What World of Warcraft can teach us about the knowledge economy

Posted by Christopher S Penn on Nov 22, 2010 in Marketing, Money, Social media | 1 comment

In the World of Warcraft, there are a number of professions you can have. Some are gathering professions, where you gather up raw materials, such as mining, herbalism, and skinning. Other professions make use of the raw materials to create finished goods, such as blacksmithing, alchemy, jewelcrafting, and leatherworking.

What most of these professions have in common is that the raw materials professions ensure a consistent level of demand for their wares, but their earning potential is constrained by how quickly they can “farm” up their respective materials. The manufacturing professions have demand for only some high quality items but command premium prices for them, well above the cost of the materials.

If you wanted to maximize your profits in World of Warcraft, one of the most reliable routes is to pick one of each profession (you’re limited to two) – mining and blacksmithing, or herbalism and inscription, or skinning and leatherworking. This keeps your materials costs relatively low in financial terms (at the expense of time) and allows you to create high level, high price items.

Now think for a moment about the information age, the knowledge economy, the world in which social media, new media, exists in. What are the raw materials of this economy? Knowledge. Information. Data. Knowledge is unquestionably valuable, but with the power of the Internet, Google, and ubiquitous content creation tools, knowledge is very much a commodity. What else might be raw materials in a digital economy? Trust, perhaps. Relationships. The network itself, your network. All of these things are raw materials, and they’re valuable…

… but are they as valuable as they could be? Are you able to command the prices you want? How do you get to the point where people are willing to pay a premium for the digital assets you have?

World of Warcraft points the way – you have to take your raw materials, such as knowledge, trust, experience, and craft them into something else. You have to forge them into something else. What’s that something else? Think about what makes raw materials usable: service. The blacksmith takes raw ore and through the application of his own knowledge, forges it into armor or weapons. The herbs in the hands of a skilled alchemist become magical flasks for improving what you are capable of.

The true expert practitioner in the digital age doesn’t just have knowledge or a social network or a large database. The expert practitioner has the ability to take those digital raw materials – your digital raw materials, if you have any – and craft a powerful solution to your actual problems. Just as a pile of saronite ore isn’t useful for slaying dragons (but a Titansteel Bonecrusher is), so isn’t a large list of blogs or a large network of followers on Twitter versus the ability to create a desired result.

If you’re not earning what you think you should be in new media, take a few moments to investigate whether you’re trying to sell raw materials or crafted goods. You may find that you’ve been leaving a lot of money on the table!

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The deadliest question of all

Posted by Christopher S Penn on Nov 7, 2010 in Awakening, Money, Strategy | 3 comments

Grab the beverage of your choice, a quiet place to contemplate, the writing instrument of your choice (paper, pen, iPad, whatever), and ask yourself this very serious question. So serious it’s a deadly serious question, because the wrong answer might literally kill you.

What price will you pay for success?

What are you willing to put on the line to succeed? More important, what boundaries will you not cross, what sacrifices will you not make in the pursuit of success before, as CC Chapman puts it, minute 16 arrives?*

Matthew Ebel said it very succinctly at PodCamp New Hampshire: time is the ultimate non-renewable resource. Everything has a cost, because every minute you’re spending doing one thing, you’re not spending doing something else. Every moment you’re at a conference, you’re not reading a bedtime story to your child. Every moment you’re at the dojo, you’re not working on a new business or strengthening your existing business. Every day you skip the gym because you’re busy is a day you’re taking an investment of time from one area of your life to another.

Are you putting things on the table that shouldn’t be? Are you sacrificing time with the people who love you, resources that can’t be recovered easily, or even your own health? Those long hours and poor nutrition slinging code are unsustainable in the long term, and health is like loansharking in that the final price you pay is usually much, much higher than you think it will be.

If time were currency, ask yourself right now if you’re spending it as you want to be in these areas like an investment portfolio:

• Physical vitality
• Mental health
• Emotional health
• Spiritual strength
• Professional growth
• Financial strength
• Family and community wellness

How does your portfolio of invested time balance? Are you stealing from some “funds” in one area to pay for questionable ROI in others? Is it time, as investment advisors often counsel, to rebalance your portfolio? If so, write down and make a commitment on your day planner to allocate whatever time you need to rebalance as a daily task, and lock out other areas so that you are properly investing where you need to be. Most of all, commit beyond a shadow of a doubt to holding firm on those investments of time!

* a reference to everyone having 15 minutes of fame.

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How do you make money with…?

Posted by Christopher S Penn on Sep 25, 2010 in Marketing, Money, Social media | 1 comment

The inevitable question at every conference, be it a PodCamp, social media event, or major corporate production is:

How do you make money with [insert shiny object of the day here]?

Five years ago it was podcasting. Then MySpace. Then Twitter. Then Facebook.

