"Value", the irksome euphemism

An economic value is the worth of a good or service as determined by the market.

Wikipedia

You keep using that word. I do not think it means what you think it means.

Inigo Montoya

If people pay you $1, then the economic value of your good or service has been determined by the market to be $1.

"Creating value" is thus a euphemism for "getting people to pay you money" – which has nothing to do with the usual meaning of "value".

Why is "value" an irksome euphemism? Because heroin dealers "create value", as determined by the market.

In the context of my own profession, all of the following are examples of value creation:

  • An office suite using undocumented and constantly changing formats. Value to users having no other way to access their own and others' documents: $100-$500, depending.
  • A distribution channel allowing developers to deploy software on popular devices, for which no legal alternative exists. Value to developers: 30% of revenue.
  • A social network with a billion private and corporate users who signed up for free, with a new charge to reach a given share of one's audience. Value created: $200 per post.

The more money I've extracted from you, the more value I've created, haven't I?

I'm not picking on Microsoft, Apple or Facebook. I can imagine working for any of them. My conscience is as flexible as the next guy's.

(A particularly inflexible conscience is a horrible condition. Feet to which no mass-produced shoes fit are merely inconvenient. A conscience incompatible with mass-produced social arrangements is a huge burden – not just on its owner, but on his friends and family.)

All I'm saying is that goods and services are distinct from bads and disservices, though both "create value".

Moreover, some sort of disservice tends to be essential to "value creation", a.k.a the extraction of money. People are attached to their money, and will only part with it when given little choice. Microsoft, Apple and Facebook constantly hone their methods of limiting users' choice. Who doesn't?

Business is what it is. It's not that consumers (us) are any better than producers (us). Nor is it impossible for something "free" – as in speech, beer, rider, whatever – to be a disservice to its users.

I just don't think "value" is the right word.

113 comments ↓

#1 DavidM on 11.17.12 at 8:02 am

Creating value has little to do with prices, which are just a reflection of peoples choices in the market.

If I pay you 100 dollars then two things are true:
1. You are worth more to me than 100 dollars, that is you *earn* more than 100 dollars for my business. ( or your service is worth more to me than my 100 dollars ).

2. You value the 100 dollars more than your time would be spent elsewhere. If someone else wants to pay you 150 dollars, then they value your skills *more* than I do.

This is wealth creation: BOTH parties win in this transaction.

Prices are just an invisible means of allocating resources: if your skills are in demand you demand more for them, if not you get less.

Highly recommend "Basic Economics" by Thomas Sowell.

#2 Ofer on 11.17.12 at 12:51 pm

I'd say that disservice is part of the value of the product. I mean the reason Apple can charge 30% is not because of their market disservice but rather thanks to their design/hype (I really don't understand what) that allows them to do so. So, we can say that the AppStore revenue is part of Apple's design/hype value.

#3 Ilya Kasnacheev on 11.17.12 at 2:52 pm

"A particularly inflexible conscience is a horrible condition. Feet to which no mass-produced shoes fit are merely inconvenient. A conscience incompatible with mass-produced social arrangements is a huge burden – not just on its owner, but on his friends and family."

These words are particularly golden.

#4 Xah Lee on 11.17.12 at 3:33 pm

I think i disagree with your opinion. I think value is exactly that, best measured by statistical method of money passing.

what most programer think of value, is certain type of moral value, moral goodness, or some absolute quality. But the fact is, value is just relative. Gold at times and periods are worthless. The value of USD $100 varies greatly depending on time and situation. A free movie ticket is valuable to some, but worthless to others.

I think, the concept of value you are criticizing is the one from economics, which i think is rather the best, if we don't specify a context. Such concept of value is a cold, non-moral one, not subjective. When people are willing to pay and actually pay for something, it's value.

#5 Chris Nahr on 11.18.12 at 3:21 am

From a fundamental viewpoint, the actual value creation occurs in the creation of the Office suite, iOS ecosystem, and Facebook network, respectively.

The monetization strategies you list may be annoying, but they simply allow the value creator to maximize revenue from having created that actual value. Enough net value must continue flowing to customers, according to their own judgment, or the whole scheme would collapse. Despite Internet polemics this is not forcible taxation.

