Winning With Mass Collaboration in the Enterprise 2.0

Wikinomics
Winning With The Enterprise 2.0

Don Tapscott
don@newparadigm.com

Enterprise 2.0
June 20, 2007

Transcript:

STEVE WYLIE: Out next speaker is Don Tapscott, who is Chief Executive of
New Paradigm, a company he co-founded in 1993. Don is one of the world's
leading authorities on business strategy and organizational transformation.
He's authored or co-authored over 11 books to date, and his new book is called
Wikinomics: How Mass Collaboration Changes Everything. A couple of
factoids on the new book, Wikinomics. It's been out for about ﬁve months
now, and for most of that time it's been on several best selling lists including
the New York Times best selling list. And it's currently being translated into
19 different languages. So it's a privilege to have Don joining us today. Please
welcome Don Tapscott. DON TAPSCOTT: Thanks, Steve. I think I'm going
to stand down here, if that's okay. It sort of feels a bit like the Politburo up
here. I'm delighted to be here, and I really mean that actually. Last night I took
the 15-hour ﬂight from LA to New York and arrived in New York at 4:00 am.
But I think sleep is a highly overrated thing anyway, along with protein, other
stuff like that. I'm seriously delighted to be here because I buy totally this idea
that the enterprise is moving into a second generation. And it's wonderful that
there's a conference that's exploring these issues.

1

The New Enterprise
Source: Paradigm Shift: The New Promise of Information Technology, 1992

Closed Hierarchy Open Networked Enterprise
Structure Hierarchical Networked
Scope Internal/closed External/open
Resource Focus Capital Human, information
State Static, stable Dynamic, changing
Personnel/focus Managers Professionals
Key drivers Reward and punishment Commitment
Direction Management commands Self-management
Basis of action Control Empowerment to act
Individual motivation Satisfy superiors Achieve team goals
Learning Specific skills Broader competencies
Basis for compensation Position in hierarchy Accomplishment, competence level
Relationships Competitive (my turf) Cooperative (our challenge)
Employee attitude Detachment (it’s a job) Identification (its’ my company)
Dominant requirements Sound Management Leadership

2
© New Paradigm Learning Corporation 2007

Transcript:

This idea that there's a new enterprise, of course, is not a new one. It's been
around for quite a while. This is one of my favorite views of the shifts that are
underway. We're moving from a closed hierarchical structure where the focus
was on capital and physical goods and you tried to be a good manager and you
moved up your position in the hierarchy to a new kind of open, networked
enterprise that is modular and it's dynamic and ﬂexible and it reaches outside
the boundaries of a corporation. One of the reasons I like this particular view
so much is because it's from my 1992 book, Paradigm Shift. So nothing so
powerful as an idea whose time has come again. And seriously now that we
have the new web, there's a big change that's underway in the deep structures
in the architecture of the corporation. And I started studying this about four
years ago. I did a $7-million-dollar research project. It's called the Enterprise
2.0, Winning with the Enterprise 2.0. And it was inspired by a debate I had
with a guy named Nicholas Carr, who some of you may know. He wrote an
article on HBR called IT Doesn't Matter. And I've debated the guy probably
eight or ten times. And he's got a very slick argument that IT has become a
commodity, and everybody has it, so therefore it undermines competitive
differentiation as opposed to contributing to it. And he's a very good debater,
and it's a powerful argument. I have a big advantage in these debates in that
he's wrong. But it inspired me to launch a syndicated research project. And we
brought together a couple of dozen companies, and they each kicked in
$200,000 or $300,000, and we did a big investigation.
2

The Rise of the Enterprise 2.0
Strategy Domain Closed Corporation Enterprise 2.0
National Global
1. World View
Engine - US, Japan, Europe Engine - China, India, Emergent
Protectionist Free Trade
Vertically Integrated Focused on Core
2. Corporate Boundaries
Business Web
Non-porous
Context, agency
Content
+ Fasttrack Business Models
M&A
Closed Innovation + Open Innovation
3. Value Innovation Do it Yourself + Co-Creation

