Wikinomics - Winning With The Enterprise 2.0 - with transcript

Wikinomics - Winning With The Enterprise 2.0 - with transcript - Presentation Transcript

Wikinomics Winning With The Enterprise 2.0 Don Tapscott don@newparadigm.com Enterprise 2.0 June 20, 2007 Transcript: STEVE WYLIE: Out next speaker is Don Tapscott, who is Chief Executive of New Paradigm, a company he co-founded in 1993. Don is one of the world's leading authorities on business strategy and organizational transformation. He's authored or co-authored over 11 books to date, and his new book is called Wikinomics: How Mass Collaboration Changes Everything. A couple of factoids on the new book, Wikinomics. It's been out for about ﬁve months now, and for most of that time it's been on several best selling lists including the New York Times best selling list. And it's currently being translated into 19 different languages. So it's a privilege to have Don joining us today. Please welcome Don Tapscott. DON TAPSCOTT: Thanks, Steve. I think I'm going to stand down here, if that's okay. It sort of feels a bit like the Politburo up here. I'm delighted to be here, and I really mean that actually. Last night I took the 15-hour ﬂight from LA to New York and arrived in New York at 4:00 am. But I think sleep is a highly overrated thing anyway, along with protein, other stuff like that. I'm seriously delighted to be here because I buy totally this idea that the enterprise is moving into a second generation. And it's wonderful that there's a conference that's exploring these issues. 1

The New Enterprise Source: Paradigm Shift: The New Promise of Information Technology, 1992 Closed Hierarchy Open Networked Enterprise Structure Hierarchical Networked Scope Internal/closed External/open Resource Focus Capital Human, information State Static, stable Dynamic, changing Personnel/focus Managers Professionals Key drivers Reward and punishment Commitment Direction Management commands Self-management Basis of action Control Empowerment to act Individual motivation Satisfy superiors Achieve team goals Learning Specific skills Broader competencies Basis for compensation Position in hierarchy Accomplishment, competence level Relationships Competitive (my turf) Cooperative (our challenge) Employee attitude Detachment (it’s a job) Identification (its’ my company) Dominant requirements Sound Management Leadership 2 © New Paradigm Learning Corporation 2007 Transcript: This idea that there's a new enterprise, of course, is not a new one. It's been around for quite a while. This is one of my favorite views of the shifts that are underway. We're moving from a closed hierarchical structure where the focus was on capital and physical goods and you tried to be a good manager and you moved up your position in the hierarchy to a new kind of open, networked enterprise that is modular and it's dynamic and ﬂexible and it reaches outside the boundaries of a corporation. One of the reasons I like this particular view so much is because it's from my 1992 book, Paradigm Shift. So nothing so powerful as an idea whose time has come again. And seriously now that we have the new web, there's a big change that's underway in the deep structures in the architecture of the corporation. And I started studying this about four years ago. I did a $7-million-dollar research project. It's called the Enterprise 2.0, Winning with the Enterprise 2.0. And it was inspired by a debate I had with a guy named Nicholas Carr, who some of you may know. He wrote an article on HBR called IT Doesn't Matter. And I've debated the guy probably eight or ten times. And he's got a very slick argument that IT has become a commodity, and everybody has it, so therefore it undermines competitive differentiation as opposed to contributing to it. And he's a very good debater, and it's a powerful argument. I have a big advantage in these debates in that he's wrong. But it inspired me to launch a syndicated research project. And we brought together a couple of dozen companies, and they each kicked in $200,000 or $300,000, and we did a big investigation. 2

The Rise of the Enterprise 2.0 Strategy Domain Closed Corporation Enterprise 2.0 National Global 1. World View Engine - US, Japan, Europe Engine - China, India, Emergent Protectionist Free Trade Vertically Integrated Focused on Core 2. Corporate Boundaries Business Web Non-porous Context, agency Content + Fasttrack Business Models M&A Closed Innovation + Open Innovation 3. Value Innovation Do it Yourself + Co-Creation Proprietary + Open 4. Intellectual Property Protected + Shared Plan and Push Engage and Collaborate 5. Modus Operandi Hierarchical Self-organizing Power over … Power through … Lumbering Agile Internal (Enterprise Integration) External (+ Inter-enterprise Integration) 6. Business Processes Complex Modular Hardwired Reconfigurable Traditional Demographics + Global N-Generation 7. Human Capital & Containerized Collaboration Knowledge Capital Internal + Across the B-web Opaque + Transparent 8. Information Liquidity Asynchronous processing Real Time Traditional BI Networked Intelligence Transactions + Relationship Capital 9. Relationships Product/Services + Experiences Proprietary + Standards-based 10. Technology Monolithic Service oriented Silos Interoperable Enterprise + Inter-enterprise Dumb Networks Intelligent Networks 3 © New Paradigm Learning Corporation 2007 Transcript: And this investigation came to a bunch of conclusions that all center around this theme that we are in fact moving to a second generation of the corporation, and this is a big change. 3

Winning With The Enterprise 2.0 4 © New Paradigm Learning Corporation 2007 Transcript: The organizers of this conference have made one of the summary reports summarizing all of this research available, and I think it's through the website. And so all of you would be welcome to go there. Now I'm a little bit out of order here. 4

Time’s Person of the Year 5 © New Paradigm Learning Corporation 2007 Transcript: Let me begin by congratulating each of you personally on having been selected by Time Magazine as the Person of the Year. Well done to all of you. In fact I think you should give yourself a big round of applause. Very good. Well, it's true social networking is exploding. I was at My Space yesterday; MySpace is growing at 2-million members a week, new registrants. Eighty-ﬁve percent of all college students in the United States are in Facebook. There's a new blog created every second of the day, 24 hours of the day, and Time says you, the online collaborator, are the person of the year. 5

