I can commend this post by Ben Hyde on the option value of PCI expansion slots in PCs. In whose interests are all those unused slots deployed? It reminds me of this paper [MS Word] on option value in networking.
As David Isenberg once reminded me:
Option value increases under uncertainty — if the future is relatively certain, then own the stock, but if uncertain, own the option.
A stupid network has high option value. But it lacks an equivalent of Microsoft or Intel who desire the rest of the value chain to be commoditised; the core optical and wireless transmission technologies aren’t easily monopolised. Players like Qualcomm aren’t nearly powerful enough to dictate the use of their network technologies. (It also partly explains why they fear Intel so much. Intel understands the game of profit-pool reallocation and has the deep pockets to play at the top table.) Hence stupid networks don’t get powerful proponents, whereas stupid computers do.
We’ve seen a move from PCI cards to USB for peripherals. At the same time there’s been an explosion of choice in consumer electronics. Ten years ago, your Gizmodo would have been a monthly, not hourly, publication. The shift to USB reflects the high option value of an open architecture, and the premium available for placing that option value in a more convenient form.
The move to representing documents as XML is a bit like the use of IP networks. Both are “inefficient” from a static viewpoint. VoIP is less efficient (from a bandwidth, latency and jiter perspective) than a dedicated network. XML is inefficient in CPU and storage compared to a purpose-specific file format. But XML maximises option value; you can transmit and transform data into places and forms not forseen when the data was first stored. Likewise, Oracle became dominant because its storage technology (relational) had higher option value than the competing (but faster and more “efficient”) hierarchical databases of the time. HTTP allowed headers to be added at will.
Virginia Postrel famously wrote in The Future and Its Enemies that the world boils down to “statists” and “dynamicists”, who respectively repel and embrace change. Mammals are also dynamicists; all that warm blood is “inefficiently hot”, but the option value of a wider habitat makes up for it. SQL, XML, PCI, USB, HTTP and IP are all dynamicist (“stupid”) technologies.
Dynamicists tend to outpace statists because they’re more adaptable in a raw Darwinian sense. Yet how often do we consider option value when creating standards and technologies? How often do we lock ourselves into the known requirements rather than embrace the unknown ones?
Posted by Martin Geddes at 11:21 AMTrackBack URL for this entry:
http://www.telepocalypse.net/cgi-sys/cgiwrap/mgeddes/MT/mt-tb.cgi/400.