The Network Economy Rules


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The Network Economy Rules

  1. 1. 10/9/08 Aims and Objectives The Network Economy: 
  Provide definitions and relevant examples  Structure presentation using chapterʼs framework New Rules of the Game  Conclude with our individual critiques Alexander Horre
 Grant Austin
 Colin de Mello Aussiegall - flickr Managerial Capitalism Economic transformation ➪ Industrial Network Economy = E-Business  What is managerial capitalism? (Zuboff, 2005)  How is value obtained? “New”  Firm before the customer Support  What are these transaction costs? Information Knowledge  The “value chasm” “Kevin [Kelly] argued that the era of computation is over, we are entering the age of communication.” (Li, 55) “The company centric value system no longer works. Customers have more choices and less satisfaction.” (Pradalad, Ramaswamy 2004) 1
  2. 2. 10/9/08 Distributed Capitalism Co-Creation (Zuboff, Maxmin 2002) (Prahalad, Ramaswamy 2004)  What is distributed capitalism?  Co-creating unique value  “Brewing of a perfect storm of 3 forces”  Customers now define and create value  Itʼs about the intangibles  Connect customers than isolate  “Value is realized through advocacy and trust”  Stems through five forces Managerial capitalism is transaction economics, and it’s replaced with relationship economics, dependent not on optimization, but on the individuals paying for deep support. (Carter, 2004) Co-creation: D.A.R.T. Model Migrating to co-creation diagram Dialogue Transparency Access Risk assessment (Prahalad, Ramaswamy 2004) 2
  3. 3. 10/9/08 What are these transaction costs? So…have basic rules changed?  Industrial economy  Network economy  Ronald Coase  high transaction costs  lowering of transaction costs  Discovered 1937  high vertical integration  high horizontal integration  Due to market inefficiency  ownership of value chain  specialized partner value chain  Firms organized to reduce  physical assets = value  intangible assets = value  law of diminishing returns  law of increasing returns costs in value / supply  high market entry barriers  low market entry barriers chain  information asymmetry  information symmetry The market is improving ICT Proliferation: “Itʼs Everywhere!”  The World Wide Web became the ʻkiller appʼ “Today the market is improving its efficiency at the speed of Moore’s Law and Metcalfe’s Law.” (Downes, Mui 1998: 7) “The pervasive diffusion of new ICTs into many “Due to Moore’s Law making digital devices cheaper and areas of economic and social activity is enabling powerful, a new way was found to share their content. [A] more extensive flows of information.” project called the internet.” (Downes, Mui 1998: 6) (Roberts, Andersen, Hull, 2000: 28) 3
  4. 4. 10/9/08 Twelve new rules (but now ten)  Kevin Kelly  Information or network?  Discontinuities  Profound implications  New rules must be applied Axes of the New Rules Rule 1: Embrace the Swarm  Jelly beans  What about computers? Agility  The pervasive net; complexity from simplicity  Strategy: move technology to invisibility Wealth Undo Quicker “No one is as smart as everyone.” (Keely cited by Kelly, 1998) 1 4
  5. 5. 10/9/08 (Gordon) Mooreʼs Law Example: Embrace the Swarm  1965 paper  Transistors double every two years  Powerful, cheaper  Embrace dumb power?  Nanotechnology? Dave Ward - flickr - flickr “We are connecting everything to everything.” (Kelly, 1998) Itʼs about invisibility Or….Embrace the Swarm “Information is easily accessible to anyone, and knowledge consumers can make informed decisions.” “Advances in the internet and in messaging and mobile phone technologies mean that consumers can easily communicate with one another in various communities…” (Li, 53) Todbot - flicker Sk3 - flicker 5
  6. 6. 10/9/08 How do politics fit into this? Kevin Kelly says…  Political Blog: Barack Obama  Internet fundraisers “As technology becomes ubiquitous it also becomes invisible. The more chips  $5.01 proliferate, the less we will notice them.  Blog posts, widgets, e-mail, 
 The more networking succeeds, the less youtube videos, facebook pages,
 we’ll be aware of it.” (1998) Twitter, digg links, flickr photos! Google images Kevin Kelly Embrace Dumb Power: Politics! Rule 2: Plentitude  Metcalfeʼs Law: n(n-1)/2  Value: abundance, not scarcity “We're going to do it the right way, with small donations from people like you…” (Plouffe, 2008)  N2 is actually not fast enough  Reedʼs law: 2n - n - 1 “Like Kelly for the economy…lobbyists pale in comparison to the power brought by an organised voter constituency.” (Rosenblatt, 2000) Google images Robert Metcalfe 6
  7. 7. 10/9/08 Example: Plentitude Rule 2: Plentitude Fax Machine “Once a standard reaches critical mass, its value to everyone multiples exponentially…1993 critical mass was reached…since then the value of each additional node and user was so great it began to exert something like a ? gravitational pull…” (Downes, Mui 1998: 5-6) Does this remind you of anything today? …. Why? Plentitude: Social Networks 7