By way of analogy, you could likewise complain that a baker forces you to pay money before you are allowed to leave the bakery, while ignoring the fact that you just got a pound of bread which is what you're actually paying the money for…

#6 Yossi Kreinin on 11.18.12 at 1:12 pm

@David M: I enjoyed "Basic Economics" by Thomas Sowell. One thing he doesn't mention though (not that he should in any way), and which is undeniably true, is that every penny of consumer surplus is the result of the producer's failure at price discrimination. (In fact I don't recall him mentioning either term.) If you're willing to pay me $100, and I'm willing to charge $5, the question becomes if the price is $5, $6, $99, or $100, doesn't it? That's what a lot of value creation has to do with.

@Ofer: the one thing I understood is that you aren't fond of the competitor :)

@Ilya: thanks!

@Xah Lee: I'm not criticizing the economic concept, really; as to "objective" – erm. It's people who're paying the money; also see the bit about consumer surplus and price discrimination above.

@Chris Nahr: bread is different from software in many ways. "Forcible" – no, although all business models take into account laws, which are implemented through the use of force and are rather arbitrary (how many years should you enjoy copyright or patent protection? how far it should be extended – what constitutes a violation?) As to "actual value creation" – sure; that's not what "economic value" is about – it's measured by observing the transfer of money. Creation of value from a fundamental viewpoint is wonderful, it's just not what the term means.

#7 Albert1 on 11.18.12 at 2:29 pm

On a side note: how are you? I'm glad to read your responses on this very day as I'm really worried about what's going on nearby Israel! Your blog and your c++ fqa have been excellent readings!

#8 Yossi Kreinin on 11.18.12 at 11:01 pm

@Albert1: thanks! We're fine, I guess… Generally you're more likely to get injured in a car accident than in an armed conflict around here, no matter which side you're on. The reason people are more worried about these things than they are about car accidents is that people work hard to make car accidents less likely, but people work hard to make war casualties more likely… So it's mostly the future potential that is the biggest problem.

#9 GD on 11.19.12 at 9:53 am

INCONCIEVABLE !

#10 Zep on 11.27.12 at 12:44 pm

That's why employers favor quantity over quality. Paying one person X even if they are worth it just ups the price for everyone else.

#11 Yossi Kreinin on 11.27.12 at 11:15 pm

Perhaps, though I'm not sure how it's related to the subject.

#12 trijezdci on 01.16.13 at 3:52 am

Economic value should not be seen as absolute, rather it is a perceived or potential value. This is why it is called a value proposition. You can accept or reject the proposition.

#13 Yossi Kreinin on 01.16.13 at 5:26 am

I can, but this isn't what I was talking about. What you're saying is that someone paying for MS Office could be right or wrong when making the bet that the purchase would pay off. I was talking about methods to get him to make that bet in the first place.

#14 Cathie on 01.24.13 at 8:23 am

Sometimes "economic value" is based on sales ability or the organization or individual instead of the quality of the application. So maybe the "perceived" value is based on the hype, then after the sale, the "real" value is based on the use.

#15 Nelson on 02.09.13 at 1:04 pm

>If you're willing to pay me $100, and I'm willing to charge $5, the question becomes if the price is $5, $6, $99, or $100, doesn't it? That's what a lot of value creation has to do with.

I would argue the value is $100. The actual price just determines who gets what part of that value.

#16 Nelson on 02.09.13 at 1:04 pm

(or rather, how that value is allocated)

#17 Yossi Kreinin on 02.09.13 at 11:18 pm

If someone's loved ones are kidnapped, he'll pay a lot to get them back, but that's not "value creation", right? As Milton Friedman said, markets have desirable properties "…provided that all transactions are voluntary and informed". I think we all agree that "non-voluntary value creation" like kidnapping shouldn't be called value creation.

Now the question becomes how informed you are. When people buy office, very few realize that they're locked in forever, similarly for iPhones and Facebook. Should they be more savvy? It's a separate question. I'm just saying that similarly to the boundary between robbery and "value creation", there's a boundary between swindles and "value creation". How the $100 is split is an orthogonal question, equally relevant in the cases of true goods and services, robbery and swindles.

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