Umair Haque / Bubblegeneration
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Design principles for 21st century companies, markets, and economies. Foreword by Gary Hamel. Coming January 4th. Pre-order at Amazon.

Monday, June 05, 2006

Economies of Simulation

I've been doing a bit of work on a new bunch of ideas. Core to them is the notion of economies of simulation - firms reaping economies of scale essentially by passing hidden costs off to consumers/society/etc.

Some examples are well known - Wal-Mart, McDonald's, etc. Others are less well-known: fragrances, cosmetics.

Economies of simulation are important because they are a massive vital point for strategic innovators to hit. Consider the Gap vs Zara, McDonald's vs (everyone), etc.

To make a long story short, economies of simulation are less and less sustainable in a world of ubiquitous networks and cheap information.

So, here's a killer NYT article exploring Wal-Mart's strategic response to consumers rebelling against it's economies of simulation.

-- umair // 1:37 PM // 7 comments


Umair, Before you add another incomprehensible term to the BGSL lexicon, please explain why "simulation" was plucked from the dictionary to describe "firms reaping economies of scale essentially by passing hidden costs off to consumers/society/etc."

I'm sure that this and prior rants about the same topic sound petty but some of us have to employ these principles in the real world & we sound like twits walking around talking about "edge competencies" and now, "economies of simulation".

As mentioned before, you nailed it with "microchunking" (note the adoption of that term) but your namings of "connected consumption" (for peer production), "edge competencies" and "economies of simulation" all seem to detract from your brilliance.

Then again, I may have missed something. This is how defines "simulation".

sim�u�la�tion (s?m'y?-l?'sh?n) pronunciation

1. The act or process of simulating.
2. An imitation; a sham.
3. Assumption of a false appearance.
1. Imitation or representation, as of a potential situation or in experimental testing.
2. Representation of the operation or features of one process or system through the use of another: computer simulation of an in-flight emergency.
// Anonymous David G // 2:51 PM

Hi David,

Most of the stuff on the blog is an intro; obviously, I can't do justice to most of these concepts here.

If you wanna know more, you can always just email/Skype me :)

Definitions: As in simulating (imitating, etc) scale economies. The costs "saved" are just transferred; no real value is created.

ie, you eat at McD's; someone pays for your costs of obesity later. The "economy" is a simulation.


Edge competence: the competence/skills/resources are shared at the edge of the firm, between the internal and the external. Think PageRank - it depends on links from connected consumers.

Connected consumption: consumers connected in specific ways = markets, networks, and communities.

Hope this helps :)
// Blogger umair // 3:07 PM

I suppose a lot of people are in the game of creating labels for new phenomena. Umair seems particularly keen on this. Whether any particular term takes off or not probably depends on it being reasonably intuitive, on how much it resonates with other vocabularies, and on what the compititors are.

Plus, some people have a lot of resources and network capital to throw at pushing their prefered term : eg. OReilly ("open source", "p2p", "web 2.0").

I suspect "Edge Competence" has made it. "Microchunking" is doing OK, although it's really a derivation of terms like Microcontent which have been around for ages.

"Peer production" is definitely winning over things like "connected consumption", although there's a lot of rivalry in this area, from Alvin Toffler's "prosumers" to half the neologisms being spawned out by

"Simulation" makes me think of Jean Baudrillard, which may or may not be a good thing for what Umair wants to say.
// Blogger phil jones // 3:04 PM

My concern with ...

"Connected Consumption" is that it's more Godin than Benkler; more demand than supply - connected demand is interesting but not as revolutionary as connected supply.

"Edge competence" is that strategies chould be able to be used as a verb to be useful to business lingo. I far prefer the new "crowdsourcing".

"Simulation" is that it doesn't get close to the concept of transferring hidden costs to producers/consumers. That said, MacD's as an example doesn't either. I agree that externalizing the waste typical in the firm is a fascinating piece of this puzzle but disagree that MacD's illustrates the point - but I get the concept & I see it in eBay's virtual inverntory at zero costs of working capital (to eBay).
// Anonymous David G // 3:50 PM

Hey Guys,

Simulation is very Baudrillardian, that's a good call.

David, I think you've got economies of simulation backwards - from a social pov, eBay achieves real value creation by letting others handle inventory etc; McDonald's doesn't. McDonald's economies are largely "simulated"; eBay's aren't.

The whole economies of sim thing isn't really that applicable to tech...more to consumer industries.

"Crowdsourcing", in fact, can be seen as a specific kind of edge competence (or bundle of them). Competencies are specific sets of learning that let you transform resources in different ways = crowdsourcing. I like this term, kinda.

Connected consumption (if you wanna get detailed) = there is a spectrum of prosumption, from simple information sharing to full blown peer production. I use the term to refer to this spectrum.

Guys, at the end of the day, most of these terms flow from workshops/consulting, where, unfortunately, they can be explained in much greater detail like the interlocking pieces of the puzzle that they are.

Thx for the crit.
// Blogger umair // 5:09 PM

I also had to do a double-take on the coinage of "economies of simulation". Sounds like trading inside MMORPGs.

Instead, if I understand the point correctly, I might try "economies of externalities" or "economies of dissemblence" (denoting dishonesty and hinting at destruction of value, from to the similarity with 'disassembly').
// Blogger Gojomo // 4:51 PM

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// Blogger Gojomo // 5:01 PM

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