Four Drivers for Change WEB 2.0 Web 2.0 The Net Generation The Social Revolution The Economic Revolution 6 © New Paradigm Learning Corporation 2007 Transcript: Well, to me that's so 2006, basically, because what's happening now is, this is not just about hooking up online or creating a new gardening community or uploading a video onto YouTube. The web is becoming a new mode of production. And it's beginning to fundamentally change the way that we orchestrate capability and society to create goods and services. It's changing the deep structures and architecture of the corporation. And I think this is the biggest change probably in a century, and it's appropriate to call this the second generation of the corporation. So what's going on here? Well, ﬁrst of all we do have the Web 2.0, and this ain't your daddy's internet. It's a discontinuous change from the old web. 6

Web 2.0 IN G TE Web 2.0 IN TH G RA E TI The TH O Net N Generation The Social BROADBAND Web 2.0 WEB SERVICES Revolution MOBILITY The Economic G Revolution SP EO A DI A- TI E IME A UT LI TR UL TY M 7 © New Paradigm Learning Corporation 2007 Transcript: The old web, you access through a PC tethered to a desktop. And it was about data and text with some graphics. And it was based on HTML, which was the standard for the presentation of information. That's why during the dot-com period everybody talked about websites and eyeballs and stickiness and clicks and page views -- because that's what the web was about, presenting information. The new web is based on XML, and that's a standard not for presentation, but for computation. The web is becoming a giant global computer and it's enriched with services. And every time you go onto the new web and you do something, you are in effect programming the internet. You know, Thomas Watson was famously to have said in the ﬁfties that the world will only need ﬁve computers. Actually there's no evidence he said that, but if he did he would have been terribly wrong. He would have been off by four because essentially we have a giant global computational platform that enables self-organization, and that's a huge change. There are all kinds of other changes; I don't have time to go into them. But you don't just access the web through a PC; you access through billions and trillions of inert objects in our world that become smart communicating devices. Call it The Thing. You know, I'm typically covered in these things. My hotel room last night, the door was a smart communicating device. It has a chip in it; it has knowledge. And in this particular hotel the door had an IP address. I actually had a camera stolen from a hotel room in Miami and the door knew about me. It knew who had been in and out of the room. That's got the same storage capacity as the data center where I started working at Bell Labs in the 70s. I mean, I have a 7 friend in Toronto. Everything that's hosted has electrical power, has an IP address, and all this stuff talks to itself. And I'm not sure what his microwave says to his fridge, although he says it's got something to do with cooking a

Four Drivers for Change WEB 2.0 THE NET GENERATION 8 © New Paradigm Learning Corporation 2007 Transcript: Point two is the new web is intersecting with the demographic revolution. Who here has children under the age of 29? Hands, please. Okay, those who put up their hands, which of those kids use a computer connected to the internet? Hands? Okay, same group puts up their hand twice. We have the ﬁrst generation to grow up digital, and these kids are different. And I started studying these kids about 11 or 12 years ago when I noticed how my own children were effortlessly able to use all this sophisticated technology. And at ﬁrst I thought, my children are prodigies. And then I noticed that all their friends were like them, and the theory that all their friends were prodigies, well, that was a bit of a stretch. 8

The Demographic Revolution Web 2.0 The Net Generation The Social Revolution The Economic Revolution 9 © New Paradigm Learning Corporation 2007 Transcript: So I started looking at them as a generation, and I wrote a book about ten years ago called Growing Up Digital. And I came to the conclusion that these kids have no fear of technology because it's not technology to them; it's like the air. And this is a huge change because this is the biggest generation ever. The baby-boom echo. Today age 13 to 28 years of age, there are 80 million of them in the United States alone. This is bigger than the boom. The echo is louder than the original boom. Author’s Original Notes: Engine - Asia 1985 1 skyscraper - Shanghai Today 300 1996 Today Retail Sales 240 B 600 B Car ownership 10 M 25 M Cell phone 0 300 M 1999 2004 Exports 180 B 600 B 1990 Today (Shar Zhen?)POP 1.6M 12 M 350 M smokers 9 20% of world’s ice cream #s in auto deaths 66% of all ____ foods

Digital Natives – The Net Generation Web 2.0 The Net Generation The Social Revolution The Economic Revolution 10 © New Paradigm Learning Corporation 2007 Transcript: And furthermore this is the ﬁrst time in human history when children are an authority about something really important. I was an authority on model trains when I was a kid. Today the 11-year-old at the breakfast table is an authority on something really important. And time online has not taken away from hanging out with your friends, learning the piano, talking to your parents or doing your homework; it's taken away from television, right. TV took away 24 hours of the week per baby-boomer for their parents. And these kids watch less TV and then watch it differently. They come home and they don't turn on the TV; they turn on the computer. And they're in three different windows and they're listening to MP3 ﬁles and talking on the phone; they've got a video game going and three magazines open, and they're doing their homework. And, yes, the TV may be going on in the background. But what's going on is that rather than being the passive recipients of somebody else's broadcast video, what are they doing? You know, they're reading, they're thinking, they're organizing and collaborating and composing their thoughts. They're remembering things. 10

The Generation Lap Web 2.0 The Net Generation N-Geners Their Parents The Social Revolution The Economic Revolution 11 © New Paradigm Learning Corporation 2007 Transcript: And rather than a generation gap like we had in the 60s, big differences between kids and parents over values and lifestyle and so on, kids and parents get along pretty well today. What we have is what I call a generation lap where kids are lapping their parents on the info track. And if you have a teenager in your house, you know what I'm talking about. Who does the systems administration in your home? 11

