The document discusses how technological advancements and networked platforms are transforming the economy and the nature of businesses, urging a shift in mindset from traditional standalone firms to networked entities. It highlights the impact of artificial intelligence, changing work dynamics, and the necessity for organizations to adapt their business models to thrive in this evolving landscape. It emphasizes that technology should be viewed as a tool for enhancing human potential rather than a replacement, advocating for investment in employee skills and education to face future challenges.

1. Networks and the Next Economy
Tim O’Reilly
@timoreilly
oreilly.com
wtfeconomy.com
PWC Deals Exchange
April 26, 2018

2. How is the economy changing?
What are the implications for business?
What does technology now make
possible that was previously impossible?
What work needs doing?
Why aren’t we doing it?
wtfeconomy.com

3. We have to let go of the maps that are steering us wrong
In 1625, we thought
California was an island

4. In 2018, we still think in terms of standalone firms.
We need to think about every company as if it is a network

5. Networks and the Nature of the Firm
“The existence of high transaction costs outside
firms led to the emergence of the firm as we
know it, and management as we know it….The
reverse side of Coase’s argument is as
important: If the (transaction) costs of exchanging
value in the society at large go down drastically
as is happening today [because of networks], the
form and logic of economic and organizational
entities necessarily need to change! The
mainstream firm, as we have known it, becomes
the more expensive alternative.”Esko Kilpi

6. If we want to understand the future of business and the
economy, we have to understand networked platforms

7. Gradually, then suddenly

8. Gradually, then suddenly
Large segments of the economy
are governed not by free markets
but by centrally managed platform
monopolies

9. Gradually, then suddenly
Artificial Intelligence and algorithmic
systems are everywhere, in new kinds
of partnerships with humans

10. In 2018, we still believe in the “invisible hand”
of free markets

11. Internet-scale networked platforms managed by algorithm
are fundamentally changing the economic equation
and the very nature of markets

12. The invisible hand at work

13. What happens when there’s only one queue?

17. And what happens when there’s
only one price for everything?

19. The algorithms decide “who gets what – and why”
Markets are outcomes. A better designed
marketplace can have better outcomes.
But it can be enormously disruptive for
existing participants.

20. Algorithms have become a battleground
The takeaway: You have to think
far more broadly about security
and trust in the networked age.

21. We are all living and working inside a machine

23. “The Uber app is the drivers’ workplace,
as much as the city where they’re driving
is. Each decision about its interface
structures drivers’ interactions with Uber
the company as well as Uber the
transportation marketplace.”
Alexis Madrigal, The Atlantic,
“Uber Drivers are About to Get a New Boss”

24. An Amazon warehouse is a human-machine hybrid

25. “A business model is the way that
all of the parts of a business work
together to create competitive
advantage and customer value.”
- Dan and Meredith Beam

26. Who Do You Want Your Customers to Become?
Henry Ford didn’t just rethink
the automobile and the
factory, he rethought the
work week, and the reasons
why people might want to
drive.

27. A Business Model Map of Uber
 A magical app that lets drivers
and passengers find each other
in real time
 A networked marketplace of
drivers and passengers
 Customers who trust that they
don’t have to drive their own car
 Augmented workers able to join
the market as and when they
wish
 A matching market managed by
algorithm

28. What makes an app “magical”?
1. It seems unbelievable at first.
2. It changes the way the world works, so that the
unbelievable comes to seem inevitable and normal.
3. It results in an ecosystem of new services, jobs, business
models, and industries.

29. Why simply adding an app doesn’t change the game for taxis

30. The takeaway: You can’t just add an app
or buy a startup and hope to compete

31. After a strong start, Walmart’s jet.com acquisition
demonstrates how hard it is to
compete with a market-leading
network on its own terms.
You have to take the entire
business model into account!

