I read an interesting article in today’s (Jan 28) US print edition of the WSJ. It was titled, “High Speed Seen Increasing Costs of Stock Trading”. The article explores what is called “latency arbitrage”. This is where certain ultra fast traders take advantage of new market data before the wider market can. The results can lead to very tidy profits for some; and what’s is seen as unfair losses or taxes on others. Some will even say the market is rigged.
But as I read the article, I applied the story to intellectual property (IP) and innovation, and how best- and next practice ideas diffuse across industries. Gartner is, in a sense, in the business of monetizing the diffusion of IP. We discover and/or develop ideas, best- and next practices in one place, and apply them (maybe even adapt them) in other places, firms or industries. If we were fast enough, and effective enough, we would prevent competitors from replacing us. Thankfully we are good enough and of a size that it is hard to compete at scale; only narrow differentiated targets might succeed.
But the point about time and information is extremely important: organizations rely on the fact that it takes time for good, new, valuable ideas to diffuse across an industry. It is this delay that provides the original firm an advantage. If there was less of an advantage, there would be less value and so motivation to innovate. If the stock market new all information all the time, there would be no stock market; it works as there is a delay in knowledge distribution; and so, difference views are developed and so buyers will pay different prices for the same stock.
So “latency arbitrage” is something we see in different contexts; some good and some less so. But it does beg the question- which is best? Is it better to be faster or is it better to be (more) in the know? Unless you can act on the unique data, knowing about is next to useless. But moving early with the wrong information could be disastrous. I guess that tells you all you need to know: There are benefits, and risks, to speed and access to information.
Go tell that to the Hare.
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