The Net Generation Web 2.0 The Net Generation The Social Revolution The Economic Revolution Video available for viewing online at www.newparadigm.com 12 © New Paradigm Learning Corporation 2007 Transcript: So this is a panel -- I chaired this panel. It was at the World Congress of Information Technology last year in Austin, Texas for kids, and this was in front of several thousand people. And this by the way was the highest rated session of over 100 at the conference. Got an emotional standing ovation. Out of the mouths of babes. You can just go there and watch the panel. I don't have time to tell you about it, but I'll give you one little snippet. On the left there is Rahaf Harfoush. She's a 20-year old Syrian studying in Paris, the Sorbonne. Her boyfriend's in Toronto. To keep their relationship going, they turn on video Skype all day long. They cook together and do their homework together and stuff like that. She doesn't have a Sling Box, so he turns on the web cam onto Desperate Housewives so she can watch her favorite show. So I asked her, I asked her, do you kids use email? And she said, well, not really; that's kind of like yesterday's technology. And I said, well, what do you use? She says, well, we use Skype and instant messaging and Facebook. I mean, everybody's on Facebook. And I said, well, if you used email, what would you use it for? And she said, gee, that's kind of like a formal technology, say, for sending a thank-you letter to one of your friend's parents. That would be a good use of email. On the extreme right is Michael Furdyk. He's the grand- daddy of them all. He's 24. I've known Michael since he was 12. When he was a 12-year-old, he was the project manager on my website, growingupdigital.com. They made him the project manager because he was the oldest and most experienced on the team. When Michael was 16 he had his own site, and he was getting 20-million page views a month for that site. So he 12 sold it for an undisclosed seven-or-eight-ﬁgure sum. And one of the news reports said it was only a million dollars, and so I sent him an email, Michael, you sold it for a million dollars? You should have called me. And he wrote

Four Drivers for Change WEB 2.0 THE NET GENERATION THE SOCIAL REVOLUTION 13 © New Paradigm Learning Corporation 2007 Transcript: You put those two together and you have this social revolution. But there's some things going on here that you might not know about. 13

The Rise of Collaborative Communities Flickr.com beats WebShots.com vs. Web 2.0 The Net Generation The Social Revolution The Economic Revolution 14 © New Paradigm Learning Corporation 2007 Transcript: I could show you 30 charts and they all look like this. They all show the old HTML website that thinks that content is king, and the web is about the presentation of information being eclipsed by the XML-based community that thinks content collaboration is king, and that the web is about creating a context whereby you can build a community. So Flickr displaces WebShots. Author’s Original Notes: This is a great slide to show the power of community. Craigslist.com and Monster.com both had a job ad history. Monster looked a lot ﬂashier, had a lot more tools. Craigslist let the power of community and self organization lead a site with very basic functionality. Community trumped tools. 14

The Rise of Collaborative Communities Digg.com beats Slashdot.org vs. Web 2.0 The Net Generation The Social Revolution The Economic Revolution 15 © New Paradigm Learning Corporation 2007 Transcript: Digg is now beating Slashdot. Harness is self-organization better. Author’s Original Notes: This is a great slide to show the power of community. Craigslist.com and Monster.com both had a job ad history. Monster looked a lot ﬂashier, had a lot more tools. Craigslist let the power of community and self organization lead a site with very basic functionality. Community trumped tools. 15

The Rise of Collaborative Communities Craigslist.org beats Monster.com, Match.com vs. Web 2.0 The Net Generation The Social Revolution The Economic Revolution 16 © New Paradigm Learning Corporation 2007 Transcript: Craig's list is the place to ﬁnd a job on the web, not Monster or Match. 16

The Rise of Collaborative Communities Myspace.com beats MTV.com vs. Web 2.0 The Net Generation The Social Revolution The Economic Revolution 17 © New Paradigm Learning Corporation 2007 Transcript: MySpace is killing MTV. See, MTV says, no, we provide content, right, rock videos and so on, music, whereas MySpace says, no, we create a platform whereby people can self-organize. There are 40,000 bands that are available today on MySpace including my band, Men in Suits. So, I mean, this is a big change. 17

The Rise of Collaborative Communities Wikipedia.org beats Britannica.com vs. Web 2.0 The Net Generation The Social Revolution The Economic Revolution 18 © New Paradigm Learning Corporation 2007 Transcript: Wikipedia is killing -- oh, sorry. This is hardly fair. For those of you at the back of the room, there's a little red line along the bottom there; to any of you medical people, that'd be called a ﬂatline. 18

The Rise of Collaborative Communities Blogger.com beat CNN.com vs. Web 2.0 The Net Generation The Social Revolution The Economic Revolution 19 © New Paradigm Learning Corporation 2007 Transcript: We've got Blogger beating cnn.com, right? Content versus content collaboration. 19

The Rise of Collaborative Communities Epinions.com vs ConsumerReports.org vs. Web 2.0 The Net Generation The Social Revolution The Economic Revolution 20 © New Paradigm Learning Corporation 2007 Transcript: We've got Epinions beating Consumer Reports. 20

Alex Tapscott’s Wikinomicists Community Web 2.0 The Net Generation The Social Revolution The Economic Revolution 21 © New Paradigm Learning Corporation 2007 Transcript: So what's going on here? Well, a humbling story. It was Christmas day and I gave my son Alex -- he's 20 years old, a junior -- an advanced copy of Wikinomics. And he said, thanks Dad; he went off and starting reading it and he came back and he said, hey, Dad, this is actually a good book. Anyway so he said, I think I'm going to create a community on Facebook. So I said, do you mind if I watch? Fifteen minutes later he's created the Wikinomicists of the World Unite community on Facebook. Another 15 minutes later he's got six members. By the time we're eating turkey on Christmas day, he's got 120 members in seven countries, a president, secretary, chief information ofﬁcer, seven regional coordinators. They've sent out a PDF of the ﬁrst two chapters of the book. I've got kids writing in saying, ah, Mister Tapscott, we found errors in your book. And the community is placing demands on me to create value. So, Mister Tapscott, how exactly will you be contributing to our community? And, like, what is this? Well, you know what it is? Think about it. Self- organization -- that's been around throughout human history. Language was developed in a self-organized way. There was no central committee that said, this will be called a pen. It just kind of happened, for English. But what used to take place over a millennia can now happen on Christmas day. 21

