Tim O Reilly in Edge:

ParadoxI've been thinking a lot lately about a piece I read in Stuart Brand's, CoEvolution Quarterly back in 1975. It's called the “Clothesline Paradox.” The author, Steve Baer, was talking about alternative energy. The thesis is simple: You put your clothes in the dryer, and the energy you use gets measured and counted. You hang your clothes on the clothesline, and it “disappears” from the economy. It struck me that there are a lot of things that we're dealing with on the Internet that are subject to the Clothesline Paradox. Value is created, but it's not measured and counted. It's captured somewhere else in the economy. I started thinking about this first in the area of open-source software, or for that matter, the Web. You think about how much value Tim Berners-Lee created and how he didn't actually capture very much of it. It was captured by companies like Google, Apple, Twitter, and Facebook. You also think about the other extreme, where companies like Goldman Sachs managed to extract a great deal of value from the economy, but as the 2008 financial crisis demonstrated, they did so while actually destroying value for the overall economy. So that got me thinking about how value creation and value capture are not the same thing. Our economics tends to measure value capture. If we're going to get 21st century economic policy right, or even just correctly model what's working and why, we have to start moving to a model that measures value creation rather than value capture.

One really great example of the distinction between value creation and value capture comes from open-source software. A few months ago, I had a conversation with Hari Ravichandran, the founder and CEO of Endurance International Group, the largest web hosting firm in the US. They include brands like Bluehost. Hari said, “Our business is built on open-source software, and I'd like to give something back.” In the course of our conversation I realized that most people don't even think of the Web-hosting industry or ISPs as being dependent on open-source software. But when you think about it, of course Web domain hosting is a simple business model wrapped around the open source internet domain system. They're essentially offering the DNS, Apache, MySQL, and WordPress to their customers. Hari said something that really struck me, which is that there was a McKinsey study that showed that small businesses that have a Web presence have ten percent greater productivity than those without.

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