Strap in, this is a long one…and well worth it. A common theme across a majority of posts on this blog has been the attempt to understand the influence of technology on economic behavior. Mainstream media generally accepts current commonplace institutions as intrinsic elements of ‘the economy’. Readers of this blog, and others with an eye on innovation, recognize that digital platforms are empowering alternative forms of economic behavior at scales never before possible. Digital currencies, reputation metrics, social capital scores, and collaborative consumption platforms are proliferating at a rapid pace.
Those of us who enjoy exploring this territory regularly run up against the lack of an appropriate language with which to describe these innovations. I have been as guilty as anyone of hastily hacking together new terminology to brand my speculations. Some of these language hacking efforts have been reasonably coherent (see: Attention Currency and Asymmetric Accounting) while others have been condemned to the depths of the archives.
Amidst all the confusion some terms are particularly ill defined. ‘Alternative Currency’ is used to describe everything from gold coins to ebay feedback points to gift exchange and community grain receipts. The only thing these various devices share in common is that they are not government issued money.
The term ‘Gift Economy‘ has also been used to refer to all manner non-monetary exchange. Can we infer then that gift economies make use of alternative currencies? Well…not exactly.
Clearly we need a better way to frame these concepts. What is alternative currency? What is a gift economy? What is the attention economy? How can we systematically explain the economic impact of user-generated content or peer-to-peer exchange? In the current parlance terms like ‘user generated’ and ‘peer-to-peer’ might as well be defined as ‘not professional’ and ‘not corporate’, respectively.
If we are to have any luck making sense of evolving economic relationships we must begin defining those relationships in terms of what they are, rather than what they are not. Here is my attempt…call it public version: 1.0 (private version: countless).
Constructing the Map
Now for the let-down…the outcome of all that build up is a mundane two by two matrix. There will be no intellectual acrobatics found here. Nor will the quadrants of the diagram present any dazzling new ideas. The explanatory power of the framework described below stems (hopefully) from correctly identifying the variables that reliably correlate with distinct forms of economic behavior.
Relatedness refers to the relationship of the parties to a given exchange. At the summary level, it describes the closeness of the relationship between two parties. The closer the relationship between two parties the more awkward it becomes to engage in highly quantified, thoroughly negotiated transactions. In close relationships it is uncomfortable to be ‘nickel-and-dimed’. Instead, the mutual understanding that relationship will continue into the future allows both parties to operate by an intuitive sense of fairness.
Unrelated parties consistently demonstrate the opposite behavior. The weaker the relationship between two parties the more likely both are to prefer an immediate ‘balancing of the books’. When dealing with strangers you have no reason to expect that your intuitive sense of fairness will match theirs. And even if by chance you were dealing with a particularly honest stranger, your lack of repeated interactions would leave little opportunity for future reciprocation. Easier if both parties simply move on without any expectations.
The analysis above suggests a more technical definition:
- the degree to which mental bookkeeping between any two parties is both feasible and socially appropriate
Socially appropriate mental bookkeeping demands a great deal of trust from both parties, and the basis for that trust is shifting. Rather than belabor this point in an already long post, I highly recommend those interested in this topic read John Hagel’s recent piece: Resolving the Trust Paradox.
Refinement is the trickier variable. Refinement refers to two characteristics:
- the degree to which a given value proposition can be accurately judged prior to exchange
- the ease with which that value is extracted by the recipient
Some examples from the domain of information content descending from most refined to least refined:
- ‘For Dummies’ Guide
- value proposition very clear
- easily consumed (well edited and structured), application obvious
- Typical Business Book
- value proposition relatively clear
- easily consumed (well edited and structured), application requires reader interpretation
- Typical Blog Post
- value proposition often unclear
- may not be easily consumed (less editing and structure), application requires reader interpretation
- Tweet Stream
- value proposition very unclear
- requires significant filtering, evaluation, and interpretation from reader
The underlying principle in the examples above is that greater refinement indicates more effort committed by the producer on behalf of the consumer. Less refinement requires that the consumer must become an interpreter, collaborator or cocreator in order to derive value.