Proprietary + Open
4. Intellectual Property Protected + Shared

Plan and Push Engage and Collaborate
5. Modus Operandi
Hierarchical Self-organizing
Power over … Power through …
Lumbering Agile
Internal (Enterprise Integration) External (+ Inter-enterprise Integration)
6. Business Processes
Complex Modular
Hardwired Reconfigurable
Traditional Demographics + Global N-Generation
7. Human Capital &
Containerized Collaboration
Knowledge Capital
Internal + Across the B-web
Opaque + Transparent
8. Information Liquidity
Asynchronous processing Real Time
Traditional BI Networked Intelligence
Transactions + Relationship Capital
9. Relationships
Product/Services + Experiences

Proprietary + Standards-based
10. Technology
Monolithic Service oriented
Silos Interoperable
Enterprise + Inter-enterprise
Dumb Networks Intelligent Networks

3

Transcript:

And this investigation came to a bunch of conclusions that all center around
this theme that we are in fact moving to a second generation of the
corporation, and this is a big change.

3

Winning With The Enterprise 2.0

4

Transcript:

The organizers of this conference have made one of the summary reports
summarizing all of this research available, and I think it's through the website.
And so all of you would be welcome to go there. Now I'm a little bit out of
order here.

4

Time’s Person of the Year

5

Transcript:

Let me begin by congratulating each of you personally on having been selected
by Time Magazine as the Person of the Year. Well done to all of you. In fact I
think you should give yourself a big round of applause. Very good. Well, it's
true social networking is exploding. I was at My Space yesterday; MySpace is
growing at 2-million members a week, new registrants. Eighty-ﬁve percent of
all college students in the United States are in Facebook. There's a new blog
created every second of the day, 24 hours of the day, and Time says you, the
online collaborator, are the person of the year.

5

Four Drivers for Change

WEB 2.0
Web 2.0

The
Net
Generation

The Social
Revolution

The
Economic
Revolution

6

Transcript:

Well, to me that's so 2006, basically, because what's happening now is, this is
not just about hooking up online or creating a new gardening community or
uploading a video onto YouTube. The web is becoming a new mode of
production. And it's beginning to fundamentally change the way that we
orchestrate capability and society to create goods and services. It's changing
the deep structures and architecture of the corporation. And I think this is the
biggest change probably in a century, and it's appropriate to call this the second
generation of the corporation. So what's going on here? Well, ﬁrst of all we do
have the Web 2.0, and this ain't your daddy's internet. It's a discontinuous
change from the old web.

6

Web 2.0

IN

G
TE
Web 2.0

IN
TH
G
RA

E
TI
The

TH
O
Net

N
Generation

The Social
BROADBAND
Web 2.0
WEB SERVICES
Revolution
MOBILITY

The
Economic
G
Revolution
SP EO
A
DI A-
TI
E IME A
UT LI
TR UL TY
M

7

Transcript:

The old web, you access through a PC tethered to a desktop. And it was about
data and text with some graphics. And it was based on HTML, which was the
standard for the presentation of information. That's why during the dot-com
period everybody talked about websites and eyeballs and stickiness and clicks
and page views -- because that's what the web was about, presenting
information. The new web is based on XML, and that's a standard not for
presentation, but for computation. The web is becoming a giant global
computer and it's enriched with services. And every time you go onto the new
web and you do something, you are in effect programming the internet. You
know, Thomas Watson was famously to have said in the ﬁfties that the world
will only need ﬁve computers. Actually there's no evidence he said that, but if
he did he would have been terribly wrong. He would have been off by four
because essentially we have a giant global computational platform that enables
self-organization, and that's a huge change. There are all kinds of other
changes; I don't have time to go into them. But you don't just access the web
through a PC; you access through billions and trillions of inert objects in our
world that become smart communicating devices. Call it The Thing. You
know, I'm typically covered in these things. My hotel room last night, the door
was a smart communicating device. It has a chip in it; it has knowledge. And
in this particular hotel the door had an IP address. I actually had a camera
stolen from a hotel room in Miami and the door knew about me. It knew who
had been in and out of the room. That's got the same storage capacity as the
data center where I started working at Bell Labs in the 70s. I mean, I have a 7
friend in Toronto. Everything that's hosted has electrical power, has an IP
address, and all this stuff talks to itself. And I'm not sure what his microwave
says to his fridge, although he says it's got something to do with cooking a


