Kevin kelly new rules for the new economy 10 radical strategies for a connected world

K E V I N K E L LY New Rules for the New Economy 10 RADICAL STRATEGIES FOR A CONNECTED WORLD VIKING www.allitebooks.com New Rules for the New Economy www.allitebooks.com viking Published by the Penguin Group Penguin Putnam Inc., 375 Hudson Street, New York, New York 10014, U.S.A Penguin Books Ltd, 27 Wrights Lane, London W8 5TZ, England Penguin Books Australia Ltd, Ringwood, Victoria, Australia Penguin Books Canada Ltd, 10 Alcorn Avenue, Toronto, Ontario, Canada M4V 3B2 Penguin Books (N.Z.) Ltd, 182–190 Wairau Road, Auckland 10, New Zealand Penguin India, 210 Chiranjiv Tower, 43 Nehru Place, New Delhi 11009, India Penguin Books Ltd Registered Offices: Harmondsworth, Middlesex, England First published in 1998 by Viking Penguin, a member of Penguin Putnam Inc 10 Copyright © Kevin Kelly, 1998 All rights reserved A portion of this work first appeared in Wired, September 1997, as “New Rules for the New Economy: Twelve Dependable Principles for Thriving in a Turbulent World.” Library of Congress Cataloging-in-Publication Data Kelly, Kevin New rules for the new economy : 10 radical strategies for a connected world / Kevin Kelly p cm Includes bibliographical references and index ISBN 0–670–88111–2 Economic forecasting Business forecasting I Title HC59 15.K45 1998 658—dc21 98–36917 This book is printed on acid-free paper Printed in the United States of America Set in Electra Designed by Francesca Belanger Without limiting the rights under copyright reserved above, no part of this publication may be reproduced, stored in or introduced into a retrieval system, or transmitted, in any form or by any means (electronic, mechanical, photocopying, recording, or otherwise), without the prior written permission of both the copyright owner and the above publisher of this book www.allitebooks.com For Gia-Miin www.allitebooks.com CONTENTS This New Economy 1 Embrace the Swarm Increasing Returns 23 Plentitude, Not Scarcity 39 Follow the Free 50 Feed the Web First 65 Let Go at the Top 83 From Places to Spaces 94 No Harmony, All Flux 108 Relationship Tech 118 10 Opportunities Before Efficiencies 140 A Thousand Points of Wealth 156 New Rules for the New Economy 161 ACKNOWLEDGMENTS 163 NOTES 165 A N N O TAT E D B I B L I O G R A P H Y 167 INDEX 173 www.allitebooks.com This New Economy No one can escape the transforming fire of machines Technology, which once progressed at the periphery of culture, now engulfs our minds as well as our lives Is it any wonder that technology triggers such intense fascination, fear, and rage? One by one, each of the things that we care about in life is touched by science and then altered Human expression, thought, communication, and even human life have been infiltrated by high technology As each realm is overtaken by complex techniques, the usual order is inverted, and new rules established The mighty tumble, the once confident are left desperate for guidance, and the nimble are given a chance to prevail But while the fast-forward technological revolution gets all the headlines these days, something much larger is slowly turning beneath it Steadily driving the gyrating cycles of cool technogadgets and gottahaves is an emerging new economic order The geography of wealth is being reshaped by our tools We now live in a new economy created by shrinking computers and expanding communications This new economy represents a tectonic upheaval in our commonwealth, a far more turbulent reordering than mere digital hardware has produced The new economic order has its own distinct opportunities and pitfalls If past economic transformations are any guide, those who play by the new rules will prosper, while those who ignore them will not We have seen only the beginnings of the anxiety, loss, excitement, and gains that many people will experience as our world shifts to a new highly technical planetary economy www.allitebooks.com / New Rules for the New Economy This new economy has three distinguishing characteristics: It is global It favors intangible things—ideas, information, and relationships And it is intensely interlinked These three attributes produce a new type of marketplace and society, one that is rooted in ubiquitous electronic networks Networks have existed in every economy What’s different now is that networks, enhanced and multiplied by technology, penetrate our lives so deeply that “network” has become the central metaphor around which our thinking and our economy are organized Unless we can understand the distinctive logic of networks, we can’t profit from the economic transformation now under way New Rules for the New Economy lays out ten essential dynamics of this emerging financial order These rules are fundamental principles that are hardwired into this new territory, and that apply to all businesses and industries, not just high-tech ones Think of the principles outlined in this book as rules of thumb Like any rules of thumb they aren’t infallible Instead, they act as beacons charting out general directions They are designed to illuminate deep-rooted forces that will persist into the first half of the next century These ten laws attempt to capture the underlying principles that shape our new economic environment, rather than chase current short-term business trends The key premise of this book is that the principles governing the world of the soft—the world of intangibles, of media, of software, and of services—will soon command the