Webzing the economy&

economizing the Web

4/4/2013

Michalis Vafopoulosvafopoulos.org

Do you believe it?

That a mathematician made an online call to solve important and difficult mathematical problems by coordinating many researchers through the Web?

Public spending in Real time?

It is the economy, stupid!

How long takes to have 50 million users?• 38 years for telephone • 13 years for television • 4 years for Internet • 3 years for iPod• 2 years for Facebook• <1 year for Google +• the next: Linked Data company???

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Main issues

① Web economics & business ② Goods in the Web③ Users④ Consumption and Production in the

Web⑤ The Web of Data emerging industry⑥ Student evaluation & how to work

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the Web Science perspective

① Internet economics: the predecessor ② Partial analysis of the Web economy

– e.g. network economics, digital goods etc.

③ Mainly focus on business implications④ Issues: Auctions, e-commerce, search engines

⑤ Lately, net neutrality & excessive market power⑥ Web science perspective

– Standalone artifact– How the Web transforms economy and

business

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Web economics

• Introduction – Economy after the

Web– Existing theories and

missing tools

• Goods in the Web– Information goods– Digital goods – Network goods – Web goods

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• The Web Economy – Network Effects– Peer & non-market production– Market Structure – Antitrust regulation – Web-based development

• The Web Business– E-commerce– Business models– Advertising & sponsored

search– User behavior analysis

Goods in the Web

① Data, information, knowledge ② Information goods③ Knowledge goods④ Digital goods⑤ Web goods

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Information goods: definitions

Definition Ithe good, which main market value emanates from the information it contains.

Definition IIanything that can be digitized (Varian)

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Information goods: characteristics

• high fixed cost of production• low marginal cost of reproduction• increasing returns to scale• experience good• public or a private good• non-rival and sometimes non-excludable

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Knowledge goodsexogenous or endogenous inputs in production as: ① know-what (facts)② know-why (scientific knowledge)③ know-how (skills)④ know- who (networks)

1, 2 easily reproducible3, 4 not easily reproducible4 more important in the Web era

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Digital goodsBits with economic value, which are (Quah):

① nonrival ② infinitely expansible ③ (Initially) discrete or indivisible④ aspatial⑤ recombinant

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Externality① analyzes the impact that individual

decision-making has on the other agents② comparison of how decision-making

involves others without exchange③ Positive (i.e. education) or④ Negative (i.e. profiling)

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Network externalityNetwork externality:

① Some goods/services create more value when more users consume the same goods and services

② They have little or even no value if they are used in isolation (e.g. telephony)

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Network externalities in the Web

Source of externalities =linking ① Web 1.0: documents (demand)② Web 2.0: Users (supply)③ Web 3.0: structured data (?)

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Network externalities in the Web

Linked Data

• bidirectional and massively processable interconnections among online data

• enabler for existing infrastructures

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Network externalities in the Web

Negative: • lack of trust • security,• identity theft • clickjacking • Spamndexing• spoofing• …

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The basics of network modeling

You see a product…

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And some reviews

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And some recommendations…

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The Amazon co-purchasing network

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Item X co-purchased most frequently

with products Y1, Y2,..

Amazon: the book-based multi-store

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The Amazon co-purchase

network for all item categories

hidden complementarity saves MS

MS (purple) & Apple (orange) communities are “mediated” by compatibility like VMware Fusion, Parallels Desktop and compatible products like Office for Mac.

Triad analysis: Winners in Product wars

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Analysis shows that co-purchase links not only manifest complementary consumption, but also reveal competitive relations among products that are perfect substitutes.