The answer, believe it or not, is always the same. It goes back to economics 101: money is a medium of exchange. It’s a translator of value. In the old days, before money had been invented, you would have traded for something of roughly equal value. I trade chickens, you trade goats, we figure out how many chickens a goat is worth, and we trade.

Nothing has changed in 50,000 years of human history. If you want someone to give you value (in the form of money) you must also give value equal to what you want them to provide you.

Here’s the catch: value is perception more than anything. If you perceive that more Twitter followers, regardless of quality, is better than fewer Twitter followers, then you will exchange more value with a person who has 50,000 followers than with someone who has 25,000. If you perceive that a Klout score of 51 is better than a Klout score of 40, you will exchange more value with the higher scored person. If you perceive that people subscribing to your newsletter is more valuable than people who like your Facebook fan page, you’ll exchange more value with a company that can get you newsletter subscribers.

Want to make money? Want to make more money? Figure out what the people you want to do business with believe value is in the first place, then give them what they want. The more of it you give, the more they’ll give back to you. Want to make crazy money? Provide crazy value.

Here’s where almost everyone in new media screws up: you don’t dictate value. You might be able to shape the perception of value a little, but at the end of the day, you have almost no say in what the other person perceives as valuable. More importantly, you insisting that what you have is of value and that I’m wrong for not valuing you correctly is only going to annoy me. You may think your audience of 50,000 Twitter followers is valuable, but if the other party cares only about Facebook, you won’t be able to exchange value with them. Find someone who values that and you’ll be able to make a value exchange with ease (that’s marketing: finding people who value your stuff). It’s no different than insisting that someone else should value your goat because you want chickens. If I don’t need or want a goat, we’re not trading.

So, in short:

• Determine value.
• Provide value.
• Collect money.

Simple – and as always, a reminder that simple and easy are not synonyms.

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Know when to skimp and when to splurge

Posted by Christopher S Penn on May 25, 2010 in Awakening, Money | 15 comments

Know when to skimp and when to splurge

Have you ever noticed that people skimp on the strangest things?

For example, I moved into a new office complex at Blue Sky Factory and the new place had neither a coffeemaker nor a filtered water system. However, the new place has plenty of other expensive amenities like a giant office printer.

I’ve noticed this when people purchase electronics. They’ll spend thousands on a new laptop and then skimp on memory or drive space, two items that will make a giant difference in their experience with the laptop. They’ll commit to buying an iPhone or an Android and then will get the smallest, lowest cost amount of memory possible.

I’ve noticed this at hotels, especially. Hotels will have 300 thread count sheets on the bed but will have sandpaper in the bathroom, making your stay there a literal pain in the ass.

Why do we skimp on some items and splurge on others?

I suspect it’s largely what gets our attention and what mindset we’re in when we’re making purchases. Toilet paper and coffee seem like commodities to us, while laptops and sheets may not be, at least not mentally. The more we buy of something, the less we may be inclined to pay attention to the quality of what we’re buying. The more mundane and unsexy something is – like toilet paper or laptop memory – the less we are inclined to pay attention to it.

The paradox is that some of these commodities make a bigger difference in the richness of our experiences than the highly focused items. I’d gladly take last year’s laptop stuffed full of memory and disk space over the latest and greatest machine that’s starved for operating resources. I’d gladly trade down a model of office printer for a coffeemaker or water filter on site – and I’d bet a company would generate far more productivity via the coffee machine than the copy machine. I’m more likely to stay at a hotel where the quality of experience is more even – nicer toilet paper, slightly rougher sheets (I can’t tell the difference between 200 thread count and 300 thread count, honestly) – rather than luxury sheets and a roughed up bottom.

Want to make a difference in your own life? Look at the nearly unconscious choices you make while spending and evaluate whether or not a slight upgrade could have a major but quiet impact on your quality of life. Some things won’t matter – generic , white label sugar at the grocery store is no different than Brand Name sugar. Some things will matter a great deal – a slightly better kind of coffee may taste MUCH better to you.

Here’s a relatively simple rule of thumb: the more you use it, the more you should invest in quality. If you’re buying a stereo, for example, and you plan to use it once a year, it probably won’t matter what you buy. If you plan to use it every day for 8 hours a day, buy a very nice stereo because crappy sound will make you feel worse rather than better. If you drink coffee once in a blue moon, buy any quality of coffee and coffeemaker. If you drink coffee several times daily, buy decent coffee and a good quality machine.

Look for opportunities to trade expenses as well. For example, at this office space, the employees (lacking access to a filtered water system) bring tons of bottled water and buy Starbucks every day. Rather than chew up money doing that, it makes much more sense to get a countertop pitcher that will filter water to a better quality than even bottled can deliver (you do know that 30% or more of bottled water is someone else’s municipal tap water, yes?) and brew your own higher quality coffee rather than drop $5 a cup to the coffee shop. No one loses out except the bottled water company and the corporate coffee shop.

