10 Mar 09 Making sense of social economies

 

Clay Shirky describes social technology as a revolutionary force, on par with the printing press, in redefining how the new economy works. He points out 3 main components that make up social tool (The Tool, The People and The Promise). I think there are in fact 4 components, that can be categorised as 2 physical, and 2 social.

Physical:

The Tool - How is coordination overcome

The People – Who is going to participate

Social:

The Promise – Why join

The Bargain – What can you expect if you participate/ Different ways you could implement the tool

From the perspective of a company building a social tool, the social transaction framework looks like this.

Interestingly, the sphere of control changes when you take the user perspective. They have a weaker, but still powerful control over The Bargain and The People/ Tribe, as a counterweight to that which they do not control.

This framework is not too dissimilar to transaction frameworks we are used to in capital economies.

Traditional markets are used to products that are built marketed for some specific purpose. This is then bought by some consumer that will use it for any purpose they can.

Physical

The Product – How my problem is solved

The Consumer – Who’s need it will satisfy

Social

The Promise – Why you should buy this product

The Bargain -  What you can expect if you purchase/ Different ways you could implement the product

 

The core to the success of social tools has been lowering the costs of organisation. Allowing tribes to group and disband with consummate ease. Similarly, the winners in capital markets too have overcome the cost of transaction for those whom they serve.

If you are harder to buy from than your competitor, it is more than likely that people with go to you competitor on a like for like product – even if your price is lower. The factors that go into a purchase decision when assessing value are illustrated below. 

The Consumer Purchase Cost assessment looks something like this;

Cost of Discovery – Is it hard to find
Retail Price - how much will this take out of my pocket
Cost of Comparison – how much is this relative to market conditions, is it good value, how hard is it for me to compare like for like.
Cost of Delivery – Is it hard to get
Cost of Transaction - Is it hard to purchase
Post Purchase Cost Perception – What is the perceived risk of not receiving the value that I believe I am getting

The more these costs are reduced the higher the propensity of a customer to buy. The problem the retailer has to solve is how do you efficiently reduce these costs to the customer, so you can make as large a margin as possible. The easiest place to pass these savings to the customer is in time and arguably trust. It is no wonder that Apple’s iTunes has been able to compete so well with “Free” by overcoming these burdens.

Similarly, in a social economies, the cost structure looks like this;

By taking steps to reduce these costs, communities are given the freedom to form, and disband, with the sole purpose of collaborating small amounts of effort to propel the group toward some common goal.

To enable a reduction of transaction costs there are some simple methods.

In a capital framework, both sides of the symbiotic relationship “Seller” and “Consumer” drive value creation through empowering each other through equity trade. In a social framework, value is created through social equity trade. The social equity currencies take on many forms and are representations of reputation.

So, with that in mind, I’ll leave you with these two amusing motivator/ demotivators.