Checking our luggage on a United airplane headed for Seattle, we experienced the ultimate in unbundling. Â Not only did we have to master the use of the terminal kiosk to access our boarding pass; in the process, we were offered a variety of additional features–all formerly available as part of a flight package. Â Included, for example, was baggage storage, Â extra leg room, an upgrade to first class, and additional miles. Â In the heat of the moment, we decided we could use some extra leg-room. Â Inserting our credit card into the kiosk once again, we requested additional space. Alas, we got instead extra miles–heaven only knows to where. Although the lady at the counter could not tell us the destination of these miles, nor how to make use of them, she did know that they were nonrefundable. Sympathetic to our plight, she explained: “Sorry, we have been instructed not to provide passengers much help. The airline companies want us, instead, to train the passengers to take over our jobs.”
Â Sympathetic to our plight, she explained: “Sorry, we have been instructed not to give passengers much help. The airline companies want us, instead, to train the passengers to them over our jobs.”Â Â
What a disturbing comment! Â Stopping at a fast food counter, I began to ponder it. As I assembled a meal to take on the plane from among the assorted, individual food items, I was struck by what appears to be an inexorable seepage of the idea of unbundling from its origins in the divestiture ofÂ the American telephone system to the deconstruction of commonplace pleasures and practices, such as a formal lunch.
Certainly, the modularization of information and communication technologies has greatly facilitated the process of unbundling. Allowing companies to maximize their profits and differentiate their products, by charging on a service by service, item by item, basis, unbundling has been extolled by economists, such as Hal Varian and Garth Saloner, as the essence of efficiency. Â As these authors argue in their book, Information Rules, unbundling promotes innovation, encourages competition, and provides for greater consumer choice. One should note, however, that these advocates make little mention of social costs.
This is not the first time that I have thought about the costs and benefits of unbundling. Having directed the OTAÂ study, Critical Connections: Communications for the Future, I spent the eighties participating in the debates surrounding the divestiture of the Bell telephone system. Notwithstanding–or perhaps because of–the in-depth research we conducted, and the intense discussions in which we were engaged, I was never totally convinced of the wisdom of unbundlingÂ the communication system. Â One book that had a significant influence on my thinking wasÂ Steve Coll’s intriguing narrativeÂ The Deal of a Century: The Breakup of At&TÂ (1986), in which he describes the high drama and serendipitous events that led to the unexpected divestiture outcome. Â These included, for example, Baxter’s bias, Green’s takeover of the case, Reagan’s absence at a critical meeting, and Brown’s unanticipated willingness to make a deal. Â As a relatively young policy analyst at the time, I was shocked at what appeared to be a lack of analysis driving such a momentous decision. Â I was relieved when, at the end of Coll’s book, he raised the question of social costs associated with unbundling, especially the new transaction costs that would fall to the user.
As bundling proceeds apace, encroaching on all realms of our lives, perhaps it is time to revisit its underlying rationale. Â In particular, we need to reassess what is lost when all sorts of products and services are disassembled, and users are expected to put Humpty Dumpty together again. Â The telephone is a prime example. At the time of divestiture, the transaction costs for users were relatively low–choosing among styles and colors, coping with jacks, and inside wiring. Â As technology has advanced, however, sorting out the choices and technological complexities can befuddle even the best of us. Â
Even more troubling for me, is the unbundling (or one might say disembedding) of the economic product from the context in which it is employed. The problem is well laid out in The Social Life of Information written by Paul Duguid andÂ John Seely Brown, the book I have assigned for next week’s Networked Economy Class. Â As the author’s note, just as in the case of United Airlines, businesses are increasingly substituting technology for human interaction, and with dire consequences. Â What such businesses fail to recognize is that technologies can not replicate the knowledge generation, knowledge sharing and/or the norms of reciprocity and collaboration that are inherent in human interaction. Â Nor do such policies foster consumer loyalty–next time for me its Southwest Air! Â Â