world of the hard—the world of reality, of atoms, of objects, of steel and oil, and the hard work done by the sweat of brows Iron and lumber will obey the laws of software, automobiles will follow the rules of networks, smokestacks will comply with the decrees of knowledge If you want to envision where the future of your industry will be, imagine it as a business built entirely around the soft, even if at this point you see it based in the hard Of course, all the mouse clicks in the world can’t move atoms in real space without tapping real energy, so there are limits to how far the soft will infiltrate the hard But the evidence everywhere indicates that the hard world is irreversibly softening Therefore one can gain a huge advantage simply by riding this conversion To stay ahead, you chiefly need to understand how the soft world works—how networks pros- www.allitebooks.com This New Economy / per and grow, how interfaces control attention, how plentitude drives value—and then apply those principles to the hard world of now The tricks of the intangible trade will become the tricks of your trade The new economy deals in wispy entities such as information, relationships, copyright, entertainment, securities, and derivatives The U.S economy is already demassifying, drifting toward these intangibles The creations most in demand from the United States (those exported) lost 50% of their physical weight per dollar of value in only six years The disembodied world of computers, entertainment, and telecommunications is now an industry larger than any of the old giants of yore, such as construction, food products, or automobile manufacturing This new information-based sector already occupies 15% of the total U.S economy Yet digital bits, stock options, copyright, and brands have no measurable economic shape What is the unit of software: Floppy disks? Lines of code? Number of programs? Number of features? Economists are baffled Walter Wriston, former chairman of Citicorp, likes to grumble that federal economists can tell us exactly how many left-handed cowboys are employed each year, yet have no idea how many software programs are in use The dials on our economic dashboard have started spinning wildly, blinking and twittering as we head into new territory It’s possible the gauges are all broken, but it is much more likely the world is turning upside down Remember GM? In the 1950s business reporters were infatuated with General Motors GM was the paragon of industrial progress It not only made cars, it made America GM was the richest company on earth To many intelligent observers, GM was the future of business in general It was huge, and bigger was better It was stable and paternal, providing lifetime employment It controlled all parts of its vast empire, ensuring quality and high profits GM was the best, and when the pundits looked ahead 40 years they imagined all successful companies would be like GM How ironic that ever since the future has arrived, GM is now the counter example Today, if your company is like GM, it’s in deep trou- www.allitebooks.com / New Rules for the New Economy ble Instead, pundits point to Microsoft Microsoft is the role model It is the highest-valued company on Earth It produces intangibles It rides the logic of standards Its sky-high stock valuation reflects the new productivity So we look ahead and say: In 40 years all companies will be like Microsoft History would suggest this is a bad bet The obvious lesson is that we tend to project the future from what’s fashionable at present Right now software and entertainment companies are very profitable, so we assume they are role models Brad DeLong, an economist at UC Berkeley, has a handy theory of economic history He says that various sectors of economy wax and wane in prominence like movie stars The history of the American economy can be seen as a parade of “heroic” industries that first appear on the scene as unknowns, then heroically “save” the economy by doing economic miracles, and for a time are treated as economic stars In the 1900s, the automobile industry was heroic: There was incredible innovation, many, many car company upstarts, incredible productivity It was a wild and exciting time But then the heroism died away and the auto industry became big, monolithic, boring, and hugely profitable In DeLong’s view, the latest heroic savior is the information, communication, and entertainment complex Businesses in the realm of software and communications are now valorous: They pull successes out of a hat, stack up unending innovation, and perform economic miracles Long live computers! There is a lot of common sense to DeLong’s view of heroic industry Just because Microsoft is heroic now, doesn’t mean all companies will follow their lead and replicate intellectual property on floppy disks with a profit margin of 90% No doubt many, many companies in the future will not resemble Microsoft at all Somebody has to fix the plugged toilets of the world, somebody has to build houses, somebody has to drive the trucks hauling our milk Even Wired magazine, mouthpiece of the digital revolution—where I serve as one of the editors—does not approach the ideal of an intangible company Wired is located smack in the middle of an old-fashioned downtown city, and in one year turns million pounds (or 48 railway cars) of dried tree pulp, and 330,000 pounds of bright colored ink into hard copies of the magazine A lot of atoms are involved So how can we make the claim that all businesses