Obviously, the more effort Bob expends (towards refinement) for the benefit of Jim, the more likely Bob is to expect tangible compensation from Jim.
The Four Quadrants
As promised there is nothing surprising here. Each quadrant represents concepts you are already familiar with, though the descriptions below clarify common imprecise usages. Some of the questions I offered at the beginning of this post can be answered through description of the quadrants alone. Other questions, which I will return to at the end, can best be answered by describing shifts in economic activity across quadrants.
The quadrants do not necessarily represent strictly defined boundaries. Some economic behaviors may drift across the axes. We could debate whether the quadrants should be drawn with certain skews, for example by drawing the transactional economy in such a way that it eats into a portion of the gift economy. Nonetheless, the framework will provide context for those debates and help us understand why certain behaviors are difficult to plot.
The four quadrants, in descending order from most obvious to most misunderstood:
The Transactional Economy – Refined/Unrelated
The upper left quadrant represents the familiar monetary economy. The exchanges that occur in this region generally involve unrelated parties exchanging highly refined goods. Those two characteristics lead naturally to the predominant mechanism of exchange: money. High refinement suggests that it is relatively easy to assign discrete prices to the goods commonly exchanged in this manner. Low relatedness leads the trading parties to prefer symmetrical (transactional) modes of exchange (both sides of the exchange are balanced at the same point in time).
However, the transactional economy is also the mode of exchange that has crept furthest into economic behaviors for which it is ill suited. Readers will surely be able to provide numerous examples of money changing hands between related parties or in exchange for unrefined forms of value. This state of affairs persisted stubbornly until very recently because mechanisms mediating other forms of exchange were grossly underdeveloped.
The Relationship Economy – Unrefined/Related
The relationship economy describes behaviors commonly referred to as social or collaborative – the exchange of intangible or difficult to quantify forms of value within ongoing trust-based relationships. The lack of refinement suggests that efforts to assign a monetary price would prove specious. High relatedness permits mental bookkeeping and intuitive maintenance of unbalanced accounts.
These two characteristics compliment each other. The inability to quantify tangible value makes symmetric exchange difficult, but within the context of long term relationships, symmetric exchange becomes unnecessary. Related parties can freely provide value to one another with the security that reciprocation will balance out over time.
For more perspective on the relationship economy, check out this prezi by Jerry Michalski: Thriving in the Relationship Economy
The Attention Economy – Unrefined/Unrelated
This is where our definitions begin to get tricky and references to clearly defined variables help to provide some precision. ‘Attention economy‘ is a term that seems to conflate traditional marketing activities with relatively new scalable peer-to-peer behaviors (social media). The former (marketing) would seem to be a transactional activity, while the latter (social media) might seem to belong to the relationship economy. This is the confusion I explored in my previous analysis of the attention economy.
The key to unifying these disparate definitions is understanding that the attention economy as an inherently unstable domain. Both types of contributors use the same mechanism (attention) to parlay their contributions into interactions belonging to an adjacent quadrant. In other words, everyone in the attention economy is marketing. Traditional marketing is attention acquisition intended to motivate monetary transaction. Social media participation is attention acquisition intended to motivate movement into the relationship economy, for example by networking with potential collaborators.
Contributions to the attention economy are only rarely intended to motivate perpetual activity within the attention economy. Few people aggressively pursue the exchange of intangible value with weak ties as their ultimate goal.
The exceptions to this characterization are activities like fame seeking (for it’s own sake), public awareness campaigns and political campaign advertising.
The Gift Economy – Refined/Related
Lastly, time to tackle one of the most confused concepts in all of the interwebz…some of that confusion created by yours truly. ‘Gift economy’ is a term originally used by social scientists to describe tribal cultures in which scarce resources were allocated through a social norm of gift giving rather than by market mechanisms. In these cultures the act of gift giving deepens interdependencies among members of the tribe. Certain gifts also served to increase the status of those tribe members able to regularly bestow them. For example, in hunter gatherer tribes the best hunters would frequently find themselves with kill too large to consume themselves. Sharing with the rest of the tribe avoided waste and elevated their own status within the tribe. The details of specific case studies are well beyond the scope of this post…perhaps a topic for follow up if the interest is there.
