New Rules for the New Economy

12 Dependable principles for thriving in a turbulent world

 

In a Nutshell…….

 Cycle: Find --> Nurture --> Destroy!

First: (Find): Wealth comes from innovation not optimization. Don’t perfect the known, imperfectly seize the unknown!

Second: (Nurture): To cultivate the unknown: --> Nurture agility and nimbleness of Networks!

Third: (Destroy): To Domesticate the Unknown, we must Abandon the known and Successful!

(1) Law of Connection: "Embrace Dumb Power"

Dumb Parts properly connected yield Smart Results! (Agents, Bots, Objects)

Moving from crunching to connection: ---> While the number of computer chips is rising, the number of chips in objects is rising faster.

  • 200 Million computers populate the world now
  • 500 million by 2002
  • Yet there are 6 billion computer chips in the world NOW!
  • There all not in computers, that's for sure!
  • Shrinking Size
  • Shrinking Cost
  • Proliferation

(2) Law of Plentitude: "More Gives More"

The sum of the network increases as the square of the number of members.

(Ie. Faxes, email accounts, phones, etc.)

å n­ M 2

  • The more plentiful things become, the more valuable they become!
  • Each additional member added to the network increases the value of each individual member.

Industrial Age Axioms

  1. Value comes from scarcity.
  2. Plentiful things become devalued.

Networked Economy Axioms

  1. Value is derived from plentitude.
  2. Power comes from abundance.

In the networked economy: Scarcity is overwhelmed by the shrinking marginal costs.

When the expense of churning our another copy is trivial, the value of standards and network booms!

(3) Law of Exponential Value: "Success is Non-Linear"

 

[Microsoft, Federal Express, Fax Machines, The Internet]

  • Critical Mass then Takeoff!
  • Reverse forces are also in effect
  • Classical exponential growth, compounded in a non-linear way.
  • Witnessing biological growth in technical systems.

A Cautionary Word of Warning:
  • Lemmings boom and disappear!
  • The same biological forces that amplify populations can mute them. The same forces that feed on each other to amplify network presences into powerful overnight standards can also work in reverse to unravel them in a blink.

(4) Law of Tipping Points: "Significance Precedes Momentum"

The Point exists when momentum is so overwhelming that success is a run away event!

Point is high with fatal diseases but is low with technology. Success can become infectious (so to speak) and spread pervasively to the extent that it becomes difficult for the uninfected to avoid succumbing.

Epidemology: The contagion's momentum has tipped from pushing uphill against all odds to rolling downhill with all odds behind it.

Why?
  1. Low Fixed Costs
  2. Insignificant Marginal Costs
  3. Rapid Distribution

Key Points:
  • The networked economy depresses the tipping point below the levels of industrial times, It's as if new bugs were more potent.
  • Lower tipping points mean the threshold of significance is also much lower than in the industrial age.
  • Threshold of significance: --> The point just before the tipping point where contagion (or invention) must be taken seriously.
  • This means detecting the innovation beneath this threshold is essential and difficult. If you wait until the alarm of the tipping point is upon you, by definition it already too late!

Past: Momentum indicated significance

Now: Significance precedes momentum.

(5) Law of Increasing Returns: "Make Virtuous Circles"
  • Value Explodes with membership which sucks in more members,

which reinforces the network's value!
  • "Them That Got, Shall Get!"
  1. Industrial Economies of Scale increase linearly as a result of a tremendous effort of a single company.
  2. The Net's Economies of Scale (Increasing Returns) increase Exponentially and are created and shared by the Network!
  3. Workers and consumers feel more loyalty to a network than to any ordinary firm.
  4. It pays to be early to market with great technology.
  5. It really pays to be declared the defacto standard.
  6. Rewards go to those schemes that allow decentralized creation and punishes those who don't.

(6) Law of Inverse Pricing: "Anticipate the Cheap"

 

Paradox: The Very Best Get Cheaper Every Year!
  • Moores Law: ---> Computing doubles in power (Halves in Price) each 18 months.
  • Gilders Law: ---> Total bandwidth will triple every 12 months.

Note:

Expect Transaction costs per $ go to Zero in this scenario.

All items that can be copied (tangible and intangible) adhere to the law of inverted pricing and become cheaper as they improve.
  • For consumers this will be heaven.
  • For vendors this will be a cruel world.