Four Drivers for Change WEB 2.0 THE THE ECONOMIC NET REVOLUTION GENERATION THE SOCIAL REVOLUTION 22 © New Paradigm Learning Corporation 2007 Transcript: This is a powerful new force, and it sets us up for a new model of the enterprise that's leading to an economic change. Now you may have been reading in the press recently the speculation that this is another bubble -- dot- com all over again, Web 2.0. Well, there's a British economist named Carlotta Perez. And she's studied great innovations throughout history -- electricity, internal combustion, telephone, radio, television, whatever. You know something? They always, according to her, take the same path. You get experimentation, you get excitement, you get investment, you get speculation, you get a bubble and the bubble bursts. And then you move into decades of long-term deployment where the real impact of the technology becomes understood on the economy and on business models. That's what's happening. We had the bubble; now we're moving into decades of long-term deployment where we're beginning to understand the contours of this new enterprise -- how the institution of wealth creation is changing fundamentally. 22

Digital Conglomerates Web 2.0 The Net Generation The Social Revolution The Economic Revolution 23 © New Paradigm Learning Corporation 2007 Transcript: Exhibit A, the digital conglomerate. What is Google? Well, people say they're an internet company; they call themselves a technology company. They're really an ad agency because that's how they make money is selling ads. But Google is also a media company. They bought YouTube, and they'd like to move all media onto the web. Google is a high-speed networking company providing high-speed wireless in San Francisco, and soon throughout the world. And if you want to see an interesting video, go onto YouTube and just type in my name. You'll see an hour conversation with me and Eric Schmidt where he basically confirms that, yes, they're moving into all kinds of businesses. I mean, what is telephony? Telephony is just an application on a wireless network, right? Google is a retail company because they're selling stuff. Once you're a retail company you need a payment system. So eBay has PayPal; Google has GBuy. Once you have a payment system, you're a financial services company. But they say, well, we're not a software company. Somebody asked Eric, do you compete with Microsoft? And he said, I can't answer that; I'm not Microsoft. Every week they release new web services targeted at the heart of Microsoft. Google is now the fourth largest hardware manufacturer in the United States, maker of servers. They have one customer - - themselves. Football-field-size server farms that are eating up the power grid of California. And forget about ISO 9000; these things are held together with duct tape. You know, it doesn't work, you yank it out and stick another one in. This is a new species of business. We've never seen anything like this before. 23

The Economics of Collaboration Self- Organization Web 2.0 The Net Generation Value Creation The Social Revolution The Economic Revolution Industrial Age Traditional Corporation Hierarchy Knowledge Physical Critical Resources Financial 24 © New Paradigm Learning Corporation 2007 Transcript: So what's happening? Collaboration is beginning to change the architecture of the corporation. Let me explain. Seventy years ago there was a Nobel-Prize- winning economist. His name was Ronald Coase, C-O-A-S-E, and he asked a deceptively simple question. He said, why does the firm exist? He said, if Adam Smith is right and the open market is the best mechanism to determine how goods and resources and materials are allocated in the economy, why isn't everybody an independent contractor at every step along the way in production? And he said, the answer is -- and he won a Nobel Prize for saying this -- the answer is transaction costs. But when you look at how he defined it, he was really talking about collaboration costs. The cost of coordination, he said. The cost of search. This is 70 years ago. He said, the cost of search, of finding all the right information out there in an open market, the right people, the right materials, totally prohibitive. So we moved all this capability inside the boundaries of a corporation. Henry Ford had, within the boundaries of the Ford Motor Company, you know, a power plant and a steel mill and a shipping company and glass factory. Why? Because the cost of collaboration in an open market were way greater than the costs of doing things inside the boundaries of a corporation. 24

The Economics of Collaboration Self- Organization Web 2.0 The Net Generation Value Creation The Social Revolution Extended The Enterprise Economic Revolution Industrial Age Traditional Corporation Hierarchy Knowledge Physical Critical Resources Financial 25 © New Paradigm Learning Corporation 2007 Transcript: Along comes information technology. And in Paradigm Shift, back in '92, I said, well, just a second. I think the boundaries of this corporation are becoming more porous because of IT. And back then I called it the extended enterprise. 25

The Economics of Collaboration Self- Organization Web 2.0 The Net Generation Business Value Webs Creation The Social Revolution Extended The Enterprise Economic Revolution Industrial Age Traditional Corporation Hierarchy Knowledge Physical Critical Resources Financial 26 © New Paradigm Learning Corporation 2007 Transcript: Then we saw the first internet, and that further dropped collaboration costs. So the vertically integrated companies continued to unbundle into focus companies. So Cisco figured this out; its competitors didn't. Cisco was successful because it had a better business model. My wife has a little SUV from BMW; it's called an X3. It's not made by BMW. The final assembly of the vehicle is done by a partner in the BMW business web called Magna. BMW focuses on what it does best. 26

The Economics of Collaboration Mass Self- Organization Collaboration Web 2.0 The Net Generation Business Value Webs Creation The Social Revolution Extended The Enterprise Economic Revolution Industrial Age Traditional Corporation Hierarchy Knowledge Physical Critical Resources Financial 27 © New Paradigm Learning Corporation 2007 Transcript: And now we're ready for the really big one because collaboration costs are dropping so much because of the Web 2.0 that now peers outside the boundaries of traditional corporations cannot only social network, they can socially produce. So if you can create an encyclopedia with a bunch of people that you've never met -- thousands of them -- and the quality is just as good as Britannica, only it's ten times bigger, in dozens of languages, and it's real-time, it's a superior thing, what else could you create? Could you create an operating system? Well, it's called Linux. Could you create a mutual fund through peer collaboration? It's called Marketocracy. Could you create a physical good like a motorcycle? Well, you'll see in a sec that we can. So peers outside the boundaries of corporations, or corporations acting as peers rather than as participants in a traditional supply chain where -- They were hierarchies, right, and there was always someone at the top. Or peers within the boundaries of a hierarchy now collaborating across hierarchical structures in ways that were previously really unthinkable. 27

