Tuesday 2011-08-16

Business and physics have a hard time talking to each other: the business guy will say 'Look at all the 10,000 widgets we just made.' and the physics guy will say 'Not true; You didn't make anything, you just rearranged some metals into widgets.' The business guy now looks like he's going to lose it, and the physics guy says 'What? Are you telling me you created matter?'

When business types talk about 'adding value', they're just rearranging stuff into a new fashion that someone wants to buy. When they talk about 'innovation', they just mean finding new ways to rearrange stuff. And when they say 'cost structure', they mean an arrangement of arranged stuffs

We rely on many arrangements just to get fairly innocuous items, hence the infamous claim 'no one knows how to make a pencil'. The arrangements we observe seem fairly stable, however that's just the macro: while the form of a pencil hasn't changed in decades, its substance (the chemicals, manufacturing processes) have changed immensely.

The technology we live with is a city of Jenga arrangements, which all have the strange property of remaining upright whilst the internals occasionally collapse and reform. Unlike architecture where we can build sky-scraping super-structures that can withstand earthquakes, we don't have models that will predict the effects of a small change in the relative costs of technology.

When Ford focused on driving the costs down for his cars, he created another workhorse; not only were his cars used for driving someplace, farmers took their wheels off and used the engine to drive hay-loft conveyor belts, and when haying was done, put the wheels back on. WP

When Ebay + Paypal drove the costs of small-scale transactions down, they spawned vast aftermarkets and extended distribution. Ebay has probably created more small businesses than any other innovation in recent memory. The only other contender to that title would be micro-finance, which reduces the cost of capital from infinite to something more manageable.

If you want to benefit the world and make both business and physics types happy, drive the costs of something down. Who knows what structures will reform, and which will now grow even taller and support even more human activities.