WEB 2.0

THE
NET
GENERATION

8

Transcript:

Point two is the new web is intersecting with the demographic revolution. Who
here has children under the age of 29? Hands, please. Okay, those who put up
their hands, which of those kids use a computer connected to the internet?
Hands? Okay, same group puts up their hand twice. We have the ﬁrst
generation to grow up digital, and these kids are different. And I started
studying these kids about 11 or 12 years ago when I noticed how my own
children were effortlessly able to use all this sophisticated technology. And at
ﬁrst I thought, my children are prodigies. And then I noticed that all their
friends were like them, and the theory that all their friends were prodigies,
well, that was a bit of a stretch.

8

The Demographic Revolution

Web 2.0

The
Net
Generation

The Social
Revolution

The
Economic
Revolution

9

Transcript:

So I started looking at them as a generation, and I wrote a book about ten years
ago called Growing Up Digital. And I came to the conclusion that these kids
have no fear of technology because it's not technology to them; it's like the
air. And this is a huge change because this is the biggest generation ever.
The baby-boom echo. Today age 13 to 28 years of age, there are 80 million
of them in the United States alone. This is bigger than the boom. The echo
is louder than the original boom.

Author’s Original Notes:

Engine - Asia
1985 1 skyscraper - Shanghai
Today 300
1996 Today
Retail Sales 240 B 600 B
Car ownership 10 M 25 M
Cell phone 0 300 M

1999 2004
Exports 180 B 600 B

1990 Today
(Shar Zhen?)POP 1.6M 12 M

350 M smokers
9
20% of world’s ice cream
#s in auto deaths
66% of all ____ foods

Digital Natives – The Net Generation

Web 2.0

The
Net
Generation

The Social
Revolution

The
Economic
Revolution

10

Transcript:

And furthermore this is the ﬁrst time in human history when children are an
authority about something really important. I was an authority on model trains
when I was a kid. Today the 11-year-old at the breakfast table is an authority
on something really important. And time online has not taken away from
hanging out with your friends, learning the piano, talking to your parents or
doing your homework; it's taken away from television, right. TV took away 24
hours of the week per baby-boomer for their parents. And these kids watch less
TV and then watch it differently. They come home and they don't turn on the
TV; they turn on the computer. And they're in three different windows and
they're listening to MP3 ﬁles and talking on the phone; they've got a video
game going and three magazines open, and they're doing their homework.
And, yes, the TV may be going on in the background. But what's going on is
that rather than being the passive recipients of somebody else's broadcast
video, what are they doing? You know, they're reading, they're thinking,
they're organizing and collaborating and composing their thoughts. They're
remembering things.

10

The Generation Lap

Web 2.0

The
Net
Generation
N-Geners
Their Parents
The Social
Revolution

The
Economic
Revolution

11

Transcript:

And rather than a generation gap like we had in the 60s, big differences
between kids and parents over values and lifestyle and so on, kids and parents
get along pretty well today. What we have is what I call a generation lap where
kids are lapping their parents on the info track. And if you have a teenager in
your house, you know what I'm talking about. Who does the systems
administration in your home?

11

The Net Generation

Web 2.0

The
Net
Generation

The Social
Revolution

The
Economic
Revolution

Video available for viewing online at www.newparadigm.com

12

Transcript:

So this is a panel -- I chaired this panel. It was at the World Congress of
Information Technology last year in Austin, Texas for kids, and this was in
front of several thousand people. And this by the way was the highest rated
session of over 100 at the conference. Got an emotional standing ovation. Out
of the mouths of babes. You can just go there and watch the panel. I don't have
time to tell you about it, but I'll give you one little snippet. On the left there is
Rahaf Harfoush. She's a 20-year old Syrian studying in Paris, the Sorbonne.
Her boyfriend's in Toronto. To keep their relationship going, they turn on
video Skype all day long. They cook together and do their homework together
and stuff like that. She doesn't have a Sling Box, so he turns on the web cam
onto Desperate Housewives so she can watch her favorite show. So I asked
her, I asked her, do you kids use email? And she said, well, not really; that's
kind of like yesterday's technology. And I said, well, what do you use? She
says, well, we use Skype and instant messaging and Facebook. I mean,
everybody's on Facebook. And I said, well, if you used email, what would you
use it for? And she said, gee, that's kind of like a formal technology, say, for
sending a thank-you letter to one of your friend's parents. That would be a
good use of email. On the extreme right is Michael Furdyk. He's the grand-
daddy of them all. He's 24. I've known Michael since he was 12. When he was
a 12-year-old, he was the project manager on my website,
growingupdigital.com. They made him the project manager because he was the
oldest and most experienced on the team. When Michael was 16 he had his
own site, and he was getting 20-million page views a month for that site. So he 12
sold it for an undisclosed seven-or-eight-ﬁgure sum. And one of the news
reports said it was only a million dollars, and so I sent him an email, Michael,
you sold it for a million dollars? You should have called me. And he wrote


WEB 2.0

THE
NET
GENERATION
THE
SOCIAL
REVOLUTION

13

Transcript:

You put those two together and you have this social revolution. But there's
some things going on here that you might not know about.

13

The Rise of Collaborative Communities

Flickr.com beats WebShots.com

vs.
Web 2.0

The
Net
Generation

The Social
Revolution

The
Economic
Revolution

14

Transcript:

I could show you 30 charts and they all look like this. They all show the old
HTML website that thinks that content is king, and the web is about the
presentation of information being eclipsed by the XML-based community that
thinks content collaboration is king, and that the web is about creating a
context whereby you can build a community. So Flickr displaces WebShots.


This is a great slide to show the power of community. Craigslist.com and
Monster.com both had a job ad history. Monster looked a lot ﬂashier, had a lot
more tools. Craigslist let the power of community and self organization lead a
site with very basic functionality. Community trumped tools.

14


Digg.com beats Slashdot.org

vs.
Web 2.0

The
Net
Generation

The Social
Revolution

The
Economic
Revolution

15

Transcript:

Digg is now beating Slashdot. Harness is self-organization better.


This is a great slide to show the power of community. Craigslist.com and
Monster.com both had a job ad history. Monster looked a lot ﬂashier, had a lot
more tools. Craigslist let the power of community and self organization lead a
site with very basic functionality. Community trumped tools.

15


Craigslist.org beats Monster.com, Match.com

vs.
Web 2.0

The
Net
Generation

The Social
Revolution

The
Economic
Revolution

16

Transcript:

Craig's list is the place to ﬁnd a job on the web, not Monster or Match.

16


Myspace.com beats MTV.com

vs.
Web 2.0

The
Net
Generation

The Social
Revolution

The
Economic
Revolution

17

Transcript:

MySpace is killing MTV. See, MTV says, no, we provide content, right, rock
videos and so on, music, whereas MySpace says, no, we create a platform
whereby people can self-organize. There are 40,000 bands that are available
today on MySpace including my band, Men in Suits. So, I mean, this is a big
change.

17


Wikipedia.org beats Britannica.com

vs.
Web 2.0

The
Net
Generation

The Social
Revolution

The
Economic
Revolution

18

Transcript:

Wikipedia is killing -- oh, sorry. This is hardly fair. For those of you at the
back of the room, there's a little red line along the bottom there; to any of you
medical people, that'd be called a ﬂatline.

18


Blogger.com beat CNN.com

vs.
Web 2.0

The
Net
Generation

The Social
Revolution

The
Economic
Revolution

19

Transcript:

We've got Blogger beating cnn.com, right? Content versus content
collaboration.

19


Epinions.com vs ConsumerReports.org

vs.
Web 2.0

The
Net
Generation

The Social
Revolution

The
Economic
Revolution

20

Transcript:

We've got Epinions beating Consumer Reports.