The Enterprise 2.0 and the Rise of Mass Collaboration Peering 1. Web 2.0 Being Open 2. The Net Generation Sharing 3. The Social Acting Global 4. Revolution The Economic Revolution 28 © New Paradigm Learning Corporation 2007 Transcript: So this is leading to four startling new principles about how to run a company. Peering, being open, transparency is now a new force for growth. And you're going to be naked anyway, and if you're going to be naked you'd better be buff basically because value comes to the fore; it's evidenced like never before. So if you are buff, if you're a good company with good products and services, transparency is your friend. You open up the kimono. You kind of undress for success, okay? Sorry. And with employees, customers, business partners, shareholders. And in doing so, all our research shows you increase the metabolism of your business model and you build a high-performance business model and you build trust. Thirdly, sharing. Well, that sounds communist. It's been called that. Sharing IP within the business web or even putting stuff in the commons. Having a portfolio of IP, some that you own and some that you don't own. Well, that sounds like a bad idea. And you can kind of understand the criticism of this. Didn't Linux hurt Microsoft? Didn't MP3 hurt the record labels? Didn't Wikipedia hurt Britannica? Well, what our research shows is only if you have a very superficial and primitive approach. So IBM, one of the sponsors of this event, rather than fighting Linux, embraced it, put hundreds of millions of dollars into the Linux community. They saved themselves a billion dollars a year in developing and maintaining a proprietary operating system. And they've created a platform, Linux, upon which they've built a multibillion- dollar business. And, oh yes, they got to sock it to Microsoft along the way. So sharing is a new theme. It's not about being socialist; it's about killing your competition. And finally, acting global. If you Google the expression Think 28 Global Act Local, you get millions of hits. If you Google the expression, Think Global Act Global, you get a bunch of mistakes of people who didn't get the expression right. It's kind of curious, isn't it? If we have a global economy,

Enterprise 2.0 – New Business Models A 50 year old mining company peers, opens, shares its proprietary data and acts globally in a bid to transform itself and explore the extent of a rich new find. 29 © New Paradigm Learning Corporation 2007 -Transcript: -Let me give you some examples, and we'll move on to the next section. There is a gold mining company called GoldCorp. And a banker named Rob McEwan took it over and became the CEO and the principle shareholder -- a publicly traded company. I know this guy because he's my neighbor actually; he lives across the street from me. And he was a frustrated CEO because his geologist couldn't tell him where the gold was on his property. He kept giving him money saying, go get more geological data. After years of being frustrated he was ready to shut the company down. But he's a curious guy, and he went to this meeting where he heard about this thing called the Linux operating system. And he wondered, if my geologists don't know where the gold is, maybe somebody else does. So he did a very radical thing. He took his geological data, which is the biggest secret in the mining industry -- it's kept in safes and high-security computer systems; it's your precious IP. He published his geological data and held a contest on the internet called the GoldCorp challenge -- half-a-million dollars in prize money for anybody who can tell me, do I have any gold, and if so, where is it? He got 77 submissions from all around the world. They used techniques that he'd never heard of, and he selected the three winners. And for his half-a-million dollars in prize money, he found $3.4-billion worth of gold. The market value of the company went from $90-million to $10-billion. And I can tell you, because he's my neighbor, he's a happy camper. What's going on here? He adopts these four principles, right, of Wikinomics. He peered. He didn't say, oh, I need a better head of geology and somebody who can kick butt because the uniquely qualiﬁed 29 minds are inside the boundaries of your corporation. Human capital is your most precious resource. It goes out the elevator every night. You've got to retain it like you retain ﬂuids or something like that. Well, no, no, no, he said,

Four Drivers for Change WEB 2.0 THE THE ECONOMIC NET REVOLUTION GENERATION THE SOCIAL REVOLUTION 30 © New Paradigm Learning Corporation 2007 Transcript: So this is basically your perfect storm. 30

The Perfect Storm 31 © New Paradigm Learning Corporation 2007 Transcript: What you're here talking about is your ﬁrst category-six business, you know, hurricane or revolution, or something like that. 31

Enterprise 2.0 – New Business Models Peer Pioneers   Ideagoras  Prosumers  The New Alexandrians  Open Platforms  The Global Plant Floor  The Wiki Workplace  32 © New Paradigm Learning Corporation 2007 Transcript: So let me close with some thoughts. Carlotta Perez, what are the new business models? What does this new enterprise look like and how is it different from the old model of a corporation? Well, here's seven that we talk about in Wikinomics. 32

Enterprise 2.0 – New Business Models Peer Pioneers  33 © New Paradigm Learning Corporation 2007 Transcript: The ﬁrst, the peer pioneers. So Linux is obviously one; this is Linus Torvalds on the right there. And I asked him, if you can create an operating system this way, what else can you create in software? And he says, well, Don, I'm a bad predictor of the future, to which I chortled, yes, right, Linus. You just create the future; you don't predict it. He says, no, no, I'll tell you why I say that. He said, I thought no one would ever want to create an open source database because, you know, databases are so boring. This would be the operating system guide view of the world, you know, like the New Yorker view of the world. But they're boring. He says, look at Open SQL. These are real growing concerns now. There are 150,000 open source application projects currently underway today. And if a quarter of them are for real, then this is a big deal. 33

Enterprise 2.0 – New Business Models 1. Peer Pioneers 34 © New Paradigm Learning Corporation 2007 Transcript: And so you've got companies like SpikeSource -- And we're going to hear from Kim later, so I won't spend time on this. But my layperson view is that like Red Hat was to Linux, SpikeSource is to these 150,000 open source applications that are emerging, getting them ready for the market. 34

