"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.
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.
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.
"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.
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.
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...
@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.
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!
@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.
INCONCIEVABLE !
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.
Perhaps, though I'm not sure how it's related to the subject.
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.
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.
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.
>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.
(or rather, how that value is allocated)
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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