How Google Creates Wealth

Bex Huff has written a fascinating review of a book by Eric Beinhocker called Origin of Wealth that takes a look at how economies work and how wealth is created.

Huff, being a techie, latches on to the concept of wealth creation achieved by companies like Google:

If Beinhocker is correct, and there’s a direct correlation between wealth and knowledge, then public data stores like Google are modern wealth-creation engines… This idea in general was covered by The Economist and Jimmy Guterman at O’Reilly recently, but I don’t think either understood the full implications…

When the modern banking industry began, very few people saw it as the wealth-creation mechanism that it was. Many saw it as a wealth protection and re-distribution system. Investors saw them as a “safe” place to put their money. Bank managers understood profit, loss, and risk… which meant charging the right interest in order to make a profit for the bank and its investors… however, many still regarded the economy as a zero-sum game.

Since Google stores so much information, they can mine it to find new kinds of ideas, new concepts, and create new knowledge. Thus, they can sift through the cruft and chaos on the web to find the order. Since Google tracks everything, they can watch trends, and monitor the popularity of certain ideas. Thus, they have their fingers directly on the pulse of what kind of order is fit.

In the case of Google, there appears to be at least two ways the company creates wealth in the sense of creating largely universal knowledge. The first is by digitizing everything. This is largely achieved by people other than Google, but Google has gotten into that game directly by digitizing books, Google Base, Docs, Spreadsheets, and Gmail.

But the real value provided by Google to date isn’t in the digitization of content but the work they’ve done to make sense of the content. There’s no question that there is more information being created than one person could every consume, so companies like Google provide wealth by making it easy for people to find information that allows them to create value of their own.

For example, a guy named David Newberger works for the farm my wife and I buy our vegetables from through a CSA (Community Supported Agriculture). This week’s newsletter from the CSA mentioned this about Newberger’s work on the farm:

When David is not working on the farm he is surfing the web looking for solutions to the many problem we encounter.

Google provides fast access to information that allows Minnesota farmers to provide healthy and delicious organic vegetables to my household throughout the summer. The key, in this case, is both the digitization and organization of the data. First, it must be online, but then it must be retrievable in a timely manner by Newberger in order to be valuable to his time-sensitive needs on the farm.

Other companies are making sense of the deluge of news created online every day. For example, Digg addresses this by allowing visitors to sort interesting stories through one-click voting. Techmeme generates news sites based on what’s buzz-worthy in the blogosphere, and Google News does the same with news coming from traditional news sources. All three create wealth by making sense of otherwise inconsumable amounts of information.

One area where we’ll surely see more wealth created in the future is in content organization. While more and more information is becoming available online every day, the organization of information within specific areas of interest and industries is still rather immature. Perhaps Google’s future launch of a Wiki enabling tool will play a roll in helping people organize data within their areas of expertise? Or will there be a Digg or Techmeme for every niche of the web?

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