Given recent innovations it has been tempting to apply the gift economy label to any and all forms of exchange that are not mediated by monetary transaction, i.e. that are asymmetric. Now open source culture is a gift economy, social media is a gift economy, blogging is a gift economy, wikipedia is a gift economy. As noted, I have been as guilty of that temptation as anyone else.
I am backing away from that position because most of the behaviors that have attracted the label are more accurately described as belonging to the previous two quadrants, or as movement between quadrants.
So what is gift economy?
Gift economy is the set of economic behaviors described by reference to tribal cultures. It is high refinement and high relatedness. High refinement indicates that ‘gifts‘ are items with clear tangible value. High relatedness suggests that ‘gifts’ are exchanged between closely related parties, such that mental bookkeeping is feasible and socially appropriate.
Based on those criteria, this blog post is not a gift. Though I certainly expect this post to provide value to the reader, that value proposition is not sufficiently refined to consider it a gift. Moreover, many of you are largely anonymous to me, placing this blog post squarely in the attention economy. (I encourage you to move us towards the relationship economy by contacting me through any of the services indicated on the right!)
Putting It To Work
In the introduction I posed a number of questions with the promise that this framework will help us answer them. Some of those questions have been answered simply by clarifying the four quadrants.
The conception of attention economy presented above unites two definitions that superficially contradict each other. In marketing conversations, attention economy refers to the usage of various tactics that convert attention into sales (represented in the image below by the vertical arrow). In discussions of peer-to-peer social media, attention economy refers to analogous tactics that empower individuals to convert weak ties into strong relationships (represented by the horizontal arrow).
Both definitions are consistent if we recognize that both conversion processses begin with analogous behaviors, but apply them towards distinct ends. If I were a better artist the two green arrows would be drawn as funnels to indicate that both processes involve drawing a sub-population out of the overall audience.
The framework also identifies a distinct definition of gift economy by locating the current wave of unmonetized production in other quadrants:
- Peer-to-peer social media content converts attention into relationships
- Content marketing and brand-based social media content convert attention into money (or more attention and eventually money)
- Emerging collaborative arrangements expand the scale and scope of the relationship economy
Lastly, the framework allows us to visualize the big shifts affecting the economy. Up to this point I have drawn each quadrant as approximately equal in size. Instead, we might vary the size of each quadrant to represent the volume of economic activity occurring within a given domain.
One obvious big shift rocking the economy is the advent of social technologies that enable the maintenance of vastly expanded social circles. Though these technologies may not override the psychological limits described by Dunbar’s number, they undoubtedly enhance the ability to maintain weak ties. This shift might be represented as follows:
Another significant shift in recent years has been the overwhelming volume of ‘amateur’ and intrinsically motivated content that is now produced. This shift could be characterized as growth in unrefined production, and added to the previous image as follows:
These last two are offered for illustrative purposes only and are not necessarily meant to accurately depict the current economy. Prior to recent trends, the scope of the transactional economy overwhelmed the other three quadrants. As such, an accurate depiction would need to start from a baseline in which the quadrants skewed significantly in the opposite direction.
Questions For Further Consideration
This post only scratches the surface. Assuming the reasoning above survives peer review, this framework provides a consistent language with which to analyze a wide array of questions. Here is a sampling for your consideration:
- How would you depict various alternative currencies?
- Facebook credits
- Would they exist within a single quadrant or would they cross axes?
- How would you plot a retweet? A ‘Like’?
- An influence metric that measures retweets?
- Do people you know personally retweet your content less? Why?
- How would you depict the following series of exchanges:
- Staying in a hotel
- Staying with a friend
- What does that series suggest about the future health of ‘the economy’?
- Plot the life-cycle of an ‘open enterprise’
- What does indirect monetization look like?
- Which quadrants are underutilized?
- What mechanisms would enable greater utilization?
- What would a personal equity investment look like?