Enterprise 2.0 – New Business Models 1. Peer Pioneers – Financial Services Marketocracy.com Investment Management 35 © New Paradigm Learning Corporation 2007 Transcript: Marketocracy, I mentioned that. The hundred best stock pickers on the web decide who, what should go in the mutual fund that outperforms the market. Author’s Original Notes: What is it: Marketocracy Data Services is a research company whose mission is to ﬁnd the best investors in the world and then track, analyze, and evaluate their trading activity. The company's afﬁliate, Marketocracy Capital Management, is the investment advisor for the Marketocracy family of mutual funds and uses the research generated by Marketocracy Data Services. Achieving Higher Returns With Lower Risk: Many experts will tell you it isn't possible to beat the market consistently, especially with lower risk. And the historical performance of most investors, including professional portfolio managers, supports their beliefs. How have we done? The Marketocracy m100 Index is an aggregate of the top 100 portfolios at Marketocracy. The m100 Index has beaten the S&P 500 Index in 8 of the 11 quarters since inception, with a beta of 0.53 compared to the S&P 500's beta of 1.00. 35 Implications: The wisdom of crowds can be harnessed to make smarter decisions.

Enterprise 2.0 – New Business Models 1. Peer Pioneers – Financial Services Zopa.com peer lending 36 © New Paradigm Learning Corporation 2007 Transcript: Could you create a bank through peer collaboration? Well, you got some money, I need some money, all we need is a trust syndication method. That's what the eBay feedback forum is. This is a method for syndicating trust. Author’s Original Notes: What is it? Zopa is a website that allows peole to lend money to each other eBay style. From Zopa’s website: All lending and borrowing happens in the Zopa markets. The markets work just like, well, markets. Lenders put their wares on display; in this case, money they are prepared to lend to other people for a certain length of time. And, just like any market, different vendors may have different prices (otherwise known as interest rates). Some may pick lower rates but only want to lend to borrowers who have a very high likelihood of paying it all back. Others may pick higher rates but be prepared to be more ﬂexible, thereby taking a punt on borrowers who might be slightly more likely to default. Borrowers can then come and have a sniff about, see what the rates are and if they're good value agree to borrow. Because Zopa cuts out the middleman, everyone gets a great deal. Of course this would all be very complicated and risky if everyone traded one-on-one with each other, so Zopa glues the whole thing together with its offer matching system. This divides the lenders' offers up into small chunks and distributes them around potential borrowers - at least 50 in 36 fact. Each loan a borrower gets is made up of lots of bits of lenders' offers. No one gets to borrow from the same person twice. All lenders and borrowers enter into a legally binding contract with their respective borrowers and

Enterprise 2.0 – New Business Models 2. Ideagoras Creating an eBay for innovation How do you create a vibrant marketplace where  you leverage other people's talents, ideas and assets quickly and move on? P&G’s Larry Huston: “Alliances and joint  ventures don't open up the spirit of capitalism within the company. They're vestiges of the central planning approach when instead you need free market mechanisms.” How InnoCentive works: 37 © New Paradigm Learning Corporation 2007 Transcript: Secondly, you remember the Greek and Roman agora? We now have something I call ideagoras. These are open markets for uniquely qualified minds. So we're going to hear from Proctor and Gamble on the panel. P&G is looking for a molecule that'll take red wine out of a shirt. So help me with the math. They've got 9,000 chemists inside the boundaries of P&G. And there's a million-five outside the boundaries of P&G that they can now get to because they're organized into ideagoras, like the InnoCentive network that has 130,000 scientists. And sure enough, there's a retired chemist in Boston or a grad student in Taipei that comes up with a molecule. P&G pays them through the InnoCentive mechanism, say, $150,000 and you've got Tide To Go. It's a fabulous product. Half of all of P&G's innovations will come from outside the company by the end of this year. How do you get the internal R&D people to want to find it outside? What about NIH, the not-invented-here syndrome? Well, it's called aligning interest. People at P&G get comped based on innovation, not on whether or not they found the innovation internally. Rather than NIH, at P&G they call it the PFE, the PFE syndrome -- proudly found elsewhere. Author’s Original Notes: * Alan’s breakout session is on InnoCentive 37

Enterprise 2.0 – New Business Models 2. Ideagoras 38 © New Paradigm Learning Corporation 2007 Transcript: So these things are popping up like crazy all over the place. We're tracking about 60 of them right now. Open markets for ideas, for innovations, uniquely qualiﬁed minds. Author’s Original Notes: Next step in the programmable web. 38

Enterprise 2.0 – New Business Models 2. Ideagoras 39 © New Paradigm Learning Corporation 2007 Transcript: Cambrian House, crowdsourced software -- the crowd comes up with an idea for software. It's not true what Nicholas Carr says in the recent issue of the Strategy in Business, that peering only works for something that's already well-developed. It can work for coming up with breakthrough ideas and totally new innovations as in the case of Cambrian House. Author’s Original Notes: You Think It Most aspiring entrepreneurs and armchair innovators have more ideas than resources. Why let the fruits of your genius languish on the vine? They’re yours to grow. Put them in play. Crowds Test It But don’t buy that Mercedes just yet. Before we greenlight production, your freshly baked ideas run the consumer gauntlet. Flourish or flounder? The market decides. Crowds Build It So the people have spoken, and they love your idea. With the help of the worldwide development community, we turn it into reality. Contributors can take their pick of exciting projects, and in return, they get a piece of the royalty pie. We Sell It Show time! YourIdea 1.0 hits the virtual shelves with all the marketing power of Cambrian House behind it and with a little help from Chemeleon. Every contributor - including you - has a vested interest in helping the product shine, because every contributor benefits from its success You Profit When we say “every contributor benefits”, we don’t mean warm and fuzzy feelings. We mean 39 real money. When you collaborate with Cambrian House, you get Royalty Points. That means as long as the product generates profit, so will you.

