Why are inbound links important? Because they signal authority to search engines, thus increasing your chances of getting found in those search engines.

Why are indexed pages important? The more pages you have on your site, the more chances you have of getting found in search engines.

****

Thanks again John.  The value of any innovation is in the transformation.  Starbucks transforms 25 cents worth of milk, beans, and water into a 2 dollar cup of coffee = 800% return.  The laws of leveraging conversation applies equally effectively in conversation as in finance where astonishing returns are not uncommon.  We really need to start thinking about Conversation like a financial instrument capable of all the capitalistic magic that derivatives, bonds, options, and securitization methods offer. 

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1.3 Trillion Dollar Professional Contact Market

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On June 30, 2009

In General Information

“Hey, I know a guy who owes me a favor …”

It is only a matter of time until professional contacts will be for sale.  The problem is that the ROI (return on investment model) is such a poor valuation tool for social media. Another valuation tool used in finance is called Real Options.  An option is the right, without the obligation, to act on an opportunity at some time in the future.  Social Networks, friends, family, and professional contacts behave much more along these lines.

Five Easy Pieces:

While the calculation for the value of an option is complex, the things we need to plug in are fairly simple in the context of social media:

1.    There must be an inventory of the assets
2.    The future date when the asset can be acquired must be known
3.    The cost of acquiring the asset must be known
4.    The value effects on the enterprise must be estimated
5.    The uncertainty related to the asset must be estimated

The term “asset” in social media space may include: Knowledge, skill, an undertaking of a new project, or the generation of a new idea, etc.

The Social Networking Manifesto:

The objective of the building a social network is to know where the knowledge assets are, how much they can help you, how much they cost to exercise, and the certainty that they will be applicable, available and useful when you need them.   Conversely, the best way to increase the value of a social network is to be visible to others, tell people what you can do for them, tell people what you need from them, and establish a reputation for reliability.

Most importantly, everyone must have the right, without the obligation, to accept or decline the opportunity.  This is what jump starts ‘supply and demand’ and makes a market a market

Let’s consider all options:

To estimate the value of an option to call on anyone in your network use a financial option calculator tool on the web and plugged in social media numbers.  Let’s use Linkedin as the knowledge inventory; 40 million knowledge assets also hold options with their contacts. Say that the expiration date is 1 year (for tax reasons).  Assume the market value of their skill is 100 dollars and that at some point in the next year, the value of their skill relative to yourself becomes 200 dollars. The right to buy the asset at the earlier price is worth a premium.  Suppose that the volatility of the asset is 50% and the interest rate is 7%.

The value of the “call” is worth about $3.47 dollars.  The Call is an option contract that gives the holder the right to buy a certain quantity of an underlying security from the writer of the option, at a specified price up to the specified expiration date.

The value of options in a network:

For the above scenario assuming all assets are equal in price of 100 dollars; if someone has 10,000 1st and 2nd level contacts on Linkedin, the value of their implied call option is about 34,700 dollars.  If Linkedin were a stock market, the value of the social contracts that people have with each other is 34K x 40M = 1.3 Trillion Dollars market value for the contracts that people hold and trade.

This is not even the value of the transaction – only the right to have a transaction. The value of the social contract is in the conversations that they hold.  Contracts are a financial instrument that can be traded, combined, diversified, and aggregated for real money.  It’s only a matter of time.

The Ingenesist Project specifies the structure of an innovation economy where a knowledge inventory, a percentile search engine, and an innovation bank will facilitate and aggregate the 5 components of Option Valuation.  Social media applications form the operating system for the market in options.

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The Second Impression of Social Media

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On May 7, 2009

In General Information

As we move away from the ROI valuation model for social media and adopt a more dynamic ‘options’ analysis, a different picture emerges.  People are trading options; that is, the right without the obligation to exercise an action.  The next economic paradigm will emerge as a function of people exercising their options.

What are you doing here?

On the surface, there appears to be a lot of ‘feel-gooding’ on linkedin, Facebook, and Twitter, etc.  It is easy to brush them off as trivial, non-productive, and delusional.  I often fall victim spending too much time on these devices and have asked myself, simply: “why?”

