Celebrated high tech priestess Esther Dyson has long written about intellectual capital and intellectual property. Editor Rich Karlgaard sought her out in her lower Fifth Avenue digs to talk about it.

ASAP: Why is intellectual capital so hard to pin down?

Dyson: It's like impressionism. You can't see it up close. You measure it by what it does. It's like a lot of science nowadays.

A: If you were advising a large company today, what would you tell them about intellectual capital?

D: One, learn the Internet. Everything the Internet portends is more one-to-one relations with customers. What does the consumer really want? He wants attention. He doesn't want Net advertising. He doesn't want mass content. He wants the company to pay attention to him. The best example is Federal Express. I don't care what kind of airplanes FedEx uses. I don't care that they have this great brand name. I care about my package, number 9029852. That's the real valuable information to me. It's this attention.

A: Are big companies attuned to giving one-to-one attention?

D: Not enough of them! It makes companies very uncomfortable because they aren't used to getting feedback. It's very disturbing. You hear all this cocktail party chatter and suddenly it's tangible. It's always been there, but you couldn't find it and neither could your customers. Now you can actually go see what people are saying about those things. It's kind of like the press, but much friendlier—and much rougher.

A: What else would you advise?

D: Invest in people. People leverage whatever value you have created—whether it is physical or knowledge. Let's face it, half the people are below average in the world. Not every company is going to be able to do this successfully. You just have to be a fanatic about hiring good people.

A: That's a great Microsoft competency.

D: Yes. It's hard. You might have to swim against the political currents. You might have to fight everything from quotas to giving people on welfare a chance to work.

A: Of course, it is one thing to hire brilliant people. But then you must get them marching to the company tune. Bill Gates can. Various Apple CEOs couldn't and can't. What's the difference?

D: Leadership. A leader has to align individual self-interest with the company's. Take Russia. Nobody in Russia feels that he elected Yeltsin. That's a big part of the problem.

A: Realistically, not every CEO is an effective leader.

D: But anyone can swing toward more units and teams. This is what you really want to create. Now, the genius of creating that kind of direct involvement which has some base in reality is what makes a good leader of a company. Whether it's "I feel that my boss cares about me and my boss's boss cares about him," or whether it's "I'm an important part of the flow of product through this company," or "I have direct contact with the customers." But there has to be some feeling on the part of each worker that he has an impact. Workers are not stupid. There has to be a reality.

A: Sounds like ancient principles, not a new invention.

D: A lot of stuff is not new at all. What is changing is the relative importance of the quality part versus the hunk of steel. That's why intellectual capital is a big deal.

A: Another intangible is corporate culture. How did you weigh that when you were an analyst at Oppenheimer?

D: I would weigh it hugely. Any good analyst asks a lot of questions. Are the top managers smart or stupid? Do they have high turnovers? Do they mistreat their salespeople? Do they train their employees? Are they spending on creating a corporate culture that people want to stay at, or are they milking the business? These are all different ways of saying it. How much attention are they paying to building an organization of people for the future? Do they send their people to training courses? Do they have a process for bringing in new hires and integrating them into the organization? Those are the kinds of things I look for.

"Intellectual capital is like impressionism. You can't see it up close."

A: So in Silicon Valley...

D: Not just Silicon Valley. In the oil business, how good are they at predicting the price of oil? How good are they at negotiating contracts? Do they have a reputation for screwing their partners? You asked me in the beginning, How do you manage the knowledge aspect? You manage it by measuring performance.

A: What is Microsoft's greatest intangible asset?

D: It's still a hot place to work. There's some financial incentive. There's also—you've heard it again and again: You can build a great product and nobody is going to use it. You can build a great product and have it marketed by Microsoft and it will pay for the world. That's a huge incentive to developers.

A: Plus, we both know Gates is obsessive about I.Q.

D: They sure don't like stupid people! But they also select for effectiveness. They have their choice of people pretty much, and so they select smart people who do things. They don't give them I.Q. tests and hire them. It's a necessary but not sufficient condition.

A: Intel's?

D: A driven culture that won't relax.

A: What are your views on copyright?

D: I don't think copyright is immoral. I think it is very moral. I think you should be able to control what you create.

A: Everybody lumps you in with the "information wants to be free" anarchy crowd, though.

D: Yeah, I know.

A: What are you, then?

D: An economist. Supply and demand. The supply is getting ever greater because the costs associated with content creation and distribution are going down. Therefore the price of content is going down. It's not that, morally, it should be free just because the cost is going down. I don't think potatoes should be free either. But if I'm in the potato business, and costs are coming down, I've got to think about creating french fries.

A: But it is easier to steal digital content than potatoes. And nobody seems to feel bad about it.

D: Yes, and that is something we need to consider, just the way you need to consider shrinkage in retailing. Shrinkage [i.e., shoplifting] is illegal and immoral, too. But on a retail line it is factored into the costs of doing business. I have to decide, How am I going to change shrinkage? Am I going to have guards in every store? Chain the goods to the tables? Yes, it is a moral question on the one hand, but it is also a business question.

A: If you are Bill Gates, what do you do with China?

D: First of all, you try and persuade the Chinese government to give you a whole hunk of money up front. If I were Bill Gates, I'd ask for a license for China. That's considered a joke, but why not? I'd let the Chinese government figure out how to deal with it.

A: How would that work?

D: They'd get a few billion dollars, then people all over China would start using Microsoft products, and someday it would be a great market for Microsoft. In the meantime, you'd get rid of the whole infrastructure created to count copies and manage licenses. Eventually what would happen is, there'd be lots of Chinese people saying, "We need support for these products." Then Microsoft would say, "Well, we won't license if you don't want to buy our products." On top of that, there would probably be lots of viruses, and people would say, "Gee, I want a certified copy from Microsoft, and I'd be willing to pay a little extra for it." Who knows?

A: Point is, you'd have a contract with the Chinese government.

D: Yeah. Just have a contract, and relax. Don't get all moralistic about it. Look at how much money you are going to make. Don't look at how many Chinese people are using your product without purchasing it. Look at the total revenue. Think about it as a business change, not as a moral issue. To the mind of a Chinese peasant struggling to make a living, some of these laws just don't make a whole lot of sense anyway.

Esther Dyson is president of EDventure Holdings, which sponsors electronic industry forums and publishes Release 1.0, one of the most influential newsletters in the high tech industry. edyson@edventure.com