  8. 8. 10/9/08 Rule 3: Exponential Value Rule 3: Exponential Value  Itʼs about Metcalfeʼs law “…industrial economies of scale increase value gradually and  Itʼs also about Mooreʼs law linearly. Small efforts yield small results; large efforts give large  Increasing returns results. Networks…increase value exponentially—small efforts reinforce one another so that results can quickly snowball into quot;The value of Windows increases exponentially as its an avalanche.” (Kelly, 1998) users increase arithmetically” (Kelly, 1998) “Networks encourage the successful to be yet more successful.” (Arthur cited by Kelly, 1998) Example: Exponential Value Rule 4: Tipping Points  Industrial vs. Network Economy “Moore’s Law makes it possible, while Metcalfe’s  Lower tipping points to the “knee” law makes it profitable.” (Downes, Mui 1998: 12)  The famous ʻlily pondʼ example “How long can you hold out not having a phone?” (Li, 57) 8
  9. 9. 10/9/08 Example: Tipping Points The knee Luv to travel - flickr (Kelly, 1998) Marketplace vs. Marketspace Rule 5: Increasing returns  Economist Brian Arthur: Law of Increasing returns  Law of diminishing returns  Marketplace vs. marketspace (Rayport, Sviokla 1994)  Virtuous circle “It’s a non-zero sum game.” (Anderson, 2006) (Rayport, Sviokla 1994) 9
  10. 10. 10/9/08 Example: Virtuous Circle Rule 6: Inverse pricing …with Bit Torrents  Inverse pricing  Moore, Metcalfe, Gilder Membership Value  Is this bad news for profit? The driving force behind this transformation is Moore’s law, Gilder’s law and Metcalfe’s law. (Downes, Mui 1998: 5) Value Membership Example: Inverse Pricing Rule 7: Follow the free …with Gilder’s Law  Netscape vs. Microsoft  XBOX 360  Printers and ink  Java - $10,000 manual  Openness “Only factor becoming scarce in a world of abundance is human attention …” (Li, 59) George Gilder 10
  11. 11. 10/9/08 Example: “Open Enterprise” Example: “Open Enterprise” chart Active Dumb Capture Discover Smart value value Destroy X “The Web is Agreement” (Downey, 2008) Dumb value Open Source Awareness Day, 2007 Rule 8: Allegiance - feed the web Example: feeding the web  Web Strategy  Value is in the network, not the firm!  Transaction costs, again! VS.  “The perpetual beta” (Downey, 2008) “walled garden” Google images John Hagel III “Feed the web first to establish and grow “Sony…controlled the music business. the market.” (Li, 60)” They paid scant attention to mp3…” (Tapscott and Williams, 2007: Google images 57) 11
  12. 12. 10/9/08 Rule 9: Law of Devolution Example: Fast Company Abandon what is profitable today for what will be profitable tomorrow. Rule 10: Law of Displacement Example: Oil, Music, Automobiles “…[the] displacement of materials by information.” (Li, 60) “In the Network Economy, the net wins. All transactions and objects will tend to obey network logic.” (Kelly, 1998) 12
  13. 13. 10/9/08 Rule 11: Sustain disequilibrium Example: Google Whatʼs the unifying business strategy behind these services? Maintain a delicate balance of order with disorder “Innovation is a disruption; constant innovation is a perpetual disruption; and the goal of a well-made network is to sustain a perpetual disequilibrium.” (Li, 61) Rule 12: Inefficiencies Example: StandoutJobs  The right job is more critical than improving established processes.  Solving problems is investing in weakness; seeking opportunity is relying on the network. “Stop Losing Out on Great Talent” 13
  14. 14. 10/9/08 Future scenario? … Probably not. What is the future scenario? Jhhwild - flickr digg Network Economy: future scenarios Closing comments   It this an evolution or revolution?  Future scenarios:   1. Yes, this is a new economy   2. Sort of…incremental changes   3. Itʼs an illusion - productivity?   4. Itʼs all hype! Crash and burn! 14
  15. 15. 10/9/08 Any questions? References Anderson, B., Hull, R., & Roberts, J. et al. (2000)   We recommend the following books: Knowledge and Innovation in the New  Wikinomics (2007) - Tapscott & Williams Economy, Camberley: Edward Elgar Service  The Long Tail (2006) - Chris Anderson Publishing Ltd  Unleashing the Killer App (1998) - Downes & Mui Anderson, Chris. (2006) The Long Tail: Why Future Business is Selling Less of More, New York: Hyperion Carter, Locke. (2007) The Support Economy: Why Corporations Are Failing Individuals and the Next Episode of Capitalism, by Zuboff, S. & Maxmin, J. Reviewed in: Technical Communications Quarterly 3:365 References References Downes, L., & Mui, C. (1998) Unleashing the Killer Prahalad, C.K. & Ramaswmay Venkat. (2004) Co-creating App, Boston: Harvard Press value with customers, Strategy & Leadership, 3, 4-9 Downey, Paul. & Codeworks Connect. (2008) Web 2.0 Rayport, J. & Sviokia J. (1994) Managing in the Conference. Life Center Conference Marketspace, Harvard Business Review, 141-150 Center, Newcastle upon Tyne, 7 Feb. Rosenblatt, Alan J. (2000) Techno-Cultural integration, Kelly, Kevin. (1999) New Rules for the New Economy, GeoPolitics, 5:3, 177-184 Accessed 12 Feb Li, Feng. (2007) What is E-Business? How the Internet Transforms Organizations, Oxford: Blackwell Publishing 15
  16. 16. 10/9/08 References Tapscott, Don & Williams, Anthony. (2007) Wikinomics: How Mass Collaboration Changes Everything, London: Atlantic Books Zuboff, Shoshana. (2005) Moving into the Support Economy, GDI_Impuls_1_05.pdf Accessed: 13 Feb 16