in the world www.allitebooks.com This New Economy / will be reshaped by advances in chips and glass fibers and spectrum? What makes this particular technological advance so special? Why is the business hero of this moment so much more important than its recent predecessors? Because communication—which in the end is what the digital technology and media are all about—is not just a sector of the economy Communication is the economy This vanguard is not about computers Computers are over Most of the consequences that we can expect from computers as stand-alone machines have already happened They have sped up our lives, and made managing words, numbers, and pixels quite extraordinary, but they have not had much more effect beyond that The new economy is about communication, deep and wide All the transformations suggested in this book stem from the fundamental way we are revolutionizing communications Communication is the foundation of society, of our culture, of our humanity, of our own individual identity, and of all economic systems This is why networks are such a big deal Communication is so close to culture and society itself that the effects of technologizing it are beyond the scale of a mere industrial-sector cycle Communication, and its ally computers, is a special case in economic history Not because it happens to be the fashionable leading business sector of our day, but because its cultural, technological, and conceptual impacts reverberate at the root of our lives Certain technologies (such as the integrated circuit chip) spur innovation and novelty in other technologies; these catalysts are called “enabling technologies.” Occasionally an economic sector will leverage power and accelerate the advance of other sectors in an economy These can be thought of as “enabling sectors.” Computer chips and communication networks have produced a sector of an economy that is transforming all the other sectors Only a relatively small number of people have ever been directly employed in the world of finance Yet ever since the days of the Venetian bankers, financial innovations such as mortgages, insurance, venture funding, stocks, checks, credit cards, mutual funds, to name only a few, have completely reshaped our economy They have enabled the www.allitebooks.com ANNOTATED BIBLIOGRAPHY The following books are ranked by relevance and degree of insight to understanding the new economy This list starts with those I found most pertinent and ends with those that served as background Left unlisted are many good books on economics and new business that contained only a few relevant ideas to this subject Some of these additional resources are mentioned in my source notes Following the annotated books is a list of useful web sites which have the best and most current material Information Rules: A Strategic Guide to the Network Economy, by Carl Shapiro and Hal R Varian Harvard Business School Press, 1998 If you want to go beyond the fundamental principles outlined in my book, try this one This book is the best overview of the network economy yet, rigorously written by two bona fide economists, with careful analysis and plenty of real-life examples Their emphasis is on high-tech and online environments, but their understanding is on target and widely applicable Five stars Enterprise One to One: Tools for Competing in the Interactive Age, by Don Peppers and Martha Rogers Doubleday, 1997 An excellent investigation into the future shape of relationships in the new economy I learned all kinds of unexpected things from this well-written and witty book It is very pragmatic about business tactics (how to get your company to interact with customers), but it also articulates useful economy principles at the strategic level as well The authors seem to have an intuitive grasp of how the new economy is unfolding Net Gain: Expanding Markets Through Virtual Communities, by John Hagel III and Arthur G Armstrong Harvard Business School Press, 1997 A highly original and extremely insightful view of the new economy seen through the lens of commercial communities It shifts focus away from firms or customers and onto emerging networks It sees virtual communities as serious business Although not economic in its sensibilities, this is one of the best books about the network economy Highly recommended The Rise of the Network Society, by Manuel Castells Volume of the Information Age Blackwell Publishers, 1996 A dense, sprawling, comprehensive vista of the ongoing transformation of society by network technologies Castells is a sociologist with a European’s bent for the large-scale sweep of his- 168 / Annotated Bibliography tory This book, the first in a trilogy, is a catalog of evidence for the arrival of a new global, networked-based culture The immense scope of this change is reflected in the immense, and at times unwieldy, scope of this book Castells’ literate and broad view is what makes it worthwhile Blur: The Speed of Change in the Connected Economy, by Stan Davis and Christopher Meyer Addison-Wesley, 1998 Further explorations of the consequences of the network economy The authors list three primary forces overturning the old order: speed, intangibles, and connectivity (which parallel my three of globalization, intangibles, and connectivity) They have lots of business examples and yet more strategies Unleashing the Killer App: Digital Strategies for Market Dominance, by Larry Downes and Chunka Mui Harvard Business School Press, 1998 Despite the slightly misleading