Besides being an avid technologist, I am an economist. So let me start by introducing you to one of the fundamental concepts in Economics – that of supply and demand.
Demand is defined as the need for a good/service given the budget constraints and it naturally identifies a set of all the different quantities demanded at different prices. An underlying assumption here is that the cheaper the good or service, the larger the quantity demanded of that good.
Supply, on the other hand, refers to the set of all the quantities that producers are willing to supply at different prices. In this case, the assumption is that producers are willing to supply more if the price is higher. A market is where demand and supply meet. In a perfect market, the quantity of goods and services demanded is exactly the same and this state is called an equilibrium.
At this point you just might be wondering what all this has to do with technology. These basic concepts in Economics apply to almost anything you may want to do in business and the more you know about them the better your chances of identifying new opportunities for your technology or business.
In a general sense, technology opportunities will fall non-exclusively into the following three categories:
- Supply – this is the most obvious and involves creating a technology product or service to meet a specific need, such as the cell phone or computer. This is the most basic form for this category but it may also include using technology to support the supply-side processes.
- Demand influencing – this is where technology is used to influence the behavior of consumers. Traditionally, this role has been reserved for marketers. However, the increasing ubiquitousness of technology places this role squarely in the court of technology innovators who can reach a larger audience at lower costs and in a more personalized and tailored way. As an example, one of the elements underpinning the smart grid movement is the promise of using the technology to optimize consumer behavior in energy consumption.
- Market or platform coordination – this is essentially what Google did. They simply sought to coordinate the market for information by efficiently linking suppliers and demanders of information. In fact, they clearly state that their mission is to organize the world’s information and make it universally available. It is generally costly and time-consuming for demanders and suppliers to seek out each other and set the terms of exchange. This is particularly so because of the asymmetric nature of information in the markets and a lot of efficiency would be introduced by having a technology player coordinate the information within these markets and link suppliers and demanders at the lowest cost. Effectively, that’s what e-commerce platforms are for.
It is my belief that there is immense benefit in understanding the economy and economics around your business and how you can better position your technology in that economy. In future installments I will be going into detail on other economics concepts with actual case studies of their application in a technology setting.