November 10, 2009

Diminishing returns to scale, and the User as a Fish

I wrote my final university paper on fish, eco labels and international trade. I found that fish are fish and thus belong to no one before they’re in the net, eco labels do create some wickeid kind of price premium and it is actually better to invest in industry than fishery in Tanzania.

So what the heck does this have to do with Social Media? Well it has everything to do with Social Media and the understanding of the medium you need to have in order to get increasing returns to scale on your communication efforts.

The User as a Fish
Just as the net captures the fish, the big corporations owned the web media. The users weren’t satisfied with this and thus they took control of the net seeking every hole they could find in it. And just as with fishery, the industry didn’t particularly care when the fish started to get fewer and fewer and skinnier and skinnier, they just got bigger nets and faster and faster boats with cooler and cooler radars. Fish, just like users move regardless of the traditional dimensions. Fish live in the sea and can easily escape into the sea of another country. Users live on the web and can easily escape as well. Especially since the web has become so big.

And eco labels only work with trust
And just as eco labels allows for companies to charge us more for the same, you see the same pattern with social media. If the company show they care, then users will follow. But as we all know many of the eco labels are BS and in the offline world we have the Sverker Olofsson’s to help us. On the web we don’t need no Sverker as we are all the Sverkers we need. Now, just as eco labels went through a rough time when they were exposed to be fraud, so has corporations like Wallmart become symbols of BS in the online world. It has taken a couple of Dell Ideastorms and Skittles to get back on track. Price premiums can only be extracted where trust is present.

And it is better to Enable, than it is to Harvest
So to the third part of my essay which was about binding this together. Fish move and it is thus the normal way for us people to try and define property rights. But if we are on the web where the users own the net, it is impossible for us to catch anything unless it wants to get caught. Even though we double our efforts and triple our net size, we will see diminishing returns to scale on each dollar we push into it. In order to increase our return to scale we need to invest in our infrastructure and our technology. As in the case with Tanzania, they had already an abundance of fish, just as unexploited areas of the web have an abundance of passioned users. If we invest in the fishing industry there, then we will see an increasing returns to scale on our first few spendings but in the long run experience diminishing returns to scale just as we have in our own industry.

And thus Infrastructure is the answer
So, my point being, it is better to invest in the infrastructure of the Tanzanian industry helping the inhabitants in that country to develop into a modern economy as this will enable us to get a price premium out of our efforts plus give ourselves the chance to sell our own products to people with better finance. Just as it is better to invest in infrastructure of communication as it gives us the opportunity to gain invaluable trust in our target groups that will indeed induce them to talk about us in their own words, but in a positive way. By putting the money in helping the Tanzanians of the web get better at what they do whilst adapting to what you do, is the optimal way for you to make money on the modern web.

Now if you didn’t understand a word of this post. Please don’t feel sad. I just needed to put some of my more philosophical thoughts out there due to the two “x advice on”-something prostitution posts I wrote as my last posts.

//Jesper

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