title, this book celebrates the network economy It arrives at similar conclusion as I do, and it even has its own list of new rules (on page 77) However, its focus is on the practical creation of a business service or product in the new economy It is not as methodical or complete as Information Rules, but I think it is a good general businessperson’s introduction Webonomics, by Evan I Schwartz Broadway Books, 1997 Schwartz focuses very specifically on the practical problems of using web sites to create commerce His nine principles for doing business on the web won’t hold true for the entire new economy, but they are pointed in the right direction If you are running a commercial web site, his advice is certainly helpful The Digital Estate: Strategies for Competing, Surviving, and Thriving in an Internetworked World, by Chuck Martin McGraw-Hill, 1996 A super book for getting a feel for the new online business culture Martin gives you a visceral sense of the tremendous cleverness, brilliant innovations, and experimental business models happening “out of sight” on the web He’s a great tour guide to this strange new territory, and the best way to get a sense of “what’s happening” in online commerce The Economics of Electronic Commerce, by Andrew B Whinston, Dale O Stahl, and Soon-Yong Choi Macmillan Technical Publishing, 1997 Electronic commerce is barely born and already has its textbook This one is a pretty good textbook, too The material is wonderfully interdisciplinary, covering economics, engineering, finance, and marketing In addition to the usual papers and book references, the authors also list plenty of relevant web site urls For doing business online, this textbook is better than having an MBA The Digital Economy: Promise and Peril in the Age of Networked Intelligence, by Don Tapscott McGraw-Hill, 1996 In a not very organized fashion, this book wanders through some of the emerging dynamics of the network economy There are lots of examples of new economy business, but with little theory, and a minimum of analysis Overall, he is good at picking out new Annotated Bibliography / 169 economy business trends Electronic Commerce: A Manager’s Guide, by Ravi Kalakota and Andrew B Whinston Addison-Wesley, 1997 One of those books that are very timely at the moment, but will date quickly Here is everything known in 1997 about managing electronic commerce on a web site How to firewalls, transaction security, and electronic payments from the view of a nonprogramming mid-level manager If the authors are smart, they’ll keep this tome updated The Weightless World: Strategies for Managing the Digital Economy, by Diane Coyle Capstone Publishing, 1997 This book, unlike many of the others listed here, is more concerned with the economic consequences, rather than the business implications, of the new economy Coyle begins to grapple with the issues such as welfare, governance, and policy decisions which a “weightless” world of information will demand Another way of saying this is that Coyle often considers the downsides of the new economy Such questioning is sorely needed Release 2.0: A Design for Living in the Digital Age, by Esther Dyson Broadway Books, 1997 A pretty good primer aimed at lay people explaining the social consequences of network society and culture Covers a full range of topics from privacy to identity to communities and intellectual property Sort of like a orientation tour of this exotic tomorrowland The Age of the Network: Organizing Principles for the 21st Century, by Jessica Lipnack and Jeffrey Stamps Oliver Wright Publications, 1994 Despite its very new-agey tone, this book is useful as a background It combines the understanding of everyday social networks with the understanding of electronic networks to provide some key insights into how human networks in general work And it makes clear their increasing influence Bionomics: Economy as Ecosystem, by Michael Rothschild Henry Holt and Company, 1990 A chatty amplification of a very fundamental metaphor—the economy behaves like a ecosystem Buried in the stories about trilobites and bacteria, are some very keen insights about the network economy The Death of Competition: Leadership and Strategy in the Age of Business Ecosystems, by James F Moore HarperCollins, 1996 The closest analogy to a network is an ecosystem Moore plumbs the biological metaphor in great detail and with more success, perhaps, than Bionomics does I consider these ideas prime territory still waiting to be exploited This book is a good start The Economy as an Evolving Complex System, edited by Philip W Anderson, Kenneth J Arrow, and David Pines Addison-Wesley, 1988 The published proceedings from a landmark workshop on ecological approaches to deciphering the economy Very technical and academic, but also very revolutionary Increasing Returns and Path Dependence in the Economy, by W Brain Arthur University of Michigan Press, 1994 If you are willing to try unprocessed 170 / Annotated Bibliography originals, the papers in this collection can illuminate the key and pivotal function of increasing returns Written by the economist who coined the term, at least some of the papers are accessible and clear to lay readers The Winner-Take-All Society, by Robert H Frank and Philip J Cook Penguin Books, 1995 Since there is a winner-take-most element to the network economy, this readable book-length essay is quite provocative Internet Economics, edited by Lee W McKnight and Joseph P Bailey MIT Press, 1997 A well-chosen