10 Driving Principles of the NEW ECONOMY - Business 2.0 (July 1998) 1. MATTER. It matters less. It's a cliché, but it's the key to the New Economy: Processing information is dramatically more powerful and cost-effective than moving physical products. Increasingly, the value of a company is to be found not in its tangible assets, but in intangibles: people, ideas, and the strategic aggregation of key information-driven assets. Reality check: Despite very few physical assets and far fewer employees, a growing number of information-massaging companies have disproportionately large values. Consider the market cap of Yahoo!, which went from million to billion in two years. Why? Because the market believes the company has a lock on key intangibles that will build a giant profit stream in the future. 2. SPACE. Distance has vanished. The world is your customer-and your competitor. 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. Flipside: You're exposed to worldwide competitors as well. The opportunity — and the threat — has never been greater. Reality check: During the last three years, Amazon.com has sold books to 1.5 million people in 160 countries. Out of an office in Seattle. Meanwhile, the giant U.S. telcos are starting to face competition from Internet telephony startups founded in Israel and Europe. 3. TIME. It's collapsing. Instant interactivity is critical, and is breeding accelerated change. In a world of instantaneous connection, there is a huge premium on instant response and the ability to learn from and adapt to the marketplace in real time. Winning companies accept a culture of constant change and are willing to constantly break down and reconstruct their products and processes — even the most successful ones. Reality check: Dell Computer has revolutionized PC sales by offering machines built directly from buyers' requests. Its lightning-fast inventory and purchase cycles terrify its competitors, and its analysis of customer orders allows it to adapt to trends ahead of the curve. 4. PEOPLE. They're the crown jewels... and they know it. Brain power can't be tallied on a ledger sheet, but it's the prime factor driving the New Economy. More than ever in history, huge value is being leveraged from smart ideas — and the winning technology and business models they create. So the people who can deliver them are becoming invaluable, and methods of employing and managing them are being transformed. Reality check: Microsoft successfully "locked in" one of the world's most talented work forces by giving them stock options worth literally billions of dollars. 5. GROWTH. It's accelerated by the network. The Internet can dramatically boost the adoption of a product or service by "viral marketing," network-enhanced word of mouth. Communication is so easy on the Web, product awareness spreads like wildfire. So once a company reaches critical mass, it can experience increasing returns leading to explosive growth. This principle means that in the New Economy, first-mover advantages are greater than ever. Reality check: Hotmail, a free email service backed by relatively modest funding, was able to grow a subscriber base of 10 million within two years. It was bought by Microsoft at the end of 1997 for a reported million, and today it is attracting more than 100,000 new sign-ups per day. 6. VALUE. It rises exponentially with market share. For products that help establish a platform or a standard, the network effect is even more pronounced: The more plentiful they become, the more essential each individual unit is, a striking exception to the economic rule that value comes from scarcity. In addition, some companies give away their products to establish market share, then sell linked services later on. Network effects were experienced historically in the adoption of telephones and fax machines. The difference today is that because everyone is linked, far more products and services gain their value from widespread network acceptance. Reality check: RealNetworks invested heavily in its streaming media players, distributed them free on the Web, and created a standard, which the markets now value as being worth hundreds of millions of dollars. 7. EFFICIENCY. The middleman lives. "Infomediaries" replace intermediaries. 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, these infomediaries are needed to turn dumb data into usable information. They offer aggregated services, or intelligent customer assistance, or powerful technology-based buying aids, or an attractive, community-based buying environment. Reality check: Wireless Dimension simplifies the dizzying array of cell phone service options, pricing plans, and competitive promotions with a one-stop online shopping guide. Other infomediaries include America Online, Travelocity, CDnow, and virtually every ecommerce site on the Web. 8. MARKETS. 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. Reality check: The annoying haggling process of purchasing a car has been all but eliminated by online shopping services such as AutoBy-Tel, which allow you to research vehicle model and pricing information. Within 24 hours, you can be contacted with quotes from nearby dealers. 9. TRANSACTIONS. It's a one-on-one game. Information is easier to customize than hardgoods. 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. Reality check: Office-product supplier Staples uses personalization to reduce the costs large companies incur when ordering office supplies electronically. Staples creates customized supply catalogs that contain only those items and prices negotiated in contracts, and retains lists of previously ordered items. In turn, Staples learns a great deal about its customers' preferences and uses that information to make customized special offers. Even paper clips can be sold one-on-one! 10. IMPULSE. Every product is available everywhere. The gap between desire and purchase has closed. The shelf space of the World Wide Web is unlike any other in that it has no bounds. Artificial constraints on choice are replaced by the ability to purchase the precise product you desire. The impulse to buy and the purchase itself used to be separated by a combination of physical and mental barriers. When you heard a song on the radio, you had to both remember the song or the artist and actually go to a store to purchase. Online, it's different. Discover a product you desire, and just hit the "buy" button. Consequence: The processes for marketing, sales, and fulfillment are merging. Reality check: A visitor to the Addicted To Noise Website who decides to buy a CD after seeing it reviewed can do so straightaway through a link with Music Boulevard — without leaving the media context (the ATN site) in which the demand was generated. No more month-long waits before the next visit to a music store. And the Internet's powerful audit loop means that the agent of demand generation — ATN — can be correctly identified, credited, and compensated. 10 Rules that Still Apply - from Business 2.0 1. 2. 3. 4. 5. 6. 7. Customers matter One day, revenue needs to exceed cost Trust is the basis of business relationships There are only 24 hours in a day There will always be value in brands There will always be competition People are self interested, so are companies. 8. People need a powerful incentive to change their behavior 9. Sex sells. 10. No one really wants a relationship with a phone company! Our 10 Principles of the New Economy, Slightly Revised • • Posted By: sathya@... o Sat Aug 11, 2001 6:27 am | Options o o o http://www.business2.com/articles/mag/0,1640,16709,FF.html Amended and (gulp) corrected. By Jerry Useem, August 2001 Issue 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. Firstmover 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 secondmover 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 "Business 2.0 chronicled the transformational power of the Internet on business, hence the name Business 2.0, and the name came out of a conversation between Chris Anderson (Business 2.0 founder who later purchased TED) and Jeff Bezos at TED. Jeff apparently blurted it out." http://startupmanagement.org/2013/09/28/lessons-from-15-years-ago-10-drivingprinciples-of-the-new-economy/ W I L S O N , J A M I E 5 0 5 1 B U ELECTRONIC COMMERCE W I L S O N , Tenth Edition J A M I E 5 0 5 1 B U Copyright 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. 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Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. W I L S O N , This is an electronic version of the print textbook. Due to electronic rights restrictions, some third party content may be suppressed. Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. The publisher reserves the right to remove content from this title at any time if subsequent rights restrictions require it. For valuable information on pricing, previous J editions, changes to current editions, and alternate formats, please visit www.cengage.com/highered to search by ISBN#, author, title, or keyword forA materials in your areas of interest. 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