32. M&A within a
platform
ecosystem,
rather than to
compete with it

33. How might this play out
For Uber and Lyft?
For Airbnb?
For Facebook or Google?

34. In 2018, we still think that we can organize our companies
in old ways but do new things

35. “Doing digital is not the same as
being digital.”
Josh Bersin,
Deloitte

36. How is this possible?
McDonalds 440,000 employees, 68 million monthly users
Snap ~300 employees, 100 million monthly users

37. “My grandfather wouldn’t recognize what I do as work.”
– Hal Varian

38. Many of today’s workers are programs.
Developers are actually their managers.
Every day, they are inspecting the
performance of their workers and
giving them instruction (in the form of
code) about how to do a better job

39. How Amazon Became a Platform
“[Jeff’s] Big Mandate went something along these lines:
1) All teams will henceforth expose their data and functionality through service interfaces.
2) Teams must communicate with each other through these interfaces.
3) There will be no other form of interprocess communication allowed: no direct linking, no
direct reads of another team’s data store, no shared-memory model, no back-doors
whatsoever. The only communication allowed is via service interface calls over the network.
4) It doesn’t matter what technology they use. HTTP, Corba, Pubsub, custom protocols —
doesn’t matter. Bezos doesn’t care.
5) All service interfaces, without exception, must be designed from the ground up to be
externalizable. That is to say, the team must plan and design to be able to expose the
interface to developers in the outside world. No exceptions.
6) Anyone who doesn’t do this will be fired.”
Steve Yegge, in http://siliconangle.com/furrier/2011/10/12/google-engineer-accidently-
shares-his-internal-memo-about-google-platform/

40. Two-pizza teams

41. The lessons of technology are also lessons
for the organization of the business
“Services not only represent a
software structure but also the
organizational structure.”
Werner Vogels, Amazon CTO

42. The takeaway: You can’t just do a digital acquisition and
expect it to transform your company

43. In 2018, we still pretend that growth goes on forever

44. Growth goes on forever?

45. “Doughnut Economics”
Kate Raworth

46. Fitness Landscapes
The way in which genes contribute to
the survival of an organism can be
viewed as a landscape of peaks and
valleys.
Through a series of experiments,
organisms evolve towards fitness
peaks, adapted to a particular
environment, or they die out.
Image source: http://evolution.berkeley.edu/evolibrary/article/side_0_0/complexnovelties_02

47. Technology also has a fitness landscape
In my career, I’ve watched a number of migrations to new peaks, and I’d like to share with
you some observations about what happened, and why. And then we’ll talk about some
lessons for companies like Google, but also for the overall economy.
Apple
Personal
Computer
Big Data
and
AI
Smartphones

48. It’s very hard to beat an entrenched platform
at its own game

49. The Rules for Success Change
 IBM fitness function: Maximize competitive advantage by control over hardware
 Microsoft fitness function: Maximize competitive advantage by control over software
 Google fitness function: Maximize competitive advantage by control over data and
marketplaces
 Apple fitness function: Maximize competitive advantage by integrated control of
hardware, software, and marketplace.
 In each case, companies playing by the old rules lost. Or did they?

50. Generosity takes us to the next peak
Tim Berners-Lee, 1990
The World Wide Web
Linus Torvalds, 1991
Linux
Big Data
and
AI
Tim Berners-Lee, 1990
The World Wide Web
Linus Torvalds, 1991
Linux

51. Generous or “Long-term greedy”?

52. The takeaway: think about how acquisitions will add value to
your network, not just to your company

53. Pay attention to your “hackers” –
they predict your future marketplace

54. ?? ?

55. The great opportunity of the 21st century is to use our
newfound cognitive tools to build
better networked marketplaces

56. A language for networked marketplaces
Network effect: the value of a network is
proportional to the square of the number of
possible connections
Scale effect: bigger is better (but not always)
Feedback effect: the more data you collect from
the marketplace, the more you can learn, and the
better the services you can provide
Two-sided market: different classes of users
being matched up: searchers and advertisers,
drivers and passengers, homes and renters.

58. Asymptotic Networks
“The reason Lyft is able to compete with
Uber is that even if they have fewer drivers
in many cities, both platforms are still able
to guarantee a ride with an average wait
time of 4 minutes. Neither can improve by
adding more drivers to a city.”
James Currier

60. Market Networks
In a market network, you’re not
connecting a simple marketplace of
buyers and sellers, but also
connecting them with intermediaries
and service providers. A Market
Network combines elements of a
professional network, an online
marketplace, and SaaS tools.