Enterprise 2.0 – New Business Models 40 © New Paradigm Learning Corporation 2007 Transcript: TopCoder, 120,000 programmers around the world that are available; it's an open market for IT. If you need a little module that'll do something, rather than developing it yourself, maybe it's out there in TopCoder and someone will sell it to you. 40

Enterprise 2.0 – New Business Models 3. Prosumers 41 © New Paradigm Learning Corporation 2007 Transcript: Thirdly, what we call prosumers. How do you turn your customers into producers? These are some shots of a lecture that I gave in Second Life. In the top picture there, the tall, thin, young guy would be my avatar. I didn't have time to develop an avatar. So I had this 18-year-old designer and I said to her, make me really old, somebody who's been there and done that, and I don't want to look like a hippy; put me in a suit. So I'm about to give the lecture and she says, here's your avatar. And I said, what's with that? I wanted a really old guy, and she said, yes. I guess when you're 18, 30 is like really old or something. But anyway this is a virtual book signing that's going on at the top there in a virtual cocktail party. This is a kind of whacky world. The reason I raise all this is not because of that. Here's a company called Linden Labs where 99 percent of its product is built by its consumers. I became a prosumer when I had that avatar designed. How do you turn your customers into producers? Author’s Original Notes: * Alan’s breakout session is on InnoCentive 41

Enterprise 2.0 – New Business Models 3. Prosumers – Case: “Music Industry–The Remix” 42 © New Paradigm Learning Corporation 2007 Transcript: Well, the music industry is the poster child on how to do this badly. So, you know, somebody takes the Beatles' White Album and Jay-Z's Black Album and does a remix, creates the Gray Album. Sales of the White Album go up, sales of the Black Album go up, and he gets sued by the labels. The industry that brought you the Beatles is suing children and hated by their own customers. I mean, this is like awful. So if you want to know how to do this wrong, just look at the music industry. 42

Enterprise 2.0 – New Business Models 3. Prosumers – Help Us Write the Final Chapter! 43 © New Paradigm Learning Corporation 2007 Transcript: The final chapter of Wikinomics, by the way, is a Wiki. And this is done under a creative commons license, so I can't exploit it commercially. It's called the Definitive Guide to the 21st Century Enterprise, for the Enterprise 2.0. So my publisher came to me a couple of weeks ago and said, hey ,Don, Wikinomics is going really great. We'd like to do a new book version for Christmas. Let's take all the best ideas from the Wiki and we'll put them into a final chapter of the book. And I said, well, I can't do that; I don't own it. It's done under a creative commons license. And they said to me, well, why would you do such a thing? And I said, hey, you're my publisher; you should read the book. You know, like I figure if I create the definitive guide to the 21st century corporation, that's going to help my company somehow. I don't know how, but in my business I don't fear theft of my IP; I fear obscurity. 43

Enterprise 2.0 – New Business Models 3. Prosumers – Physical Goods Peer Produced T-Shirts 44 © New Paradigm Learning Corporation 2007 Transcript: So this is now being done for physical goods like clothing and T-shirts. 44

Enterprise 2.0 – New Business Models 4. The New Alexandrians: The Sharing of Science SNP Consortium: APBiotech, AstraZeneca Group PLC, Aventis, Bayer Group AG, Bristol-Myers Squibb Co., F. Hoffmann-La Roche, Glaxo SmithKline, Wellcome Trust, IBM, Motorola, Novartis AG, Pfizer Inc., and Searle 45 © New Paradigm Learning Corporation 2007 •Transcript: •Number four, the sharing of science. This is unbelievable what's going on. The big, big one that got it going was the sharing of the human genome. Imagine if the biotech companies had tried to own a chunk of the genome. They said, no, we'll put it in the commons and a rising tide will lift all boats. There are thousands of these mass collaborations underway today all around the world in the area of science. •Author’s Original Notes: •New collaborative platforms are making it possible to engage very broad communities of public and private entities in large-scale collaborative research and development efforts •Success of open source software has encouraged a growing number “innovation communities” to adopt an open/distributed model 45 •More resources can be applied to solve problems

Enterprise 2.0 – New Business Models 4. The New Alexandrians: Nature’s Google Earth Avian Flu Mashup Source: Howard Ratner, CTO, Nature Publishing Group 46 © New Paradigm Learning Corporation 2007 Transcript: Google's Earth avian ﬂu mashup. 46

Enterprise 2.0 – New Business Models 4. The New Alexandrians: Nature’s Google Earth Avian Flu Mashup Source: Howard Ratner, CTO, Nature Publishing Group 47 © New Paradigm Learning Corporation 2007 Transcript: So a nurse in Hong Kong discovers the avian ﬂu and the local authorities are trying to keep it a secret and she puts it on the mashup, and scientists are now tracking what's going on. This is very exciting. 47

Enterprise 2.0 – New Business Models 5. Open Platforms – Amazon API < Ship merchandise (including that sold by associates) Provide C ustomer Service < Pay listing fee and commission to list goods on Amazon Provide hosting and Browse Amazon and Purchase merchandise > transaction services > < List merchandise, provide a range of products Direct Traffic and Possible Sales to Amazon > Customers Amazon.com < Pay commission on traffic Provide Data resulting in sales From sales > Facilitates listing and payments for sellers > Marketplace Associates Surf Websites follow links to Amazon.com > Browse Amazon products Via websites and other online media > Host shopping experience and direct sales to Amazon.com for processing > Retailers Historical < Receive commission on sales via associate accounts Pricing Free Access to Amazon data and capability via API > E-Commerce Services < Time, Knowledge, Innovation, Promote and Sell Amazon < Pay fee for access to information merchandise Provide Pricing and Sales Data > Pay Developers for posting acceptable Pay for Queries > Developers/ answers > Entrepreneurs < Developers pay to have questions < Access to A9.com search index answered Legend: Green – Web Services Provide platform for questions Light Blue – Groups to be outsourced >,> Pay for storage & data transfer > Dark Blue – Other services Alexa Services < Provide answers to questions < Provide online data storage (Top Sties, WIS NOTE: Missing connector and WSP) from Associates to Developers. Should read Mechanical “Pay developer S3 Turk commissions fro sales (Simple Storage generated through ECS ” Service) 48 © New Paradigm Learning Corporation 2007 Transcript: Number ﬁve, open platforms. All the world's a stage and you get to participate. Do you know that the Amazon cloud has 200,000 programmers that don't work for Amazon that are creating value on the Amazon platform? This is now a third of Amazon's revenue. And if you're a little mom-and-pop company or a big enterprise like Target, as my daughter calls them, you can use Amazon for marketing, distribution, inventory, e-commerce, payment systems, and so on. This is a huge change in how capability gets organized. Author’s Original Notes: Brendan’s Paper 48

