Saturday, October 22, 2005
Trust & Returns to Scale
Jarvis has a very nice post about trust, which is something that was discussed at USV quite a bit.
I tried to explain why trust was important in the economics of attention, but I don't think I did a great job.
Jarvis gets it intuitively, but I think it's important to break down the economics that make it so important (aka, what I call connected consumption), because it's easy to explain to that way.
I'm going to write more about this in coming days, but for now, let me state the argument as simply as possible.
1) Trust is important because you can't get people to share if they don't trust you.
2) If we are both members of the same network, sharing (expectation and preference info) is important not just because it's a hyperefficient way to leverage other people's tastes to efficiently allocate your attention (a direct network effect); but also because I am always better off if you share your information (an indirect network effect, eg, an advertising effect which lowers the price of network usage for me, for example).
3) That is, trust (connected consumption, etc) is what allows returns to scale nonlinearly with network size.
4) I know, I know, you think exponential returns (aka Reed's law) are (really) a lot of bs. I think the numbers (250kb ppt) present some pretty compelling evidence otherwise.
5) See 3.