selection of scholarly papers outlining the economic problems created by internet commerce Most questions in the compendium deal with the baffling problem of how to price services in a distributed environment How should shared connections, or insurance, or occasional links be priced? How should traffic be regulated? What shape will money take? This is the engineer’s approach to economics The Death of Distance: How the Communications Revolution Will Change Our Lives, by Frances Cairncross Harvard Business School Press, 1997 An accurate book, but with the thin and well-worn announcement that global communications are changing the world Low on surprises or insight, but full of facts The Self-Organizing Economy, by Paul Krugman Blackwell Publishers, 1996 A slim volume of fairly technical descriptions of how decentralized, bottom-up self-organization can shape some economic phenomenon, such as cities The Future of Money in the Information Age, edited by James A Dorn Cato Institute, 1997 Money, which is a type of information, is changing as fast as the economy it circulates in This is an academic view of how money and financial institutions are transforming Digital Money: The New Era of Internet Commerce, by Daniel Lynch and Leslie Lundquist John Wiley & Sons, 1996 Lynch, a founder of a digital cash system, paints a portrait of the new economy as viewed from the perspective of liquid, intangible e-money The shape of money in the future is a huge, vital, and unknown question, one that I skirted for space reasons This book is a great place to catch up Cybercorp: The New Business Revolution, by James Martin Amacon, 1996 Martin is a legendary telecom guru who has written over a hundred books This one is a jumble of buzz words, astounding insights, tired clichés, astute musings, interesting graphs, corny lessons, wonderful statistics, lame explanations, and bubbly enthusiasm He’s often right, and he is focused on the new economy, but the reader will have to the winnowing The Twilight of Sovereignty, by Walter B Wriston Charles Scribner’s Sons, 1992 Not as revolutionary as it was when it was first published in 1992, this short book still makes a very intelligible case for a new economy birthing Wriston pays particular attention to the geopolitical impacts of a networked Annotated Bibliography / 171 information economy Shared Minds: New Technologies of Collaboration, by Michael Schrage Random House, 1990 Although not explicitly about networks or network technology, this book is about what happens when you use tools—such as networks—to create collaborations of minds, for both work and play It is more about the future of business organization than most books advertised as such Regional Advantage: Culture and Competition in Silicon Valley and Route 128, by Annalee Saxenian Harvard University Press, 1994 A wonderful book about the success of network culture in Silicon Valley, brought into relief by comparing it to the older, but less successful and less networked, high-tech culture based in the vicinity of Boston Innovation Explosion, by James Brian Quinn, Jordan J Baruch, and Karen Anne Zien The Free Press, 1997 If knowledge is the new capital, then innovation is the new currency Quinn and colleagues a masterful job of placing innovation as the central dynamic in a knowledge economy They have rounded up anecdotes, statistics, and bullet points galore to create a believable case for why innovation is the key variable in the network economy Post-Capitalistic Society, by Peter Drucker HarperCollins, 1993 An early picture of the coming new economy which has not aged a bit Drucker is always worth reading Unlimited Wealth: The Theory and Practice of Economic Alchemy, by Paul Zane Pilzer Crown Publishers, 1990 This one is an outlier, a little on the extreme side More than most observers, Pilzer is not hesitant to speculate on the ways in which technology increases prosperity in an economy His heretical ideas are refreshing The Third Wave, by Alvin Toffler Bantam, 1980 A classic, and yet still incredibly up-to-date and informative Toffler’s 20-year-old profile of a new economy and new culture is more readable and more accurate than most depictions written since New Ideas from Dead Economists: An Introduction to Modern Economic Thought, by Todd G Buchholz Penguin Books, 1990 Most “new” ideas in economics, as in everything else, are not new at all This compact volume is the best one-stop shop for extracting the best thoughts of previous economists Painless and edifying, this text should be in every network economist’s library The Information Economy http://www.sims.berkeley.edu/resources/ infoecon/ The most complete web site for the new economy This clear, wideranging, and very up-to-date site, run by economist Hal Varian, coauthor of Information Rules (see above), lists papers, works in process, and hundreds of links to other new economy sites Almost any web site that is remotely connected to the information or network economy is linked here, including, 172 / Annotated Bibliography for example, the follow two sites George Gilder’s Telecosm Index http://homepage.seas.upenn.edu/~gaj1/ ggindex.html Chapters of author George Gilder’s epic book-in-progress on the emerging telecommunications universe are archived here Gilder’s thinking is seminal, and many of my own rules owe much to him Keep an eye out for his book Telecosm, due out in late 1998; until then, these articles from Forbes are a real goldmine The Economics of Networks http://raven.stern.nyu.edu/networks/site.html