The Value Of Information

Copyright© Miklos Szegedi, 2022.

One of my first articles three years ago was about information and its value. Let’s revisit it in a more formal way.

Problem Does information have value?

Solution Information itself does not. The use of organized information has a present value, if it generates revenue creating value to others later. The value of information is a similar sum of present values that will be created later. A screwdriver in the garage does not have a value, unless it is used.

Similarly, a pen drive with some crypto assets on a junkyard has no value. If somebody digs the junkyard and finds the drive then extracts the money, it has some value. However, there are so many pen drives that have been manufactured for decades that it has a very low chance that you can extract anything meaningful from a random one.

Problem Storage that is not read has no value.

Solution This is similar to the common practice of service providers not being liable for the data transmitted or stored on them. If nobody reads a pen drive, it will be discarded, the information on it is useless. The act of reading from a drive or cloud store is what needs to deal with value and risk of the acquisition of the information.

Problem Does that mean that journalism does not create value?

Solution Journalism creates value but only, if it is read. They do not create information, they work it into a form that can be processed. Journalists certify the information they provide. Verification has value, as others can just trust the brand.

They organize hundreds of pages into single articles, saving time. Still, it is the act of reading and processing, that has the value, not the information itself.

A good example, if you write a good idea into a bottle, and you throw it into the ocean. It will be found 170 years later, but nobody today can enjoy its benefits by that time.

Some people like to leave traces. They know that teaching that pattern drives growth, and it may prevent dangerous events in the future like the pandemic we just had. This is why the name of scientists is remembered, even if their inventions pay off a hundred years later.

Problem The best way to store information is with Creative Commons 0 license.

Solution CC0 as it is abbreviated represents information in its true form. Information can be copied, taught freely. However, if it required significant time to extract it, it would be patented as a utility or design. The use that the patent regulates will reflect the value that can be created.

There are some other licenses classified as copyleft and copyright. Copyright licenses usually give out patents for free. However, it has a significant risk for investors, as users who sue the copyright owner for their own patents can lose their protection anytime.

Copyleft licenses usually require the redistribution of any modifications with similar conditions causing significant risks and extra work for external innovative companies in forensics. Copyleft licenses will eventually generate lots of simple solutions that are easy to review.

It is Creative Commons that promotes quick propagation of ideas, while it still reduces the risks for tech management. These licensing rules are one reason why monopolies build up in high-tech industries.

Problem Monopolies and oligopolies are not necessarily harmful.

Solution This is true, if there is demand for them such as stable employment, or sustained yields. Hierarchies also help to finish projects easier having a single owner for each project allocating resources to meet the deadline.

Problem Monopolies reduce efficiencies.

Solution There are dangers on the other hand in groupthink. Circular industries of monopolies will build an oligopoly interdependent on each other. This dependency is represented by necessity and not by value created.

Monopolies raise funds differently having a stronger buying power. They may have more influence on governments due to their business, increasing the chances of corruption. Monopolies tied to foreign governments may pose strategic risks. Retained earnings reinvested may be used by investors with better returns elsewhere.

Problem Vertical integration increases efficiency.

Solution A monopolistic airport may grab the margins of shops on their floor. The shops still compete offering the same prices. The monopoly can implement price discrimination acquiring them increasing the price of one more than the other. The monopoly grabs more of the customer’s money with a lower margin of changed design and packaging. The profit grab continues one level closer to the customers.

Monopolies may rely on sustained growth that can burn out staff. A growth target met may be more stressful to accomplish years later as it becomes an expectation. Capital gains may starve retirement funds seeking for cash dividends causing bubbles and volatility when buying and selling shares. Complicated copyright and copyleft rules increase barriers to entry requiring legal staff. This promotes concentration.

Competitors help competitors by providing industry examples and benchmarks. Unrealistic expectations can be caught and explained easier.

Problem So what is an efficient perfectly competitive free market?

Solution Such markets are by definition deal with sufficient information to decide. They also have rational actors.

Problem How much confidentiality do companies need to enforce?

Solution Rational decisions require a defined set of information, so that the decision stays rational. Retaining more information costs in security, and it costs in opportunity raising risks for investors and employees. Retaining less information may allow others to interfere with decision-making, making it irrational.

A notable exception may be Apple. The show of revealing a new device is a rational differentiator. Others cannot catch up, so they can increase their margins rationally and they disclose more information. This is how tech market prices spread within a range.

