More than three years ago, in our inaugural issue, we published “The 10 Driving Principles of the New Economy.” Things have changed since then, as you may have noticed, and people are less inclined to agree that new business principles are called for. We’re not the magazine we were either, having merged Business 2.0 with eCompany Now. So, in the spirit of full disclosure, we’re revisiting our principles for the ages to see how well they’ve aged. (This edition of the list is abridged for space; to see the complete list, visit www.business2.com/principles.)
1. Matter matters less.
Increasingly, the value of a company is to be found not in its tangible assets, but in intangibles: people, ideas, and key information-driven assets.
HMMM. At one point, the massless merchants — Amazon, Yahoo, E-Trade, etc. — were taking over the world. Or at least the market thought so. Well, it would seem that matter matters more than people thought. Why else did Amazon erect physical warehouses, and even E-Trade (in theory, the ultimate massless merchant) set up physical ATMs?
2. Distance has vanished.
Geography has always played a key role in determining who competed with whom. Now your business can connect instantly with customers all over the globe.
STILL TRUE, TO AN EXTENT. As Mohanbir Sawhney notes, “When you’re managing by wire, it doesn’t matter how long that wire is.” In other ways, though, space matters. The IT industries are still heavily concentrated in Silicon Valley, despite frequent predictions of the rise of Silicon Glen, Silicon Corridor, Silicon Multiuse Wetlands, and so forth. Certain types of knowledge can’t travel over wires — like the look on a customer’s face when you show him the product, or the exact way to put something together. Such “tacit” knowledge is one reason people will continue to cluster around certain activities.
3. Time is collapsing.
In a world of instantaneous connection, there is a premium on instant response and the ability to learn from and adapt to the marketplace in real time.
STILL TRUE. Last we checked, time hadn’t collapsed. (When the first transatlantic telegraph cable was laid in 1858, it was said to have “annihilated both space and time in the transmission of intelligence.”) But things are moving faster. Compared with innovations of the past, for instance, the Web has been adopted far more quickly — just seven years to reach 50 percent penetration, compared with 30 years for the computer, 40 for electricity, and more than a century for steam power.
4. People are the crown jewels.
More than ever in history, huge value is being leveraged from smart ideas. So the people who can deliver them are becoming invaluable, and methods of employing and managing them are being transformed. Microsoft “locked in” one of the world’s most talented workforces by giving them stock options worth billions of dollars.
STILL TRUE. Yes, some of those same Microsoft workers are now thousands of dollars in debt, thanks to the tax bills on their deflated options. But this is truly a thinking person’s economy. The “new growth theory” pioneered by Stanford’s Paul Romer, for instance, has underscored the importance of ideas in driving economic growth. Those with the creative, useful ideas should therefore command more and more of a premium.
5. Growth is accelerated by the network.
Communication is so easy on the Web, product awareness spreads like wildfire. Once a company reaches critical mass, it can experience increasing returns leading to explosive growth. First-mover advantages are greater than ever.
OOPS. See number 6.
6. Value rises exponentially with market share.
The more plentiful products become, the more essential each individual unit is, a striking exception to the economic rule that value comes from scarcity. Such “network effects” were experienced historically in the adoption of telephones and fax machines. Today, because everyone is linked, far more products and services gain their value from widespread network acceptance.
AH, NETWORK EFFECTS. No idea was more widely invoked — and widely misapplied — for the purposes of coaxing money out of VCs. The phenomenon is real — one telephone isn’t of much use to anyone, whereas lots of telephones increases the value of each one — and a handful of dotcoms did reap the benefits of powerful network effects. (Yahoo is the dominant auction site in Japan, but not in the United States, because it was the first-mover over there but the second-mover here.) Yet according to Brian Arthur of the Santa Fe Institute, an expert on the subject, network effects were limited mostly to peer-to-peer activities like auctions. “For most of the dotcoms,” he says, “the much-touted network effects simply were not present.” Netscape, for instance, appeared to have achieved “lock-in,” only to discover that it hadn’t.
7. The middleman lives.
Traditional distributors and agents are seriously threatened by a networked economy in which buyers can deal directly with sellers. But a new brand of middleman is being created. As the amount of info-clutter grows, “infomediaries” turn dumb data into usable information.
STILL VERY TRUE. Far from entering a world of “disintermediation,” as some supposed we would, we’ve entered an era of what Nicholas Carr, executive editor of Harvard Business Review, has called “hypermediation,” in which new types of middlemen arise to broker information and goods.
8. Buyers are gaining dramatic new power — and sellers, new opportunity.
It’s no longer necessary for your customer to walk down the street to compare prices and services. Your competitor may just be a mouse-click away. And intelligent software will help buyers find the best deal. So businesses that genuinely offer unique services or lower costs will flourish, benefiting from a flood of new buyers. Those that have relied on physical barriers to competition will fail.
WELL … It’s true that consumers are gaining more power, but not because they’re using shopping “bots.” Rather, it’s because greater competition reduces prices, and companies are responding faster to shifting customer desires.
9. Transactions are a one-on-one game.
Information is easier to customize than hard goods. The information portion of any good or service is becoming a larger part of its total value. Thus, suppliers will find it easier and more profitable to customize products, and consumers will begin to demand this sort of tailoring.
STILL TRUE. Whereas mass production was about making lots of stuff cheaply, it has been said, mass customization is about making the right stuff. This, at last, is becoming a mass phenomenon.
10. Every product is available everywhere.
The gap between desire and purchase has closed. Used to be when you heard a song on the radio, you had to remember the song and actually go to a store to purchase it. Now it’s different. Discover a product you desire online, and just hit the “Buy” button.
THE JURY IS STILL OUT. There’s a lot of evidence that buyers use the Web more often to research purchases, which they then close by going to a physical location. In any case, it’s going to be some time before we really know whether the Web actually increases purchasing or merely facilitates it