Computer Enabled Society

At second glance, however, I have personally developed a few extremely profound, important and valuable relationships through “computer enabled society”.  People who I have never met in person have stepped way out on a limb to help me along.  As a result, I have given these people the option to access my network and they have done the same for me.  Our common purpose makes each relevant and valuable to the other and each are willing to support, mentor, and elevate the other.  We exercise options together.

Impressive Results

The distinction is that what once was a “first impression” – firmness of handshake, fashion, and physical appearance – has become the “second Impression”.

What was once the “second impression” – intellect, wisdom, talent and generosity – has become the “first impression”.

People exercise their options accordingly; first impressions leads us to action.

Evolution or Revolution?

Social media does not care if you are rich, poor, young or old, beautiful or homely.  It does not care about the color of your skin, fat or thin, physical ability or disability.  It does not care what kind of car you drive, clothes you wear, or the size of your home. Or does it?

For every revolution, there is a corresponding evolution.

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What is the ROI for Social Media?

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On May 5, 2009

In General Information

The quick answer is that ROI is indeterminable – get over it.

ROI is a static measurement where financial decision makers look into the Crystal Ball to project a future economic outcome which is then be protracted back into the present to arrive at a value of an investment opportunity.  In case you have not noticed, this valuation method is largely bankrupt.

Like lipstick on a pig

Yet ROI Persists. B-schools teach SWOT; Strengths, Weaknesses, Opportunities, and Threats as a means of dressing up our projections with yet more projections.  All the ROI in the world may predict the economic future but as soon as people react to the market condition through improved information in Social Media, all those models fail.  This is called reflexivity and it is becoming a dominant influence in all financial projections in the age of Social Media.

Fortunately, the true visionaries of the next economic paradigm are increasing in numbers and rapidly moving away from the ROI model into something far more valuable simply by asking the serious questions……

Hey, what exactly is the currency we’re using?

David Bullock and Jay Deragon from the Social Media Connection Network are producing a series of videos investigating the currency of social media where they astutely ask the tough questions, “What are people trading?” and “what is a Tweet worth?” While these may seem like simple questions, they have many an ROI expert stumped.

Nobody really cares if I had bacon for breakfast; so the ROI on that tweet is exactly zero.  However, if you get 15 tweets in an hour on the same subject – there must be something important related to bacon today.  The more people sending bacon tweets, the greater is the value of my “option” to react to what looks like a bacon pandemic.  Still, I hold the option, without the obligation, to expend my limited resources in response.

Options have value

The value of social media is counted in options – not ROI.  Social media is dynamic, not static. Therefore “Strengths, Weaknesses, Opportunities, and Threats (SWOT)” are also highly dynamic moving targets that are highly contagious in social media and cannot be foretold in the next 5 days let alone 5 years. The cardinal rule of business is to collect assets and reduce liabilities. An option is an asset and an obligation is a liability.

ROI fails.

ROI is a future projection brought to the present.  Options are collected in the present and projected to the future – there is a fundamental difference between the two that must not be overlooked.  People are doing something, they have a plan, they are cooking up a new trick and the ROI is indeterminable…

Options have value and obviously people are willing to pay for them with their time at a keyboard, therefore, they are willing to pay for them through any medium of exchange.  This is what people are doing on social media – collecting options. The Next Economic Paradigm will provide a means to cash in those options. Hold on to your chips, the social media game is far from over.

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Socialism, Capitalism, or Social Capitalism

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On January 13, 2009

In General Information

Throughout history, technological change has also brought changes in the organization of society around the new ways to allocate resources.  The industrial revolution spawned the two prevailing economic theories of our time; Capitalism and Socialism.

The current wave of technological change will likely spawn new economic theories and social organization systems as well – it makes no sense to look to the past for reference to the future of anything.

Capitalism arose from feudalism and is roughly characterized by a merchant class that owns the factors of production (land, labor, and capital) and a working class whose physical toil adds value to natural resources.  The capitalist acting in their own best interest is ultimately acting in the best interest of society by creating jobs that employ people.