Enterprise 2.0 – New Business Models 5. Open Platforms – Pikspot 49 © New Paradigm Learning Corporation 2007 Transcript: This is a company called Pikspot that I'm using. Think of YouTube, Digg, and MySpace combined together for instantly creating rich media communities. An open platform -- you can create a community that uses video in three minutes. Author’s Original Notes: Brendan’s Paper 49

Enterprise 2.0 – New Business Models 6. The Global Plant Floor The Peer Produced Airplane In the past, Boeing wrote  detailed specifications for each part and asked suppliers to build to plan Today, suppliers co-design  airplanes from scratch and deliver complete sub-assemblies to Boeing’s factory, where a single plane can be snapped together like Lego blocks, in as little as 3 days 50 © New Paradigm Learning Corporation 2007 Transcript: The global plant ﬂoor. The hardest product that I can think of to make would be a new-generation jumbo jet. Boeing says, we've got to mass collaborate this thing; we can't do it the old way. The old way was you'd create a spec of 30,000 pages. You put it out to your supply chain, hierarchical, right, and they bid on it and then you beat them up and then you assemble the aircraft. Boeing says, no, things are too complicated and you are not suppliers; you are our peers. You make important parts of the aircraft like the engine and the fuselage and the electronics and the interiors and the entertainment systems. They create this mind-boggling global ecosystem. This plane is so fabulous, the back orders are so strong, and Air Bus, the competitor, may never come to market. It's not that mass collaboration is a better way of building the hardest thing I can think of to make; it may be the only way, 50

Enterprise 2.0 – New Business Models 6. The Global Plant Floor – Chinese Motorcycle Industry 51 © New Paradigm Learning Corporation 2007 Transcript: and get ready for where this is going. The Chinese motorcycle industry is essentially an open source motorcycle -- hundreds of little companies that cooperate together and they meet on the web and in teahouses to put all this stuff together. There's no OEM; there's no Harley or Yamaha pulling all the strings. It's a pure peer play. This is now the largest motorcycle industry in the world, and get ready for the $1,500 open source car coming from China, too. 51

Enterprise 2.0 – New Business Models 7. The Wiki Workplace 52 © New Paradigm Learning Corporation 2007 Transcript: The final theme is what we call the Wiki workplace. This is the use of Wikis, blogs, collaborative filtering, social networking, RSS feeds, jams, and so on, within corporations. So the head of Sales and Marketing for Cisco at a briefing came up to me and said, could we Wiki our sales playbook? He says, why do we have a bunch of bureaucrats in head office developing a sales manual when the people that know how to sell are the ones actually interacting with customers? It's a good application. You'll get it faster, the time to value's faster, you'll get a better sales manual, and you'll get compliance because they'll follow it. The Geeks, 14,000 Geeks at Best Buy use Wikis and collaborative tools to actually design Geek Squad-labeled products, and they've been very successful in doing that. 52

Enterprise 2.0 – New Business Models 7. The Wiki Workplace 53 © New Paradigm Learning Corporation 2007 Transcript: And I think a couple of the companies up here are participating in this thing from Intel called Suite Two, which is a collection of the state-of-the-art tools for the Wiki workplace. 53

Enterprise 2.0 – New Business Models Peer Pioneers   Ideagoras  Prosumers  The New Alexandrians  Open Platforms  The Global Plant Floor  The Wiki Workplace  54 © New Paradigm Learning Corporation 2007 Transcript: So seven new models. We're starting to see how this new enterprise is changing, what its contours are going to look like. 54

Crisis of Leadership Paradigm shifts involve dislocation, conflict, confusion, uncertainty. New paradigms are nearly always received with coolness, even mockery or hostility. Those with vested interests fight the change. The shift demands such a different view of things that established leaders are often last to be won over, if at all. Marilyn Ferguson 55 © New Paradigm Learning Corporation 2007 Transcript: My final thought for you is that this is a paradigm shift, if I may use that term. And paradigm shifts cause dislocation, conflict. They're nearly always received with coolness. Or worse, vested interests fight against change, and leaders of old paradigms have great difficulty embracing the new. How is your company going to find leadership for change? Well, I'm guessing that you self-selected to come to this conference because you want to participate in this historic transformation that's underway. And the good news is leadership can come from anywhere in a company. I've studied thousands of companies; this is a statistical fact. Sure, it's helpful if the CEO is involved, you know, if AG Lafley at P&G is driving this stuff. But it can also come from anywhere else. We documented a story of a secretary who is a key person in the transformation of a division of Citibank, and she had what it took to be a leader. She willed it. So leadership is each of our personal opportunity if we will it. 55

56 © New Paradigm Learning Corporation 2007 Transcript: A French pilot by the name of Saint-Exupery, he was also a philosopher. He says, we should welcome the future for soon it will be the past, but we should respect the past for it was once all that was humanly possible. We created this old vertically integrated, closed, insular, opaque model of the corporation, and it was pretty good and it did what was possible. But it's now possible to go forward. And Victor Hugo's right. Nothing's so powerful as an idea whose time has come. The time has come for the new web, for a new generation for whom this new medium of human communications is their birthright. The time has come for a new model of the enterprise and for profound changes in how we innovate, how we create goods and services, and how we, as companies, engage with the rest of the world. And hopefully the time has come for each of you to ﬁnd that leader within you to change your company and, in doing so, to change the world. Thank you. 56