62. “We wouldn’t be able to build defensibility from our supply-
side relationships purely on the basis of a Marketplace
Network Effect, because it was in the interests of the real
estate agents to syndicate their listings through every
possible channel…. So we created an XML feed standard …
This prevented brokers from having to go through the hassle
of posting them manually to every channel, and soon our
competitors had adopted the same XML standards for their
sites as well.”
And, after 2009, when the real estate market collapsed, ”to
scale [a] new monetization strategy targeting smaller
customers, we set to work creating cost-effective marketing
and lead generation products for the individual real estate
agents.”
Pete Flint

63. “Once they get some traction, platforms survive
either because:
 They achieve critical mass in a market with
network effects. They are the default place to
go—this is why Craigslist, Airbnb, ebay, Etsy,
and other places with most of the inventory
thrive.
 They provide a tool set ecosystem. The
product or service has certain functions that
buyer and seller need (escrow, analytics, a
CRM, etc.) that the marketplace can provide with
an economy of scale that beats everyone doing
it themselves.”
Alistair Croll

65. The takeaway: There are many opportunities to apply
platform thinking besides “winner takes all.”

66. In 2018, we believe that technology replaces people

67. “…47 percent of jobs are “at
risk” of being automated in the
next 20 years.”
Carl Frey and Michael Osborne, Oxford University
“The Future of Employment: How Susceptible
Are Jobs to Computerisation?”

68. Will there really be nothing left for people to do?
Is there really
nothing left for
humans to do?

70. Dealing with climate change
Rebuilding our infrastructure
Feeding the world
Ending disease
Resettling refugees
Caring for each other
Educating the next generation
Enjoying the fruits of shared prosperity

71. This is what technology wants
“Prosperity in human societies is best
understood as the accumulation of
solutions to human problems. We won’t
run out of work until we run out of
problems.”
Nick Hanauer

72. What happened when Amazon added 45,000 robots

73. “Truck driver shortage projected to triple within a
decade, if nothing changes”

74. Jeff Bezos calls this “the flywheel”

75. “I’ve just invested in an AI startup that will put 30% of call
center workers out of a job.”
(A VC who shall remain nameless)

76. This is the master design pattern
for applying technology: Do more.
Do things that were previously
impossible.

77. Acquired in 2012,
Kiva is a key part of
Amazon’s business
model, not just an
add-on

78. The best acquisitions anticipate the future.
They don’t chase it.

79. This was a network-enabling acquisition
51% statistic

80. The Augmented Worker
Neo: “Can you fly that thing?”
Trinity: “Not yet.”

81. Uber’s app isn’t quite what Trinity’s got, but…

82. “In order to fully reap the benefits of a
changing economy—and sustain growth
over the long-term—businesses will need
to increase the earnings potential of the
workers who drive returns, helping the
employee who once operated a machine
learn to program it. They must improve
their capacity for internal training and
education to compete for talent in today’s
economy and fulfill their responsibilities to
their employees.”
Just-in-time learning is a 21st century competency
Larry Fink,
CEO, Blackrock

83. LinkedIn acquires Lynda.com
Acquire
accelerated
learning!

84. WeWork Acquires The Flatiron School
Like Kiva (Amazon
Robotics), this is a
network-enabling
acquisition!

85. The takeaway: acquire or partner to supercharge the skills
of your employees and of your network

86. PROFICIENT/HIGH PERFORMERS
Use self-directed discovery for problem-solving, and
nonlinear instruction to acquire new skills.
Require high-quality, relevant content with depth and breadth.
NEED THE FUNDAMENTALS
Learn basics through comprehensive, sequential (linear) instruction.
Require structured, highly curated content.
STRUCTURE CONTENT
STRUCTURAL
LITERACY
LOW-LEVEL
KNOWLEDGE
Professional Skills Development Framework
HIGH-LEVEL
KNOWLEDGE
Fluency
Awareness
Identification

87. O’Reilly Media
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2.0, Maker Movement, Big Data
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contributors
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20k individuals and 1,000 sponsor
companies

88. Change the world
by spreading the knowledge of innovators

94. O’Reilly’s Platform-Centered Learning Ecosystem
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(learning
platform)
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Foo Camps
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Network
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Digital platform for
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across modalities.
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Our ecosystem matches
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95. Tim O’Reilly
@timoreilly
• O’Reilly AI Conference
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• …
• 40,000+ ebooks
• Tens of thousands of hours
of video training
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• A platform for knowledge
exchange
• Commercial internet
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• AI and The Next Economy
Founder & CEO, O’Reilly Media
Partner, O’Reilly AlphaTech Ventures
Board member, Code for America
Co-founder, Maker Media