 

So just how do we make money?!
  • Invent faster than your invention is commercialized! (Easier to do in a networked economy, by definition!)
  • Don't Optimize!
  • Search for new waves to exploit!

Driving Aspect of Demand:
  • Desire for more is insatiable! This creates lasting opportunities.

(7) Law of Generosity: "Follow the Free"

Law (1) + Law (6) = The Most Valuable Things Of All Should Be Given Away For Free!
  • Scare Resource: ---> Human Attention!
  • Mind Share vs Market Share
  • Process can't be rushed ---> (Migration from Ad Hoc Use to defacto Standard)
  • Note: Viable Process: Introduce products unfinished into Market Place and have the public complete it.
  • Because compounding network knowledge inverts prices, the marginal cost of an additional copy is near zero.
  • Because value appreciates in proportion to abundance, a flood of copies increases the value of all the copies.

How to survive in a world of generosity:

  1. Think of "free" as a design goal for pricing, it won't be there immediately, but it'll tend to go there over time.
  2. While one product is free, this usually positions other services to be valuable.
  3. Consider it a rehearsal, anticipate where the price is going.

Why?

  • The grasp for the only scarce resource in the networked world of abundance ---> Human attention!
  • Giving stuff away garners human attention or mind share which then leads to market share.

Following the free works in reverse also:
  • If one way to increase value is to make products free, then many things without cost hide great value.

(8) Law of Allegiance: "Feed the Net First"
  • Unless the web (Networked economy) thrives ---> you die!
  • Central Theme: Tame the debilitating abundance of competing possibilities ---> Make standards!
  • For maximum prosperity ---> Keep the network thriving! (It's like a country, if it thrives, you thrive!)

(9) Law of Devolution: "Let Go At The Top"
  • Ultra connections make networks behave ecologically.
  • The fate of organizations are not entirely a function of their own merits, but a factor of their neighbors, allies, competitors, and environment.
  • New niches pop up constantly and go away fast. (As do competitors who take your turf)

Hills: --> Must climb, adapt and change

Valleys: --> Regroup, then attack again!

Peaks: --> Maximize rewards

Local Summits: --> You are stuck and must Devolve. Also, it a given in the networked economy that this occurs. It must go downhill first in order to up a higher peak. But it's chaotic and dangerous below, however it is life or death.

Note:

The biological nature of this era means the sudden disintegration of established domains will be as certain as the sudden appearance of the new.

Problems:
  • Difficult to determine local peaks from summits -- per networked economy
  • Organizations are prone to optimize and not let go. No conceptual room!

(10) Law of Displacement: "The Net Wins!"
  • Other industries are getting displaced as the mass migration to the networked economy begins to occur.
  • The displacement of mass by bits will continue in the networked economy.
  • The distinctions between the networked economy and the industrial economy will continue to fade.
  • All transactions will tend to obey networked logic.

(11) Law of Churn: "Seek Sustainable Disequilibrium"
  1. The networked economy has come to resemble an ecology or organisms, interlinked and coevolving, constantly in flux, deeply tangled , ever expanding at it edges.
  2. No balance exists in nature, rather as evolution proceeds, there is perpetual disruption as the new replaces the old. Companies come and go quickly, careers, are patchwork of vocations, industries are indefinite groopings of fluctuating firms.
  3. Change is no stranger to this economy!
  4. The new economy builds on the constant extinction of individual companies as they are outpaced or morphed into yet newer companies in new fields.
  5. Industries and occupations also experience this churn.

 

  • No optimizing or tweeking
  • Move from change to churn!

Change: Rapid Difference

Churn: Creates a platform for more innovation and rebirth (topples the incumbent)
  • Innovation is disruption
  • Seek to obtain constant innovation ---> Disruption must follow!

(12) Law of Inefficiencies: "Don’t Solve Problems"

 
  1. Productivity hasn't increased with technology or service industry. And why should it?
  2. Productivity doesn't matter either, it measure only how well people do the wrong jobs! Any job that can be measured for productivity probably should be eliminated!
  • The way to Discovery thus value comes from tinkering ---> thus wasting time and being inefficient!
  • If you solve problems you invest in your weakness
  • If you invest in the future, you seek opportunities, and seize the unknown!