Working in the
Connected
World:
Sense-making at Internet Speed
By Valdis Krebs
M
any universal platitudes are being
bantered around about networks,
online behavior and the new economy.
Theorizing about the Internet has
reached a fever pitch. Everyone is predicting how the Internet will change the
rules of communication and commerce.
Two things are certain; first, the Internet
will change the world, and, second, we
have no idea how!
CHARLATANS.COM
Complex adaptive systems, which
rely on the dynamics of self-organization, cannot be predicted, prescribed, or
predetermined. Anyone that tells you
they have it figured out and can explain
the future is a charlatan. Drag their email
to the trash immediately, and set up a
Spam filter for their address. When the
economy was changing in small incremental steps, planning for the future was
prudent. Today, when change is discontinuous, and occasionally explosive,
plans beyond 12-18 months should not
contain very many details.
The most public display of this inability to predict even one year into the
future happened on the cover of the
March 1997 WIRED magazine. They proclaimed that the browser would soon
disappear and that push technology will
replace it! The hype around “push technology” was rampant then and others
were also proclaiming its impending
dominance. Two years later the browser
is now “standard issue” on all PCs and
the PUSH technology companies have
either gone out of business or have totally rewritten their business plans.
Rather than disappear it appears that
the browser has become the universal
client. New technologies such as Java
and XML are further entrenching the
lowly browser as the standard interface
for delivering applications and data to
consumers and employees.
What does seem to be disappearing is
the “client-server” computing model that
ignores Internet standards. This approach, so popular in IT shops in the
early 1990s, has been subsumed by the
corporate intranet using mostly web
technology. Who would have “thunk”[sic]
it? You can bet on change, but not on
outcomes. We have not yet learned that
we cannot predict the future by extrapolating the present.
The false prophets base their belief in
foretelling the future on three basic, interrelated rules: Early Mover Advantage –
the first competitor to market uses the
law of increasing returns to dominate a
market segment. Metcalf’s Law – any
node added to a network increases the
network’s utility not by 1 but by n2 [n being the number of nodes in the network].
Disintermediation – the network will remove all intermediaries as we participate
directly with each other in friction-free
exchanges.
EARLY MOVER ADVANTAGE
The law of increasing returns basically
states that “them that have, get more”.
Once an economic player grabs a minute
early lead, increasing returns will soon
kick in allowing this player to quickly
dominate a market segment. This logic is
also behind some of the thinking emerging in the software industry. Even large
companies like IBM are caught up in this
meme. In a 1998 Information Week interview Lou Gerstner stated that being early
to market is often more important than
being right. Really?
Let’s look at some early movers. First
there were Sony and Betamax, Apple
Macintosh with windowing, point and
click software, PC operating system
CP/M, word processors MultiMate and
Word Perfect, spreadsheets VisiCalc and
Lotus 123....and most recently, Netscape
Navigator. All of these products did utilize the law of increasing returns and
were dominant in the market segment for
a while. They were a “flash in the pan”.
But, where are they today? Most of these
products got the ball rolling but were
overtaken in the marketplace by latemovers! The most [in]famous late-mover
is Microsoft. They consistently beat the
early mover advantage of others.
METCALF’S LAW
Bob Metcalf is a smart guy, he invented Ethernet. His law works very well
for computers connected on the Ethernet, as long as they are not behind firewalls. Ah, but computer networks and
human networks have many firewalls, often resulting in ACCESS DENIED! Your
company’s network administrator plays
an interesting gatekeeper role in both
the firm’s computer and employee network.
Spam and telemarketing — two of the
most detested attempts at human communication — are a result of “I can reach
anybody” thinking. Both SPAMmers and
telemarketers assume that just because
they can physically connect to someone
through technology that they can “reach
out and touch” them — influence them.
We all know what happens when a
stranger attempts to touch another
stranger — withdrawal.
Metcalf’s law describes the “potential”
of a network, not the actual behavior or
utility. It works as stated as long as there
are no firewalls – neither technical nor
human. But in all networks, technical
and human, connections are distributed
unevenly — you can’t always get there
from here. A physical connection is not
IHRIM Journal • March 1999
59
WORKING IN THE CONNECTED WORLD
the sole requirement for an economic or
social interaction. Just because I can dial
Madonna’s phone number does not
mean that I can talk to her. It is easy to
move around inside your network neighborhood, social circle, or economic web,
but entering someone else’s “turf” usually
happens only with “permission” or
through an established relationship.