Then Karl Marx came along and noted the inherent conflict where the workers would seek to maximize their wages and the merchants would seek to minimize wages.  He argued that class struggle would ultimately result in a communist system replacing the capitalist system. The communist acting in the best interest of society is ultimately acting in their own best interest.  Socialism is widely regarded as the transitional stage between capitalism and communism.

But the struggle is really over the control of the means of production, or factors of production. “Are land, labor, and capital” private property or public property? Are these notions even relevant in the age of the Internet?

Today, computer enabled society engaged in an innovation economy presents an entirely new set of conditions.  What happens when the factors of production are social capital, creative capital, and intellectual capital?  How are these “means of production” going to be controlled and by whom?

This is a serious philosophical quandary that will be brought down upon us in the next generation of social media because neither socialism or capitalism are applicable in a traditional sense. Like Heisenberg’s theory of indeterminacy – the more control you have over one factor, the less control you have over the other.  This is not a condition related to the ability to control someone or something, rather, it is a condition related to the nature of the system itself.  That’s a big deal.

For the traditional Socialist: in order to control social capital, one must equalize society – as such, the system retains little innovation production value.  In order to control creative capital, one must standardize creativity – likewise, the system retains little innovation production value.  In order to control intellectual capital, one must control the intellectual development of another – again, the system retains little innovation production value.

Likewise for the traditional Capitalist: In your world is no ROI to curb global warming, there is no ROI to educate the poor, there is no ROI for human rights, and there is no ROI on the national debt, etc. As such, the system is constrained by the social burden to innovate – you can no longer scale.

There is, however, a business plan to liberate social capital, creative capital, and intellectual capital as tangible financial instruments in their own right, by definition, reflecting social priorities in an innovation economy.  This is where the next generation of social media is leading to – and it scales magnificently.  Have you noticed?

That is Social Capitalism.

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Options, Options, What Are My Options?

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On December 20, 2008

In General Information

In finance, an option is the right, without the obligation, of taking a financial position some time in the future.  As with any financial term, options are associated with “code speak” such as: volatility, exercise, strike, call, put, etc., glazing over many an eye.  At the same time, people want, buy, and trade options all day long in everyday life without even knowing it.  Options have value; otherwise people would not want them.

The ROI model of valuation fails when applied to social media.  The number of hits per ad dollar just does not translate to brand loyalty or scale into rivers of cash flow.  There is little surprise that corporations have great difficulty socializing because they simply don’t exist, except as a folder labeled “ROI” in the filing cabinet of an attorney in Bermuda.  In fact, losing control of the message makes for an expensive funeral in that same filing cabinet.  The Social Media industry is trying to live in the ROI structure and struggling to create revenue.

The cardinal rule of business is to collect assets and shed liabilities.  A “right” is an asset while an “obligation” is a liability.  An option is an asset without the liability, to make a decision some time in the future.  As such, options favor long term planning and strategic nurturing rather than short term profit taking of the ROI model. Asian countries and corporations set a good example of buying options in the future through product quality, education, and economic patience.  American corporations should do the same if they hope to benefit from social media.

People do not want ROI, they want options.  They want the option to separate peers from mentors from friends from family.  They want the option to experience before buying.  People want the option to meet their physical, mental, emotional, and spiritual needs.  They want the option to be anonymous or public in their interaction.  They want the option to collaborate and support others.  They want the option to overcome physical barriers.

People want to meet new people, get new ideas, and hold the option to act on those new ideas or collect on past ideas shared with others.  If they exercise an option and discover another along the way, they want the option to pursue many options to meet a changing market. If they create something in one market, they want the option to apply it to adapt it and access other markets.  If they help someone else up the ladder, they want an option to access what that person, in turn, has created from their help. If they make a friend, they want the option of meeting their new friend’s friends.

Likewise, when people are in trouble, they will turn to their collection of options and start exercising them as society has for millenia.  The great financial transformation will occur when on-line society gets threaded into the fabric of off-line society through the trade of options.  This is the area that needs to develop so that all the pieces can fall into place.  This may in fact become the lasting legacy of the financial meltdown.

