Every business competes based on information functions such as market research, logistics, and advertising. Inventory is a measure of faulty information. With perfect information, there would be no inventory. Information is the “glue” that holds together value and supply chains.

Now everyone can suddenly communicate with everyone else, virtually for free. In short, the glue that has traditionally held all of our
economic activities together is rapidly melting in the heat of universal connectivity. This will separate the flow of information from the flow of things for the first time in history.

When information is released, economic value is released along with it. You can search electronically through a virtual warehouse knowing none of the items are actually stored until you order them. Amazon.com couldn’t sell books otherwise and acquires only the books it delivers. By separating the thing from the information, it has released tremendous economic value.

A worry for Amazon is that the wholesaler of the books might get connected directly with the customer, eliminating the function that Amazon now performs. This disintermediation will threaten a number Hudson Valley businesses, where competitors don’t want all our business….just the profitable parts.

The physical object of the printed newspaper must be manufactured and transported to the customer. The information is the content. Not everyone wants every bit of the content, but everyone gets the whole newspaper. There are signs that this bundle is being unbundled.

Readers can download daily news from multiple services. Parts of the business can be cannibalized through this new system of delivery. Classified ads are much easier to search, use, and respond to when they are on-line……they account for 40 percent of the revenue of a typical newspaper!

Any business that operates with both profitable and non-profitable parts is vulnerable to someone who can come along and separate the two. This suggests that a new competitor could focus on a vulnerable sliver of the current value chain where all of the profits are made.

When commission prices were deregulated, Charles Schwab lowered his rates, creating the first discount brokerage service. He offered no advice, just cheap trades, and staked out an entirely new competitive position. As the Internet took off, and commission prices dropped below $10 a trade, Schwab seemed overpriced and fought back by offering more advice along with portfolio tracking, and other services.

Meanwhile, the discount brokers fight it out to the point where all the profit is gone. The same thing happened in the retail computer business which became a commodity, because, as consumers became more sophisticated, they cared less about “hand-holding” than price.

The economics of information will deconstruct many, if not all, Hudson Valley business in the next five to ten years. As the information becomes separated from the thing enormous opportunities and challenges will emerge, demanding flexibility, speed and a willingness to change.

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