Switching to best sellers the case of Internet security market

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Ass: if products A, B & C are perfect substitutes (authority triad), then A has higher sales rank

consumers who bought Internet security s/w, more often, also bought Norton Internet Security than related products

Paychecks…

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bankruptcy…

Why networks? • To be self-contained (actor)—and to be

thoroughly dependent (network)—is to say twice the same thing. (Actor-Network theory)

• Easy to model and visualize relations• Easy to calculate major statistics • The study of the Web network help us to

conclude that most of real networks are:– Self-similar (Scale-free)– Small worlds

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NETWORK THEORY

Financial Network Analysis

Biological Network Analysis

Graph & Matrix Theory

Web Science

Social Network Analysis

Computer Science

Network theory and related fields

Initial source Soramaki

how? • Define:

1. Node (e.g. person, business)

2. Link [directed or not] (e.g. friendship, commerce)

And if necessary:

3. Evaluation of node (e.g. score, potential)

4. Evaluation of link (weight) (e.g. trust)

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4 50.54

Web Goods: definition

Existing approaches fail to both capture the digital and the network dimension (aka virtualization)

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Web Goods: definition

sequences of binary digits that • are identified and communicated by an

exclusively assigned URI and • affect the utility of or the payoff to some

individual in the economy.

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Web Goods

Their market value stems from the digital information they are composed from and a specific part of it, the hyperlinks, which connect resources and facilitate navigation and editing over a network of Web Goods with minimum cost.

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Web Goods: categories• Pure: basically exchanged and

consumed in the Web and are not tightly connected to an ordinary good or a service (pre-) existing in the physical world.

• Non pure (e.g. car’s photo in the Web)

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Web Goods: categories• commercial (e.g. sponsored search

results)

• non-commercial (e.g. Wikipedia entries)----

• public (e.g. Linked Open Data)

• private (e.g. subscription to online magazine)– financial fee – “personal data” fee – “social” or “membership” fee

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Web economy

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Consumption in the Web

• More energetic and connected consumption– search and review, collaborative filtering– what connected consumers create is not

simply content (e.g. product reviews) but context.

• Consumer coordination at large in the Web: the Amazon co-purchase network

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Consumption in the Web

• Personal data abuse and regulation challenges

• Joint consumption of information and advertisements in massive scale

• Moving the borders between production and consumption

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Moving the borders between production and consumption

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Production in the Web

① Inputs: information and knowledge reloaded② Incentives: from property to commons③ Peer Production: decentralized inter-creativity

outside the classic market④ From mass to networked media

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Incentives: from property to commons

Property rights can be further analyzed to 4 parts:i. The right to use economic resources.ii. The right to modify form and substance of resources.iii. The right to benefit from use of resources.iv. The right to transfer resources.

• Traditional economy: 1st consumers, the rest producers

• Web?• the 4th P: Property, Procurement, Patronage and

Peer Production (commons)45

Web business

① IT vs. Web economy② Google model

o The Sponsored-search marketo Who’s the data?

③ App vs. Web economyo patent’s waro Apple: the digital zombieo HTML5 effect

④ The Web of Data emerging industry⑤ Discovering the market sentiment in the

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Types of network externalities

① Direct (e.g. mobile phones)

② Indirect (e.g. mobile phone accessories)

③ Two-sided network effects (or multi-sided platforms) (e.g. hardware-software platforms and the Google’s advertising platform)

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Issues in network markets

Network monopoly (e.g. Microsoft, Google)Possible regulatory policies:

① Divestiture of the monopoly into separate firms.

② Unbundling or wholesale access to incumbent’s facilities (e.g. Internet explorer).

③ Licensing of proprietary interfaces to potentially competing platforms.

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Web Goods vs. Digital Goods

• restricts non-rivalry and infinite expansibility (concurrency capacity)

• initially discrete and indivisible, but • Web 2.0: micro-chunks consumption• easily edit, interconnect, aggregate

and comment • extends aspatiality and atemporality

from local (e.g. personal HD) to global level (e.g. downloadable file link)

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Web Goods as commodities

information and knowledge:multiple and controversial definitions

Web Goods: qualify as commodities (Debreu, 1959)

• stable identity (URI) • completely specified physically • temporally and spatially (reside

physically in a Web server during a specific period of time)

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Consumption & Production in the Web

Existing literature: the Web will lower prices because:

① lower search and fixed costs ② less product differentiation (e.g. location is less

important)

③ “frictionless commerce”Actually: no much evidence

The real transformation:More choices with less transaction costs in

production and consumption.