This site is primarily dedicated to examining the economic implications of communication networks It is crammed with papers by the site organizer (economist Nicholas Economides), but also includes a very handy bibliography and master list of all other economists working on the economics of networks INDEX Page numbers in italics refer to charts and figures Ackely, David, 89–90 advertising, 102, 152–53 agriculture, 6–7, 8, 79 airplanes, airline industry, 14, 125, 149, 152 allegiance, 28, 65–66, 132 Amazon.com, 127 America Online (AOL), 49, 64, 121 Anderson, Laurie, 33 antitrust hearings, 27 Apache, 61, 64 Apple Computer, 29, 41, 82, 110 architecture, 81 Arthur, Brian, 25, 27, 29, 66–67, 110 ATMs, 41–42, 98, 120 atoms, 9, 75 attention, scarcity of, 59 automobiles, automobile industry, 3, 4, 50, 54, 69, 92–93, 96, 122 dumb chips in, 11, 12 economies of scale in, 26 hypercars, 76 lightweight, 73, 73, 75–76 painting of, 15 bandwidth, 52, 118–19 banks, banking, 98, 156, 158 ATMs and, 41–42, 98, 120 Barbie dolls, customized, 122 Barnes and Noble, 127 barter, Beethoven, Ludwig van, 145 Berkeley Mac User Group, 131 Best, Steven, 159 Best Bananas, 97–98 Betamax, 29 biological models, 31, 32–33, 83–85 Bionomics (Rothschild), 149–50 biotechnology, 88 Bloomberg terminals, 41 books, 126–27 Bose-Einstein distribution, 38 brain, human, 13 Brand, Stewart, 60, 61 Bressand, Albert, 124–25 Brin, David, 131, 145–46 Browning, John, 24 Built to Last (Collins and Porras), 116–17 bullet trains, 16 cameras, digital, 37 capital, sources of, 156 Carpenter, Loren, 17–18 carpets, value of, 40 cassette tapes, 44 CD-ROMs, 91 CDs, 144 music, 67, 98–99 cellular neurons, 6, 13 cellular phones, 44, 58 cement business, 14–15 Cemex (Cementos Mexicanos), 14–15 Cendant, 63 change, 108–9, 114–16 of customer preferences, 123, 128–30 chaos vs order, 113–14, 113 Chemical Bank, 42 Cisco, 27 Citibank, 41–42 closed (proprietary) systems: avoiding of, 48–49 opening up, 39, 41–42 CNN, 107 collaborative filtering, 128 Collins, James, 116–17 commodities, flow of, 48 Commodore 64, 45 communication, 1, 4, 5–6, 33, 52, 150–51 real-time, 12, 15, 21 in spaces, 95–96, 95 see also email; internet; telecommunications; telephones 174 / Index community, 104–6, 104 Compaq, 133 competition, 26, 70 increasing returns and, 27, 29 compounded results, 142, 144 computer chips, 11, 11, 51 as “enabling technology,” computers, 3, 5, 11, 13, 14, 37, 67 conferencing systems for, 70–71 disappearance of, 19–20 mainframe, 149 productivity and, 148–49 user groups for, 130–31 see also email; internet; World Wide Web connections, 12–22 customer-to-customer, 138 exponential growth and, 23–25 opportunities and, 145 plentitude and, 46 relationships and, 137, 138–39 swarm technology and, 13–18, 21–22 Connection Test, 137 contracts, 120 copies, 40–41, 54 creative destruction, 86 C2Net, 64 culture: equity, 156–59 technology as, 33–35 customer preferences, 122–30 anticipation of, 123, 125–28 changing of, 123, 128–30 creating of, 122, 123 remembering of, 122, 123–24 customers, 27, 118–39 as employees, 120, 121, 139 fanatical, 131–32 learning and, 129 as prosumers, 121–24 smart, 62, 130–31, 130, 138 wisdom of, 132–34 customization, 121–23 Cygnus Solutions, 64 Darwin, Charles, 140, 141 David, Paul, 149 decentralization, 9–22, 158–59, 161 strategies for, 19–22 swarm technology and, 13–18, 21–22 decision making, 70, 81 decreasing returns, law of, 25 DeLong, Brad, demand, demand curves, 55–56, 55, 153 De Vany, Art, 38 devolution, 83–93, 84 avoiding shortsightedness and, 87–89, 91–92, 92 being in charge of, 93 in better companies, 86–87 start-ups and, 89–90 strategies for, 91–93 Dialog, 151 Direct-TV, 58 disease, tipping point of, 34 disequilibrium (flux), 108–17, 109, 159, 161 innovation and, 112–14 stagnation and death vs., 110–12 strategies for, 116–17 disintermediation, 98–99 Disney, 88 dolls, customized, 122 dominance, 27, 34, 43 Doom, 48 DOS, 41, 130 Downes, Larry, 74 Drucker, Peter, 72, 146 Drucker’s Rule, 37 Drudge, Matt, 98 dumb chips, see “jelly beans” DVD video standard, 67 Dvorak keyboard, 29 Dyson, Esther, 63 economic growth, 140–41, 146, 147, 153–54 economic sectors, “enabling,” economies of scale, 26, 28 economy, U.S.: intangible trade in, 3–4 manufacturing in, 7–8, 26, 147 waxing and waning of sectors in, efficiency, 147, 149 800 numbers, 120 electricity, 68, 69, 149, 153 ElectronicCast, 13 email, 16, 42, 43, 45, 100, 119, 128, 143 embedded phase, 67, 68–69, 80–81 e-money, 68, 105 employment, employees, 7–8, 78–79, 101, 109–10, 109 Index / 175 customers vs., 120, 121, 139 “enabling technologies,” Encyclopaedia Britannica, 60, 91 Enterprise One to One (Peppers and Rogers), 124 entertainment, 3, 4, 111 see also books; movies; music; television equity culture, 156–59 Ethernet, 24 E-trade, 138 Eudora, 57 European Union, 109–10 evangelists, 81–82 evolution, 89–90, 140, 141 executive function, 148 expectations, 31–32 experience curve, 150 exponential growth, 23–25, 30–31, 30, 36, 43 externalities, 26–27, 36 Fairchild Semiconductor, 53 farming, 6–7, 8, 79 Fast Company (Weber), 132 fax effect, 39, 44 fax machines, faxes, 27, 30, 31, 39–40, 40, 41, 44 Federal Aviation Administration (FAA), 14 Federal Express (FedEx), 10, 30, 30, 31, 33–34 feedback loops, 51 creation of, 36–37 positive, 26, 29 self-negating, 36 self-reinforcing, 36–37, 141 feeding the web first, see prosperity finance, 5–6, 156 Firefly, 125–27, 132–33 firms: customer’s relationship with, 119–20, 122–30, 134–39 devolution of, see