DISINTERMEDIATION
The common wisdom today is that as
better technology connects all of us, there
will be less and less need for intermediaries in human transactions. We will all
have access to much more information,
through the many new ties we will form
online. Transactions will occur directly
among the interested parties. With everyone having instant access to everyone
else, exchanges will be direct, efficient
and almost friction-free — intermediaries
will disappear (driven by Metcalf’s Law).
Intermediaries will not disappear!
They will become more necessary as
more information becomes available and
more connections are possible. Trusted
intermediaries will assist us in wading
through the ever-growing information
space. They will help us find those needles in the haystack. They will direct us to
communities of interest online.
The old-style intermediary acted as a
gatekeeper. The gatekeeper controlled
the flow in the network for his advantage
only. This intermediary took advantage of
his location in the flow of information or
resources and often did not add value to
the transaction. The Internet is allowing
us to self-organize around these types of
obstructions in the flow. These roles are
being disintermediated — they are being
pruned from the network. Yes, you can
buy a computer directly from the manufacturer now. Disappearing is the brickand-mortar computer shop. Appearing is
the new computer intermediary — the
geek in everyone’s friendship network. Intermediaries that add value to transactions, or make them possible in the first
place will flourish on the Internet. Intermediaries that protect resources on the
network (e.g., firewalls) will also play a
key role in the connected economy that
values privacy.
Yesterday’s intermediary strategy depended upon the slow pace of change
and the slow flow of information. Once a
60
IHRIM Journal • March 1999
player became a gatekeeper, it was fairly
easy to exploit that position and maintain it over time. Information flowed into
the intermediary from many angles. Only
select information flowed out. Inflow was
much greater than outflow. Those players
connected to the gatekeeper did not have
connections to each other — they were
very dependent on the gatekeeper for
flows of information and resources.
Today, gatekeeping is not an effective
modus operandi. Gatekeepers invite organized opposition (e.g., Microsoft vs. Java
alliance, Microsoft vs. DoJ). Today’s
player informs to build — relationships
and whole industries. Today’s intermediary provides much more outflow. Yesterday’s player garnered network power by
keeping his connections unconnected
from each other. Today’s network builder
knows that building communities provides more network benefits. The better
connected your friends, the richer your
inflow. Intermediation is not disappearing. It is evolving. Those that know how to
be among, as opposed to exploiting,
their betweenness, will be the winners in
the information economy.
Those that understand network dynamics know that as a network expands it
creates more opportunities for intermediaries. As networks grow, clusters of
dense ties emerge. Each cluster is rarely
connected to more than a handful of
other clusters in the network. This results
in gaps between the clusters — holes in
the network. As more and more clusters
appear, intermediaries find opportunity
in filling these “holes” in the network.
NEW RULES
Applying rules that oversimplify complex systems, allow the charlatans to sell
their solution. They provide false hope
through easy rules for the new economy.
A simple rule or two cannot explain today’s complex economy. Knowing the
rules alone doesn’t do it. Knowing how
the rules apply and interact in real situations is the key to grasping the new economic dynamics.
How can we do this? What has worked
for my clients and myself is to investigate
various possible scenarios, both “as is”
and “could be” using models or simulations that capture the complexity of the
situation yet reveal the dynamics in an
understandable format. Things are sim-
plified, but not too much. Data visualization is a key technology in this.
Perform various “what ifs” with the
network structures in your organization,
economic web and industry. Model these
scenarios and answer these questions:
1) Where is our place in our industry?
2) How are we located in the network of
alliances?
3) How are our suppliers, customers and
other business partners connected?
4) How does information and knowledge
flow through our firm?
The key is making sense of the “here
and now:”
◆ How did we get here?
◆ What were the key influences?
◆ Why did we end up here and not
somewhere else?
It is critical to take a whole systems
view. In the network economy there are
no independent objects. Everything is effected by everything else. Both direct and
indirect connections influence behaviors
and outcomes. If you want to influence
(not determine) the future, change the
way your economic web is connected.
After an “as is” interpretation is derived, next build a few “could be” scenarios of possible futures that answer the
question: At this intersection what are
the possible paths we could take from
here?
It is not the actual scenarios or models that will be useful. It is the learning,
knowledge exchanges, and working relationships that develop during the modeling process that will allow your firm to
quickly adapt to, or take advantage of,
new opportunities in the marketplace.
We must always remember the wise
words of Albert Einstein: “Make everything as simple as possible, but never
more so”. Oversimplifying the rules that
run our complex systems will lead us
down false paths with a false sense of security. We will think we understand when
we actually don’t. Discovering patterns in
complexity will provide us the opportunity to make sense of how our interconnected markets and industries operate
and evolve.
For author’s biography, see page 80.
If you have comments or questions on
anything you read in the Journal, write to
Editor–In–Chief, [email protected].