Are you skimping and splurging in the right places for maximum quality of life on the same fixed budget?

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Bringing back the morning numbers tweet

Posted by Christopher S Penn on May 22, 2010 in Metrics, Money | 5 comments

Bringing back the morning numbers tweet

A long time ago (by Internet standards, anyway) I used to tweet out a bunch of financial indicators, in the days when I did a financial podcast. After making the move to Blue Sky Factory and the the world of email marketing, I lost touch with some of the day to day market numbers, and I’m finding that my ability to understand the world – especially the news headlines – is diminished.

So I’m bringing back the financial morning tweet, for my own benefit if not for everyone else’s. Every morning that I do #the5 (see this post for what #the5 is all about), I’ll do the numbers as well.

Now, if you’re not at all interested in financial data, this sort of tweet will be uninteresting. Just skip it.

Here’s what it will look like:

DJIA -81 SPX -11 VIX 40 TED 35.7 LIBOR91 51 OIS 22 MSCI 1074 BDI 3844 30yr 4.87 BCF 71.24 GLD 1183.40 RR 12.25 #econ

If you’re interested in financial data but have no idea what any of this means, let’s take a cruise through it.

DJIA: The Dow Jones Industrial Average. While it’s not the be-all/end-all of the state of our economy, the Dow is the most popular and well known indicator in the press and media, so it’s included for its psychological impact. Measured in dollars, and in the mornings, it’ll be listed as the futures, or what investors are predicting will happen the moment the markets open up.

SPX: The Standard & Poor 500. One of the better measures of the overall economy, the S&P 500 includes the stock prices of 500 companies from around the business nation. Measured in dollars, and in the mornings, it’ll be listed as the futures, or what investors are predicting will happen the moment the markets open up.

VIX: The Chicago Board Options Exchange Volatility Index. One measure of seeing how confident investors are. When the VIX is low (under 20), there’s not much volatility in the market. When the VIX is high (over 30), it means there’s a lot of volatility and not a lot of confidence. Measured in basis points; 100bp = 1%.

TED: The TED spread. This is the difference between 3 month Treasury bill rates and the 3 month LIBOR (London Inter-Bank Offered Rate). The TED spread indicates credit risk in the economy – when the spread is wide (more than 50), it means that the banking system is in trouble. Measured in basis points; 100bp = 1%.

LIBOR91: 91 day, or 3 month London Inter-Bank Offered Rate. LIBOR indicates the cost for banks to borrow from each other. LIBOR indicates how expensive money is to borrow, and higher LIBOR rates will correspond to higher borrowing rates for businesses and consumers. Measured in basis points; 100bp = 1%.

OIS31: 31 day or 1 month Overnight Indexed Swap rate. OIS measures how much liquidity – cash – is in the financial system. Higher OIS means less cash is in the system, while low OIS means lots of easy money is floating around. Measured in basis points; 100bp = 1%.

MSCI: The Morgan Stanley Capital International. The MSCI is an index of 1,500 world stocks from developed nations, giving a broad overview of the world’s corporate performance. As MSCI goes up, so do the world’s economies. Measured in dollars.

BDI: The Baltic Dry Index. BDI measure the cost of shipping bulk dry cargoes. This is important because unlike speculative investments, BDI measures the price of actual goods in transit. You don’t buy space on a cargo ship unless you have something you’re selling and shipping. Higher BDI indicates more demand for shipping and means the economy is growing. Measured in dollars.

30yr: The 30 year fixed mortgage rate as published by Bloomberg. The most standard kind of mortgage, mortgage rates go up when the cost of borrowing money goes up and vice versa. Measured in percentage points.

BCF: Brent Crude Futures, the price of a barrel of Brent crude oil. BCF tells you how expensive oil is on the market. Oil fuels your car, heats your house, and indirectly impacts consumer goods (since most everything is made of some plastic), as well as food prices – most fertilizer in agriculture is derived from oil. Interestingly enough, if you divide the BCF number by 25, you get roughly the price at the pump in a few weeks. Not a hard and fast rule, but a useful forward-looking indicator. Life gets more expensive when oil prices go up – but pollution and consumption goes down. Measured in dollars.

GLD: The price of a troy ounce of gold. Gold is one of the world’s benchmarks for inflation. As a currency inflates or as an economy deteriorates, people buy gold as a hedge, a way to protect themselves from loss. Gold itself isn’t really useful – it’s just a lump of metal – but it doesn’t lose physical mass sitting in a vault in the same way that a stock can lose value rapidly on speculation. Measured in dollars.

