Transparency vs. Information Asymmetry - Shelly Palmer

The asymmetry of knowledge (where one party has more knowledge than the other) has been the distinguishing characteristic of profitable transactions for all of recorded history. Actually, I'm sure it predates recorded history; I just can't prove it.

Economists have long studied the imbalance of power caused by information asymmetry and have nomenclature for special kinds of examples. After you Wiki "information asymmetry," check out "adverse selection" and "moral hazard." Now, just browse around Wiki and Google and you will assimilate the knowledge contained in two semesters of undergraduate Econ classes in under 10 minutes – oh, wait! That's what this article is about...

Among the benefits of living and working in a connected world, there is one that stands out as "the" change agent for humanity – virtually instant access to information. Now, I have said time and time again that information is not knowledge, but ... in the hands of someone who can contextualize it, the speed of information is directly equated to economic success.

The simplest of the information asymmetry problems has many names. Some like to call it, "price transparency" or simply "transparency." But that over simplifies and undervalues the problem. Just knowing the wholesale price or cost price of an item does not always help you get the best deal – although most sellers would consider it a challenge to constantly deal with consumers that knew their margins. The bigger problem is that the underlying engine of all transactions is now imperiled at scale by instant access to information. And, to make matters worse, the technology that makes all of this possible is trending upward at an exponential rate. Doing business is about to change in a fundamental way, and there's nothing anyone can do to stop it.

Transparency is powerful. In the very near future, sellers will not be able to overcharge for non-essential and non-time-sensitive goods and services.

You may push back and say that the auto industry has been dealing with this since the advent of the net, and that they have survived the onslaught of commodity pricing. You may also think that online auto sellers and brick & mortar auto sellers have reached equilibrium. This is patently false. The sticker price on a car has nothing to do with the price the dealer is paying, neither does the invoice price – if it did, there wouldn't be any car dealers. Do you really think you can run a floor-planned car showroom making $25 per transaction? Seriously?

On the other hand, when you are looking at a Samsung 46" HDTV Model number UN46D7000LFXZA at an electronics retailer, then take out your handheld device and search the web, you will instantly find it at a significantly lower price. You know it is exactly the same unit you are looking at in the showroom. Can the brick & mortar retailer match the online price? Will it? As this problem gets bigger, retailers are going to be highly de-incentivized to purchase inventory they cannot sell at a profit.

If retailers don't stock items, manufacturers will have to perfect just-in-time inventory. They will (many already have), what will become of the post-4G retail store? How will the retail environment have to adapt to be relevant in a world where everyone who walks-in has instant access to the lowest price, free shipping and no tax from an online vendor? Buyers already know more than sellers about the features and benefits of products – the web is the perfect tool for that – what does the retail store or showroom have to offer? How will manufacturers adapt production and finance to accommodate the change?

Now, let's expand this idea to every other business we can think of. As we move towards transparency, retail transactions certainly get tougher, but service businesses get hit just hard.

If the job of a service professional is to transfer the value of their intellectual property into wealth, how much will transparency hurt?

If I have made a living knowing more than my clients know, I'm in trouble. If I do deals by bringing my clients to third parties who add value, transparency takes away my value (since lists of my preferred vendor/partners, case studies and clients lists are readily available). Do I really need to hire a private wealth manager to figure out who the best hedge funds are? Not anymore. Do I need to hire a consultant to tell me who the most interesting start-ups are? Nope. Do I need to hire an agency to get me the best talent? Of course not. All the metrics and information I need to arrive at a business decision are at my fingertips. Transparency is going to strengthen us in ways that traditional competition has not, or it will destroy us.

Is knowledge power? No. It really never has been. Information asymmetry in a transactional environment is power. And now, thanks to transparency, information asymmetry is becoming harder to create. To survive, the basic structure of transactions will have to adapt. Welcome to the information age.

Shelly Palmer is the host of NBC Universal‘s Live Digital with Shelly Palmer, a weekly half-hour television show about living and working in a digital world. He is Fox 5 New York‘s On-air Tech Expert (WNYW-TV) and the host of Fox Television’s monthly show Shelly Palmer Digital Living.  He also hosts United Stations Radio Network‘s, MediaBytes, a daily syndicated radio report that features insightful commentary and a unique insiders take on the biggest stories in technology, media, and entertainment. He is Managing Director of Advanced Media Ventures Group, LLC an industry-leading advisory and business development firm and the President of the National Academy of Television Arts & Sciences, NY (the organization that bestows the coveted Emmy® Awards). Palmer is the author of Television Disrupted: The Transition from Network to Networked TV 2nd Edition (York House Press, 2008) the seminal book about the technological, economic, and sociological forces that are changing everything and the upcoming, Overcoming The Digital Divide: How to use Social Media and Digital Tools to Reinvent Yourself and Your Career (York House Press, 2011) For more information, visitshellypalmer.com

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