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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)
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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)
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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)
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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)
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(Gordon) Mooreʼs Law
Example: Embrace the Swarm
1965 paper
Transistors double every two years
Powerful, cheaper
Embrace dumb power?
Nanotechnology?
Dave Ward - flickr
Projectarchive.net - 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
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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
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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
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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)
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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)
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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
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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)
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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)
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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”
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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!
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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
http://kk.org/newrules/contents.php
Accessed 12 Feb
Li, Feng. (2007) What is E-Business? How the
Internet Transforms
Organizations, Oxford: Blackwell Publishing
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References
Tapscott, Don & Williams, Anthony. (2007)
Wikinomics: How Mass
Collaboration Changes Everything, London:
Atlantic Books
Zuboff, Shoshana. (2005) Moving into the Support
Economy,
http://www.thesupporteconomy.com/admin/assets/
GDI_Impuls_1_05.pdf Accessed: 13 Feb
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