RR: Rough Rice. This is the world price of a bushel of rough rice, or rice just harvested from the fields. 20% of the nutrition of all humanity comes from rice, so when the price of rice goes up, it’s effectively a tax on the world. If the price of rough rice goes really high (above 15) you will see headlines in the world news about food shortages and hunger with greater frequency. Measured in dollars.

What does it all mean?

Individually, each indicator tells you something about how the world is doing financially. Some indicators tell you about banks and governments. Others tell you about commodities, raw materials, or corporations. Put together, they’re a very diverse view of the world economy and can even predict the future a little bit.

For me, I look at them to see how the world is doing. What’s in the headlines very often has financial underpinnings. If you know from these indicators what’s happening financially today, you’ll know what the news will be in a few days or weeks ahead.

If the price of oil skyrockets, you’ll see changes in the news and daily life. Seeing BCF spike now will tell you that those changes will be coming in 4-6 weeks as that barrel of oil eventually works its way into finished goods that consumers use.

Seeing the price of rough rice spike today and stay consistently high for a month will tell you that poor countries who are dependent on rice as a nutritional staple will be headed for famine if the price doesn’t come down.

Seeing the VIX skyrocket as it did a few years ago gave insiders advanced notice of the major stock market crashes long before the general public knew. Way back in the day, I saw the VIX leap above 30 and stay there in the summer of 2007. I dumped my entire retirement portfolio into a money market account in reaction to it. While I made almost no money in the following two years, I managed to completely avoid the market crash, too and saved my retirement from disaster.

I’d encourage you to not just pay attention to these numbers or tweets, but to also pick your own indicators, your own interpretation of what’s important in the world. You’ll know long before your friends and colleagues what’s going to happen if you study the numbers and learn what they mean.

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The fictional nature of money

Posted by Christopher S Penn on May 7, 2010 in Awakening, Money | 18 comments

How real is money?

From one perspective, it’s the most real thing in the world. Without it, you don’t eat, you don’t have a place to live, no clothes to wear, etc. unless you’re living out in the wilderness, foraging off the land. Money can be a tremendous amplifier of personal power. With an inexhaustible supply of money, you could solve world hunger, cure disease, and end conflict.

On the other hand, money is entirely fictional. It’s a construct, an artificial intermediary between things we value, because we may not value them equally or at the same time. I may sell email marketing and you may sell search engine optimization. If I don’t need SEO, no matter how valuable your skills are, I won’t trade with you no matter how much you need email marketing. With money, if someone else needs SEO, you can take their money and then give me that money for email marketing.

How fictional is money? The recent stock market mini-crash (due to a trading software error) caused several indexes to lurch as much as 10% below their value in mere seconds. At one point, the Dow Jones Industrial Average was down 998 points. This erased as much as $1.25 trillion dollars of theoretical wealth in mere minutes. Think about that for a second. Think about how much money that would be if you had it in your bank account.

• You could send 5 million students to college for 4 years.
• You could spend a million dollars a day and not run out of money for 3,424 years.
• You could own 1,667 super-giant luxury houses.
• You could pay cash for the entire Iraq/Afghanistan war and still have a couple hundred billion left over in change.

Think about the fact that $1.25 trillion was erased, vaporized, in just minutes. Imagine every student in college right now quitting all at once, or an entire city block vanishing in just minutes. That’s staggering, when you think about it. It’s hard to wrap your brain around.

Now think about the fact that the NASDAQ ordered a nullification of trades between 2:40 PM and 3:00 PM (when the mini-crash happened) for trades exceeding 60% of market value in either direction. Poof! Suddenly a big chunk of that imaginary money that was lost is back again.

You couldn’t build 1,600+ houses in minutes. You couldn’t enroll 5 million students in minutes. You couldn’t wage a 9 year war in minutes. But because of money’s fictional nature, you can make trillions of dollars appear with just a few clicks of a mouse.

What does this all mean for you? Think about your attitudes towards money, towards what you’re chasing. It’s a completely fictional construct that in our society is anchored to faith alone, making it the one true faith-based initiative our government has successfully created. Money is worth only what society believes it to be worth, because we can create or destroy vast quantities of it in minutes. It has no intrinsic value.

More important, if it’s entirely fictional, if it’s anchored only in belief of value, then instead of chasing money, think about how to create the perception of value. Think about how to inspire in someone else the desire to give you anything you want in exchange for that perceived value. What do people value about you, about your products or services? How can you provide more of that value perception? How can you boost the perception of the value that’s already there?

What do you value? I know that as a businessman, I tend to value three big things – things that will save me time, things that will save me money, and things that will make me money. If I perceive that your product or service can do any of those things well, I perceive that it has value and will buy from you.

Change your focus from trying to take other people’s money to creating the perception of value and see if other people start handing you a lot more money.

Get this and other great articles from the source at www.ChristopherSPenn.com! Want to take your conference or event to the next level? Book me to speak and get the same quality information on stage as you do on this blog.