devolution prosperity and, 65–69 size of, 101–3, 101 see also specific firms flight simulation, 17 floppy disks, 144 fluid phase, 67, 68–69 flux, see disequilibrium Ford, Henry, 26 “free flight,” 14 ftp capability, 42 Future Shock (Toffler), 121, 132 Gage, John, 61 General Motors (GM), 3, 15, 101 generosity, 50–64, 161 anticipating cheapness and, 53, 64 sharing and, 60–62 strategies for, 62–64 supply and demand and, 55–56, 55 value and, 57–60 Gibson, William, 151 GIF images, 41 Gilder, George, 52, 146 Gilder’s Law, 52, 54 Gleick, James, 134 globalism, 2, 74, 119, 156–59 Gould, Steven Jay, 141 Grameen Bank, 158 Great Asymmetry, 141–42, 145, 154 Grove, Andy, 11 Gutenberg, Johann, 40 Hagel, John, 31, 66, 129 hand-made items, 78 Hicks, Donald, 109 hierarchies, 119 hobby tribes, 105–6, 131–32 Hollywood movie industry, 111, 148 Home Motor, 19 home-shopping networks, 34–35 Houston, Tex., swarm technology in, 16 HTML, 71 Hyde, Lewis, 60 hypercars, 76 IBM, 89, 107, 149 identity, 65, 126–27, 133 immune system, 13 Inc., 109, 111 increasing returns, law of, 25–30, 25, 36, 80, 90, 105 incubations, long, protection of, 37 indexes, 59 individualism, 102–3 industrial economy, 19, 25, 45, 50, 78, 79, 83, 84, 102, 108 economies of scale in, 26, 28 expectations in, 31–32 undoing of, 112–14 176 / Index information (knowledge), 2, 3, 4, 51, 56, 76–79, 105, 119, 156 distribution of, 20–21 material , 73–76, 73 peers and, 119–20, 128–32 prosperity and, 73–79, 73 symmetry of, 134–37 innovation, 27–28, 31–32, 46, 80, 90–91, 93 disequilibrium and, 112–14 momentum vs significance of, 35 opportunities and, 142–44, 143 skunk works mode and, 89–90 intangibles: as characteristic of new economy, 2–5 copies of, 40–41 see also information; relationships Intel, 67 interfection, 80 intermediaries, 96–102, 99 nodes as, 100–102 internet, 13, 16, 18, 33–34, 42, 60, 146 economy of, 76–77 exponential growth of, 30, 31 service providers for, 36–37 see also email; World Wide Web internet protocols (IP), 80–81 inventory, 12 investment, 156–59 Iran, Shah of, 44 iron oxide, 144 ITU (International Telecom Union), 72 Japan, 75, 147 swarm technology in, 16 Tamagotchis in, 32 Java, 57, 58 “jelly beans” (dumb-chips), 10–22, 31 computer chips compared to, 11, 11 swarm technology and, 13–18, 21–22 Keely, Larry, 14 Kellner, Douglas, 159 Kessler, Andrew, 150 keyboards, 29 Khomeini, Ayatollah, 44 KLM, 152 Kmart, 85 knowledge, see information Kotkin, Joel, 111 Krugman, Paul, 55–56, 78–79, 147, 149 Lanier, Jaron, 137, 152 leadership, 17–18 learning curve, 51, 53, 149–50 Lessig, Lawrence, 71 Liberman, Alexander, 151 Linux, 61 Lovins, Amory, 76 loyalty, 28, 65–66, 132 Lucas, George, 145 Luddites, McDonald’s, 61 manufacturing, 26, 147, 148 employment in, 7–8 Marshall, Alfred, 115 Marx, Karl, 115 mass customization, 121–23 Mastering the Dynamics of Innovation (Utterback), 85 MCI, 13 Mead, Carver, Mercedes-Benz, 12 mess media, 106 Metcalfe, Bob, 24 Metcalfe’s law, 24, 30 Mexico, cement business in, 14–15 microloans, 158 Microsoft, 4, 6, 27, 31, 33–34, 91, 101, 125 profits of, 30, 30, 33 Microsoft Internet Explorer, 57 Microsoft Network (MSN), 49 Milgrom, Paul, 87 modems, high-speed, 36–37 monopolies, 27–28 “monovation,” 27 Moore, Gordon, 52, 63–64 Moore’s Law, 52 movies, 37–38, 111, 126–27, 148 MPEG standard, 81 Mui, Chunka, 74 music, 145 CDs, 67, 98–99 mutual funds, 156, 157–58 My Launch, 125 National Semiconductor, 10 needs vs wants, 152–53 Negroponte, Nicholas, 73, 76, 93 Nelson, Richard, 88 net, as symbol for future, Net Gain (Hagel), 31, 129 Index / 177 Netscape, 57, 58 NetWare, 64 network externalities, 26–27, 36 networks, network economy: conversation compared to, 133–37 decentralization and, 9–22, 11 defined, 31 exponential growth of, 23–25, 30–31, 30 hierarchies vs., 119 maximizing of value of, 67–69 as meta-country, 72 opportunities and, 145 phases of, 67–69 as possibility factory, 46–47 smaller, coordination of, 36 workings of, 2–3, 9–12 see also specific topics new economic order: characteristics of, 2–8 see also specific topics New York Times, 134 Nintendo, 85 nodes, 10, 12, 21, 46, 100 animated, 12–13, 20 arithmetic increase of, 23 as intermediaries, 100–102 Novell, 64 Noyce, Robert, 53 nuclear power, 84 oil, oil industry, 37, 75 opportunities, 39, 43–49, 140–55, 161 innovations and, 142–44, 143 interconnectedness and, 45 as origin of wealth, 141–44, 142 of others, maximizing of, 47–48 seeking of, 146 as source of other opportunities, 144–46 strategies for, 154–55 Oracle, 27 order vs chaos, 113–14, 113 Out of Control (Kelly), 17–18 passport profile, 125 peers, 119–20, 128–32 Pentiums, 45 Peppers, Don, 124 perfection, letting go of, 86–87 Perl, 61 Peters, Tom, 86, 94 pets, electronic, 32 pharmaceuticals, 48 Pilzer, Paul, 152 plentitude, 39–49, 43, 55, 80, 161 law of, 45–46 opening closed systems and, 39, 41–42 opportunity and, 39, 43–49 strategies for, 47–49 value and, 39–42, 40 Plus, 42 “polyvation,” 27–28 Porras, Jerry, 116–17 Porter, Michael, 90 postmodernism, 159 Postmodern Turn, The (Best and Kellner), 159 poverty, the poor, 153, 158 Powerbooks, 45 prestandard phase, 67–68 prices, 27, 29, 64, 77 decline of, 50–53, 56–57, 149–50 privacy, 133–37 problem solving, 146 productivity, 118, 119, 147–52, 154 productivity paradox, 149 proprietary systems, see closed (proprietary) systems prosperity (feeding the web first), 65–82, 66, 138, 161 information and, 73–79, 73 strategies for, 79–82 technical standards and, 70–73 value and, 67–69, 79–80 prosumers, 121–24 P3P standard, 