Hamish McRae: Trust, efficiency and the internet revolution

Skype, like Google, shows how new technologies change our social and economic relationships
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The Independent Online

If you are not one of the 150,000 users a day that are downloading the Skype software, it simply enables people who have done so to communicate free of charge with each other on Voice Over Internet Protocol. For VOIP calls to regular phones there is a charge but it is lower than most phone companies - which in any case are routing more and more of their stuff over the internet.

But if the attraction was just free or near-free phone calls this business would not be worth the $4bn. What has persuaded eBay that it has this value, is that it has created a new club. In one sense eBay is also a club: people who have caught the eBay habit. But Skype is more explicit: 54 million people who can talk to each other for free. The Skype club is also predominantly a European one, whereas eBay has struggled to extend beyond the US. The purchase hugely increases the eBay footprint in Europe.

The business story is pretty stunning but the social and economic implications, surely, matter more. Skype, like Google, is one more example of the way in which the new technologies change human social and economic relations. They increase economic efficiency but they also increase trust.

Start with Google, for it is (slightly) longer-established and there has been more time for its social consequences to develop. Anyone who is reasonably adept at searching can find out an enormous amount about anything. Much is unfiltered rubbish but the sorting-out process gets better and better. Try Googling Skype. You become an instant expert - as of course you could on any other subject from the songs of the Dubliners to alternative medicine treatments for asthma. Professionalism still matters, for people need expertise, but that expertise is now much more widely available.

It also makes it hard to disappear. Anyone who had their name in the papers or is on some club register can be tracked. It is changing relationships. We were chatting with a young US couple the other day about the way in which Google had changed dating: how people now Googled prospective partners before plunging in too far. The chap thought this ridiculous - until his partner said: "I Googled you ..."

If Google builds trust, or at least enforces candour, it also encourages can-do. By giving anyone who is computer literate immediate access to the ideas and information of the world, it increases the power of the individual vis-à-vis both the state and the corporate world. This is a challenge to the "Whitehall knows best" approach from governments. Professions have to be very careful about maintaining their ethical standards, and corporations that abuse their market position are quickly rumbled and punished.

At the moment we are in the very early stages of the Google revolution but there are clues as to its consequences. There are fewer clues as to the consequences of Skype, aside from the obvious one that telecommunications are becoming virtually free. Nevertheless it is worth sketching some ideas.

The starting point surely is that people again seem to like joining clubs. That would be very understandable to our Victorian ancestors, that great age for the creation of a host of clubs, societies, social groups and so on. Clubs went into some decline through the past century as the focus switched to the individual, the nuclear family, the group of friends. The business world is very sensitive to this, witness for example the efforts of the airlines, stores and hotel groups to co-opt people into an affinity group. But this is pretty artificial for there is no natural affinity between people who happen to travel on the same airline.

By contrast Skype, or indeed eBay, is a natural affinity group because people are interested in the same experience: talking for free or trading at auctions. They are not clubs in the sense of exclusivity, but eBay does operate that crucial club discipline of being able to black-ball miscreants. Get a low rating for probity and you are out. Google, on the other hand, is not a club at all, though it may help clubs to work more efficiently by enabling them to spread their reach.

From an economic perspective, what all three technologies do is reduce frictions. All economic relationships carry transaction costs. There is the cost of finding out about the product or service; the cost of promoting or advertising it; the cost of payment; with people, the cost of hiring and firing, and so on.

As economic relationships have become more specialised the trend has been for transaction costs to creep up. To hire a professional can cost half a year's salary because the headhunters have to put in a tremendous amount of work matching the appropriate person to the job - and they can still botch it. The promotional cost of launching a new car is huge by comparison to the cost a generation ago. Because there are so many on the market, it costs more to get any particular one noticed. The more you can cut though this by allowing people to talk to each other about the merits of new a product, say new software, the lower the cost of each transaction - the lower the friction.

We don't know how the Skype club will develop: what new ways its members will find to interact with each other. What we do know is that this is not just about free talk. Humans are intensely ingenious. Texting was an add-on to mobile telephony, introduced because the companies thought it might be useful to have a way for their engineers to be able to communicate with one another - or at least that was one story I heard. My guess is that the Skype club members will develop new communication functions that will be just as significant as texting but what these might be is anyone's guess.

This naturally leads to a concern: exclusion. All new technological developments exclude people: railways, cars, telephones, televisions and so on all created new groups of have-nots. Skype is merely one more element of the communications revolution that we can reject or not as we please so I don't think we should be too worried about it as such. But the general concern must stand. People who have access to the new technologies and the education to use them effectively do benefit, while those that haven't, don't. We should celebrate the gains to human welfare certainly, but also try to figure out how to include those who are not yet part of this revolution.