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information and knowledge reloaded

the production of information is based on 3 inputs:

(a) existing information(b) the mechanical means of conceiving, processing and communicating information and (c) the human communicative capacity (geography still matters in some sectors)

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Peer Production: decentralized inter-creativity outside the

classic market① virtuous cycle : productivity creates new

knowledge, attracts new Users, increase productivity, creates new knowledge...

② A peer’s private productivity < his social productivity due to supply-side knowledge externalities.

③ Peer Production happens if Users do not take advantage of other’s knowledge sharing (free riding), but contribute to the total productivity of the community.

④ usually fails due to lack of critical mass of Editors and in cases where sharing costs are higher than the cost of atomization.

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From mass to networked media

① de-massification of the media as a result of information overload and technological advancements (Toffler)

② In the mass media the profit-maximizing strategy is to attract attention and not to invest in production quality.

③ Networked media: Never before was possible to create, distribute, promote yourself and get feedback for your music, writings or any other online content

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Projects

Web Goods characteristics Compare with traditional good categories

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What about the mathematician?

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supplement

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Main issue

Identify purchasing patterns in Web retail using available public data

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outline① Before analysis ② Data③ Innovations④ Main results⑤ The Amazon co-purchasing network⑥ Amazon: the book-based multi-store⑦ Triad analysis: Winners in Product wars ⑧ Switching to best sellers⑨ Hidden complementarity saves MS

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Before analysis Why Amazon? the best proxy for Web retail Algorithms: item-based top-N

recommendations Analysis? co-purchase directed graph related literature?

Computer science (Collaborative filters, Karypis) Economics (market basket analysis, Oestreicher-

Singer) Software? Gephi, iGraph, FANMOD, mysql, & xls

(old habits!)

Data 226,238 items 13,351,147 co-purchase connections The crawler was started with an initial set of

300 items, which were the top 10 selling products in each of the thirty categories.

61 recommendations per item (average) 2nd level added 17,204 items 3rd 208,740 items

Innovations Cross-category analysis Broad graph (in dyads at least one from

category) Strict (both items from the same category) All recommended items crawled (max 104) Triads analysis Community analysis

Main results Amazon has evolved into a book-based multi-

store with strong cross-category connections. Top selling products are important in the co-

purchase network, acting as hubs, authorities & brokers.

Co-purchase links not only manifest complementary consumption, but also switching among competitive products (e.g. Kaspersky -> Norton).

competitive products consumed as complements because of the existence of compatibility and compatible products that facilitate their joint consumption.

overview

① Amazon: the book-based multi-store② Triad analysis: Winners in Product

wars ③ Switching to best sellers④ Hidden complementarity saves MS

Questions?

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Descriptive statistics

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Amazon: the book-based multi-store

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The Amazon co-purchase

network for all item categories

Figure shows the interconnections among all different categories of products in the Amazon co-purchase network. A link from category A to category B is added if products from category B are present in the broad network of category A. The link intensity grows with the number of products that are present in that network and the size of a category denotes the number of products that belong to it. The stronger links are from Movies & TV to Books, from Kitchen & Dining to Books, from Toys & Games to Books and from Books back to Movies & TV.

hidden complementarity saves MS

Fig. 2 shows a part of the Strict software co-purchase network, where different colors indicate different community membership. Different product communities have been identified based on the spin glass community detection algorithm and has been computed by the R package iGraph. It is interesting to observe that seemingly competitive products of Apple and Microsoft are in reality consumed as if they were complementary. Microsoft (nodes with red color) and Apple (nodes with blue color) product communities are “mediated” by compatibility like VMware Fusion, Parallels Desktop and compatible products like Office for Mac.