‘Digital economy has its own set of rules’

It’s with good reason Paul X McCarthy’s new book, Online Gravity: The Unseen Force Driving the Way You Live, Earn, and Learn (Simon & Schuster), is called the Freakonomics of the digital economy. The very idea, online gravity, is disruptive and entertaining. McCarthy illustrates how a curious set of economic rules — totally different from the offline world— powers online businesses. He terms them online gravity, which help create planet-like mega-entities (Amazon or Google), changing the way we live, work and communicate. McCarthy speaks to BusinessLine .

How did you get to this idea?

The idea came from years of research about how social interactions and business work differently online. Offline, there’s a tendency toward equilibrium states where there are a number of large ‘planets’ in each ecosystem. This ends up forming dual planet worlds. In English-language encyclopaedias, for example, there were the Encyclopaedia Britannica and the World Book Encyclopaedia; in printed dictionaries, there’s the Oxford English Dictionary but also Merriam-Webster’s, Collins and many others. But online, there’s only Wikipedia and some niche brands like Encyclopaedia Mythica, which I call moons.

How do you apply this idea in business?

It’s the new rule book for all businesses. Whether you’re small or large, your industry will eventually be transformed by this new set of forces brought about by data, digitisation and the broadband mobile web. The exciting part is we’re only on the beginning of the journey. While some online giants have emerged in search (Google); social (Facebook) and retail (Amazon/Flipkart in India), many more are rising rapidly in travel (AirBnB); transport (Uber/Lyft) and a range of new industries yet to feel the full effects of online, such as health and education. Others such as online legal services and online agriculture are still in their infancy.

You say, “Just as matter attracts matter, data attracts data.” How?

This is part of the distinctive force of online gravity, which deals in the economics of information.

Data is often of more value when added to other data as it gives its users more context and more utility.

So, for example, if I have your search data — what you type into Google that may be interesting but not that valuable, but if I have all the people in your cities I can now see trends in searches related to context — and I may be able to understand cultural, social or environmental trends.

If I then had more data — say the time of day of the search queries, the age and sex of the people searching, I can segment the data to get even more insights and may find that elderly people are suffering the flu in a particular neighbourhood; children need help with their homework from 7 to 8 pm. Armed with this information individuals, companies and governments can design products and services.

Google paid nearly half a billion dollars to acquire YouTube because its global marketplace in user generated video data collection is much more valuable to them (than as a standalone business) because they could add it to data they already have and their broader ecosystem of online user services and ad networks. This also explains why Facebook paid billions to acquire the young companies Instagram and WhatsApp.

The hundreds of millions of users of these companies and the data they generate is worth a lot more to Facebook than to anyone else as they can add it to their existing collection of who’s friends with who (the world’s social graph) to now understanding where they are and what they’re doing via their smartphones.

You write online gravity is networked but not tribal; are you talking about a world without loyalties?

In a world with online gravity, there are loyalties; just the basis for these is networked not tribal. What I mean by this is that utility is the new trump card and network utility trumps all others.

So, for example, it doesn’t matter how much you loved Spoke, MySpace or AltaVista; once the planets of LinkedIn, Facebook and Google emerged, their attraction is irresistible.

That’s not to say this is a soulless process — far from it. These brands are among the most loved in all business with huge benefits clearly for the winning companies.

When you’re discussing the ‘Big Data of Doing’, you seem to have skipped serious privacy concerns.

I know privacy and security is a big issue and it comes up in almost every public forum about big data. In almost all cases, there are two sides, a benefit and potential trade-off.

I talk about the data subscription agreement many new car owners like Tesla owners sign to give the company access to the complete location and logs of its use. For some people this will be an invasion of privacy; on the other hand some people are looking to install third-party telematics devices in their cars to let insurance companies know everything they can about their driving so they can reduce their premiums.

Online gravity can cause casualisation of jobs. How will it affect the future of work?

In a way the future of work is the most important change that will affect all of us as a result of online gravity. And yes, casualisation is a key aspect of this as is global outsourcing and automation.

One of the key trends is a splitting of many national and regional economies into two tiers — one with global technology-enabled companies that serve and benefit from global customers, suppliers and talent bases and another that is increasingly local and in danger of being unable to compete on the global stage. Much of the focus in my mind to create successful economies and regions of the future should be to create more global, connected companies. If you can do that you’re going to be in much better shape and work with online gravity, not against it.

So, for companies such as Google, Facebook and Amazon, lack of talent, not lack of jobs is the problem — they have an abundance of great jobs and are always looking for the best people, and can offer security, great pay and conditions.

If you’re asked to spot the one trend that is disrupting the digital world today, what would you pick?

Acceleration of foreign direct investments on the back of global outsourced labour platforms like Freelancer.com and oDesk (now Upwork) and wholesale marketplaces such as Alibaba. For the first time in history individuals and small businesses are now able to engage directly in global trade.

Is a level-playing field absent in this ecosystem? How would countries such as India, with yawning gaps in wealth distribution, fare in the digital race?

Yes, a level playing field is not a feature of online gravity in the same way there’s no dual planets in our solar system — we’ve only the one star, eight planets and their moons. The answer for countries such as India who face increasing gaps in wealth distribution is to foster the development of some innovative global companies. India, with the proliferation of English as well as world renowned tech skills is uniquely placed to become what Switzerland was to global banking in the last century.

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