Such rational actors will eventually build an efficient market called perfect competition reducing margins. This lets customers invest their money elsewhere. Everybody will benefit from the growth and new technologies, infrastructure, etc.

Problem Some people still pay for information.

Solution Yes. It is because they have money they cannot spend elsewhere, like crypto or meme stocks. It is also important, that middlemen do not sell the information but their organization and filtering. It is lots of work. A pen drive in a garage has no cash flow, if you move, and you eventually discard it.

Problem Lying and withdrawing information causes harm.

Solution Lack of information will make somebody’s decisions less rational than perfect. Inaccuracy becomes a liability, a bond that can be paid anytime, when it is revealed. The inconsistent information causes real or artificial network logic more complicated to deal with complexity. The uncertainty increases rates that lower growth and investment. The complexity of inaccurate information distorts and complicates thinking making it less rational. Lying makes you stupid.

Problem Should a monopoly be divided, if it raises the barrier to entry by withholding information as a result?

Solution Investors decide at the end of the day by not lobbying too much against an anti-trust process. They have information where they would invest their extra funds, or whether their other investments are impacted negatively by a monopoly.

A good example is that Microsoft was not split early in the 2000s. Microsoft’s lack of funds and distraction let Apple come out with iPods and iPhones. A small Microsoft may have directed more funds on easy to design smart-phones preceding Apple. Divisions are still large compared to competition, the R&D delay of Windows Vista is an example.

There were chip shortages not long ago. There were no similar shortages in cars. Used car prices even dropped due to perfect competition there.

Problem Multinationals are good tools for diplomacy and collaboration.

Solution Multinational conglomerates eventually spread their products across the world. They will attract talent from elsewhere becoming a great tool for diplomacy in peacetime. Business with governments may increase the risks of inefficiencies and corruption on the other hand. Choose a median country in GDP. It will probably have similar treats as such a conglomerate.

Problem National champions stay small.

Solution National champions relying on absolute advantage in a country cannot attract diverse talent. Companies like these stay small, and they will specialize like Nokia or ARM to retain their advantage. They will stay small and they can easily become a target for takeovers.

Problem Engineering difficulties will eventually create perfect competition.

Solution Engineers will eventually need to compare vendors to provide better quaity. Companies like those you see in Texas or the Mittelstand need to rely on strong supply chains. This means that they will elect a group of competing suppliers to lower purchasing costs. They will also compete with similar companies making their brands less known. Such construct will change the discussion to professional, engineering matters without much government influence. Such professional companies can still spread internationally at a smaller scale.

Problem Network marketing degrades product quality.

Solution Products that rely on networks to spread like social media have an alternative way of marketing. They sell not just the product but the quality of the network. The same funds are split between both strategies leaving less for the product making them less sophisticated than the product of engineering companies. The network cohesion may suffer due to politics or international disputes like what we saw between 2016-2023 limiting their growth.

Problem Small businesses and individual businesses provide extreme scale.

Solution Individual differences will fade the personality of management or the small customer base. Networking increases recurring revenues but constant churn requires strong products. Small companies need to rely entirely on product quality eventually to compete. This will create a perfect competition and stable revenue. Such products are easy to make. A farmer can see that corn sells more, so that they can plant more corn seeds next year.

Problem So should communication cost money? Most email services are free.

Solution Yes. They need to cost money, if the messages create value. Why do we have free email then? It is because the money is actually paid to the recipient and the recipient returns it with the reply. The bidirectional communication of five participants will result in no balance transfers at the end of the period regardless whether these amounts are accounted or not.

Problem So should we pay for marketing?

Solution Yes, a sixth participant would pay the same fee to get their messages read. The acknowledgement is actually a purchase returning some funds invested. The lack of reply means that the communication is not necessary, it does not need to be followed.

Problem Spammers can be deterred by requiring a refundable fee.

Solution Yes, if spammers need to pay for the messages any unwanted messages will not be replied, and they will focus on the leads acquired. Too many messages may not be responded with a refund due to overwhelming the recipients, in which case the incoming traffic naturally fades.

Problem This is a barrier to entry for the poor.

Solution Not necessarily. Low funded entities can communicate with smaller amounts and refunded replies still within their own circle. Eventually these circles can become efficient, and they may raise message costs to match the expensive ones and deter unwanted traffic.

This means that introducing refundable message fees do not necessarily prevent new competition, as long as they are not deterred with other means by monopolies. Refundable message fees are good option to build new markets and retain their efficiency.