125 publicly traded companies, 158–59 Qualcomm, 57 QWERTY keyboard, 29 Radio Shack, 52 railways, 15–16, 68 RCA, 53 Reader’s Digest, 59 RealAudio, 41 real-time communications, 12, 15, 21 refrigerators, 51–52, 153 Regional Advantage (Saxenian), 28 relationships, 2, 3, 45–46, 118–39 amplification of, 118–19 178 / Index customer and firm, 119–20, 122–30, 134–39 relationships (cont.) peerlike, 119–20, 128–32 as social web, 28 strategies for, 138–39 symmetry of knowledge in, 134–37 trust and, 119, 123, 132–38 value of, 124–25 relationship technology (R-tech), 124–30, 132–33, 135–38, 161 reputation, 119 returns, increasing of, see success, selfreinforcing reverse market, 129–30 Ritz-Carlton Hotel, 125 Roberts, John, 87 Rogers, Martha, 124 Romer, Paul, 110, 144 Rothschild, Michael, 149–50 Russia, 116 safety, aircraft, 14 Saffo, Paul, 91, 97 Sanders, Jerry, 53 Saxenian, AnnaLee, 28 scarcity, 39, 40, 49, 59, 78, 144 scavenger bots, 143 Schrage, Michael, 119 Schumpeter, Joseph, 86 Schwartz, Evan, 127 searching, as a way of life, 93 Sears, Roebuck, 19, 85, 98 Sega, 59, 85 semiconductor transistors, 10, 53, 149, 150 service sector, Shared Minds (Schrage), 119 shareware, 61 shopping, 129 home, 34–35 supermarket, 46 significance, threshold of, 34–35, 34 silicate glass fiber, 9, 20 silicon chips, 9, 20 cost of, 10, 11, 51, 52 as cultural neurons, dumb, see “jelly beans” size of, 10 see also computer chips Silicon Valley, 25–26, 28, 74, 111, 159 Simon, Herbert, 59 Simon, Julian, 141 skunk works mode, 89–90 Smith, Adam, 115 software, 3, 4, 13, 48, 61–62, 71 Solow, Robert, 149, 153–54 Sony, 85 Sony Betamax, 29 spaces, 94–107, 161 community and, 104–6, 104 economy’s shift to, 95–97 intermediaries and, 96–102, 99 middle, 103–4, 104 places compared to, 94–96, 95 size and, 102–3 strategies for, 107 taste, 125–26, 126 technical concept of, 96 Sprint, 44 Statistical Abstract, U.S., 31 Sterling, Bruce, 111 stock, stock markets, 53, 157–59 subcultures, 126–27, 132 submarine steering simulation, 17–18 success: basic rules of, 90 questioning of, 93 self-limiting, 25 success, self-reinforcing (increasing returns), 23–38, 161 biological model of, 31–35 exponential growth and, 23–25 law of increasing returns and, 25–30, 25, 36 strategies for, 36–38 threshold of significance and, 34–35, 34 tipping point and, 34–35, 34 Sun, 57, 58 supply curves, 55–56, 55 swarm technology, 13–18, 21–22, 161 aim of, 16 bottom-up vs top-down control in, 17–18 Tamagotchis, 32 taste space, 125–26, 126 Taylor, Frederick, 148 TCP/IP, 24, 41, 71 technical standards, 70–73 technological revolution, technology, 1, 8, 31–35 Index / 179 biological growth in, 31, 32–33 as culture, 33–35 demise of, 84–85 early vs quality, 29 “enabling,” equity culture and, 156–59 invisible, 19–20 opportunities and, 45, 145, 152–54 protocommercial stage of, 60–62 relationships and, 118–19, 122–30, 132–33, 135–39 size of companies and, 101–2, 101 Supply/Demand Flip and, 55–56, 55 swarm, see swarm technology values and meaning and, 159–60 worth of, 137 telecommunications, 3, 44, 52, 119, 132 telephones, 27, 34, 43, 54–55, 153 cellular, 44, 58 data vs voice traffic on, 13 networks of, 24, 26 prestandard phase of, 68 television, 32, 106, 137, 153 cable, 37 direct-, 58 future of, 92 home-shopping networks on, 34–35 Web, 35, 49 Texas, business life span in, 109 Texas Instruments, 149 Thomson, 57 Thurow, Lester, 72 tipping point, 34–35, 34 Toffler, Alvin, 103, 108, 121, 132 Torvalds, Linus, 61 tragedy of the commons, 60–61 Transparent Society, The (Brin), 145–46 transportation, 33, 50, 69 see also airplanes, airline industry; automobiles; automobile industry; railways Tree of Life, 14 trucking, 6, trust, 119, 123, 132–38 Truste, 135–36 TV Guide, 59–60 1211 transistor, 53 Useem, Jerry, 109 user groups, 130–31 Utterback, James, 85 vacuum tube technology, 84–85 value: in economies of scale, 26 generosity and, 57–59 increasing returns and, 26–28 maximizing of, 67–69, 79–80 n2, 24, 27, 36 plentitude and, 39–42, 40 of relationships, 124–25 scarcity and, 40 in webs, 97–100 values and meaning, lack of, 159–60 Van Gogh, Vincent, 145 VHS, 29 video, 67, 68, 81, 99 video games, 45 virtual corporations, 139 virtual reality (VR), 152 voice mail, 119 Ultima Online, 121–22 Unix, 24, 61, 64, 71 X-Windows, 61 Walls, David, 38 Wal-Mart, 85 wants vs needs, 152–53 wealth, 52, 59, 156–60 origin of, 141–44, 142 Weber, Alan, 132, 133 Webonomics (Schwartz), 127 web sites, 93, 132, 144 badges on, 135–36 WebTV, 35, 49 Weiser, Marc, 19 Well, 42, 70–71 “Why Every Business Will Be Like Show Business” (Kotkin), 111 Windows, 29, 30 Windows NT, 41, 81 Wired, 4, 6, 99 Wired Digital, 99 World Wide Web, 7, 13, 46, 90, 104, 151–52 browsers for, 57, 58 generosity and, 60, 61–62 indexes to, 59 Wright, T P., 149 Wriston, Walter, youth cultures, 32 zillionics, 46 Also by Kevin Kelly OUT OF CONTROL: The New Biology of Machines, Social Systems, and the Economic World ... Dependable Principles for Thriving in a Turbulent World. ” Library of Congress Cataloging-in-Publication Data Kelly, Kevin New rules for the new economy : 10 radical strategies for a connected world. .. of the signals zipping around the Earth will 14 / New Rules for the New Economy be machines talking to machines—file transfers, data streams, and the like The network economy is already expanding... calculated that an embedded processor chip costs less to manufacture than a ball bearing Since they can be stamped out as fast and cheap as candy gumdrops, these chips are known in the trade as