Options can be the traded like money throughout and across on-line and off-line social networks if there were a way to keep track of them.  While The Ingenesist Project specifies promising strategies for trading options in a social network with varying levels of practicality, we can say with great confidence that it this next paradigm of economic development will never happen with an ROI mentality.

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Tangible Knowledge; Options and Contingencies

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On November 19, 2008

In General Information

In order for knowledge to become a tangible asset, we need to come to grips with the fact that human knowledge is fluid and mobile, whereas a condo or a piece of machinery is static.  A machine can’t walk away if it does not like their management.

With knowledge assets, the typical “Return on Investment” (ROI) model breaks down.  When assets have a mind of their own, there is no reliable way to calculate ROI without somehow corralling the asset inside some form of closed contract, a corporation, political system, social class, or by introducing barriers to exit, etc.  In the modern financial system, human assets are held tangible by debt obligations – today many people go to work in servitude of debt, not in creation of new ideas.

An option* is the right, without the liability of obligation, to exercise a decision in the future.  Human interaction accommodates this valuation model quite readily; it’s called free-will.  Therefore the option valuation model is an adequate method to assess knowledge assets as a means of making them tangible.

The value of a financial option can be calculated if one knows the following 5 variables: The asset price, the strike price, the date of maturity, the risk free interest rate, and the volatility – or, the odds on the bet.  By contrast, the ROI model requires us to know basically the same things; the cost today, the strike price (future sale price), the date of maturity, the risk free interest rate, and the probability of success – or variance of the expectation.  The equation is just a little different.

Individually, human behavior often appears chaotic and irrational, but in aggregate, we know that human behavior is really quite predictable.  If you put similar people together, you get similar ideas.  If you put extremely different people together, you get extremely unpredictable ideas.  If you put strategic combinations of people together, you should be able to predict the variance of the ideas.  This is all the information we need to place a value on our bet.   If human behavior is predictable, it is tangible.

Suppose we enter into a ROI venture and it fails miserably; the market was wrong or the product was wrong, or the people were wrong, etc.  Even though the investment failed, the knowledge accumulated from the attempt can be exercised in many other projects in the future. While the Patent may turn out to be worthless, the knowledge gained by the team can be used over and over again.  Each person gains a statistical data point in their experience set with which to assess comparable situations in the future.  This is an option and this option has value.  If the team were disbanded without somehow capturing the inventory of new knowledge assets, a very valuable set of options becomes squandered.

Some companies such as Google, try not to kill an idea, they morph the idea into something else.  Free-range knowledge tangibility must achieve those same objectives.  Today we see people building networks on Linkedin – this activity resembles the collection of options on future opportunities.  People post on social media to see and be seen by other knowledge assets as a means of collecting more options for their careers or actions. People would not be doing it if there was no intrinsic value.  The next big leap will happen when knowledge tangibility is married to the financial system through the direct valuation and capitalization of options.  Did I mention there is an equation for that?

The Ingenesist Project specifies a method and system for knowledge inventory that would produce a variance for knowledge assets.  The Percentile Search Engine would pull knowledge assets in combination that diversify variance into a highly predictable surplus assets and deficit assets.   The Innovation Bank would match most worthy surplus to most worthy deficit.  As such, the Innovation Economy itself is now a most worthy option for supporting a feeble financial system.

The ROI model is the mother of all squandered knowledge assets – the very same assets that are really purchased on a project, successful or not, are often willfully abandoned.  All of the parameters of an option valuation model can now be met with social media and The Ingenesist Project integration methods. Free-range knowledge assets can then be directly financed toward business objectives.  The idea of an innovation economy based on knowledge tangibility is well within our grasp technologically, culturally, and systematically.

Social media has an astonishing opportunity to integrate social, creative, and intellectual knowledge assets to trade that single most important part of the puzzle, tangible knowledge assets.  I suspect that this outcome will depend on whether these new tools are treated to an ROI valuation model or on an options valuation model.

* Italic used for clarity

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