20

Alex Tapscott’s Wikinomicists Community

Web 2.0

The
Net
Generation

The Social
Revolution

The
Economic
Revolution

21

Transcript:

So what's going on here? Well, a humbling story. It was Christmas day and I
gave my son Alex -- he's 20 years old, a junior -- an advanced copy of
Wikinomics. And he said, thanks Dad; he went off and starting reading it and
he came back and he said, hey, Dad, this is actually a good book. Anyway so
he said, I think I'm going to create a community on Facebook. So I said, do
you mind if I watch? Fifteen minutes later he's created the Wikinomicists of
the World Unite community on Facebook. Another 15 minutes later he's got
six members. By the time we're eating turkey on Christmas day, he's got 120
members in seven countries, a president, secretary, chief information ofﬁcer,
seven regional coordinators. They've sent out a PDF of the ﬁrst two chapters of
the book. I've got kids writing in saying, ah, Mister Tapscott, we found errors
in your book. And the community is placing demands on me to create value.
So, Mister Tapscott, how exactly will you be contributing to our community?
And, like, what is this? Well, you know what it is? Think about it. Self-
organization -- that's been around throughout human history. Language was
developed in a self-organized way. There was no central committee that said,
this will be called a pen. It just kind of happened, for English. But what used to
take place over a millennia can now happen on Christmas day.

21


WEB 2.0

THE THE
ECONOMIC NET
REVOLUTION GENERATION
THE
SOCIAL
REVOLUTION

22

Transcript:

This is a powerful new force, and it sets us up for a new model of the
enterprise that's leading to an economic change. Now you may have been
reading in the press recently the speculation that this is another bubble -- dot-
com all over again, Web 2.0. Well, there's a British economist named Carlotta
Perez. And she's studied great innovations throughout history -- electricity,
internal combustion, telephone, radio, television, whatever. You know
something? They always, according to her, take the same path. You get
experimentation, you get excitement, you get investment, you get speculation,
you get a bubble and the bubble bursts. And then you move into decades of
long-term deployment where the real impact of the technology becomes
understood on the economy and on business models. That's what's happening.
We had the bubble; now we're moving into decades of long-term deployment
where we're beginning to understand the contours of this new enterprise -- how
the institution of wealth creation is changing fundamentally.

22

Digital Conglomerates

Web 2.0

The
Net
Generation

The Social
Revolution

The
Economic
Revolution

23

Transcript:

Exhibit A, the digital conglomerate. What is Google? Well, people say they're
an internet company; they call themselves a technology company. They're
really an ad agency because that's how they make money is selling ads. But
Google is also a media company. They bought YouTube, and they'd like to
move all media onto the web. Google is a high-speed networking company
providing high-speed wireless in San Francisco, and soon throughout the
world. And if you want to see an interesting video, go onto YouTube and just
type in my name. You'll see an hour conversation with me and Eric Schmidt
where he basically confirms that, yes, they're moving into all kinds of
businesses. I mean, what is telephony? Telephony is just an application on a
wireless network, right? Google is a retail company because they're selling
stuff. Once you're a retail company you need a payment system. So eBay has
PayPal; Google has GBuy. Once you have a payment system, you're a financial
services company. But they say, well, we're not a software company.
Somebody asked Eric, do you compete with Microsoft? And he said, I can't
answer that; I'm not Microsoft. Every week they release new web services
targeted at the heart of Microsoft. Google is now the fourth largest hardware
manufacturer in the United States, maker of servers. They have one customer -
- themselves. Football-field-size server farms that are eating up the power grid
of California. And forget about ISO 9000; these things are held together with
duct tape. You know, it doesn't work, you yank it out and stick another one in.
This is a new species of business. We've never seen anything like this before.
23

The Economics of Collaboration

Self-
Organization
Web 2.0

The
Net
Generation
Value
Creation
The Social
Revolution

The
Economic
Revolution

Industrial Age
Traditional
Corporation
Hierarchy

Knowledge
Physical
Critical Resources
Financial
24

Transcript:

So what's happening? Collaboration is beginning to change the architecture of
the corporation. Let me explain. Seventy years ago there was a Nobel-Prize-
winning economist. His name was Ronald Coase, C-O-A-S-E, and he asked a
deceptively simple question. He said, why does the firm exist? He said, if
Adam Smith is right and the open market is the best mechanism to determine
how goods and resources and materials are allocated in the economy, why isn't
everybody an independent contractor at every step along the way in
production? And he said, the answer is -- and he won a Nobel Prize for saying
this -- the answer is transaction costs. But when you look at how he defined it,
he was really talking about collaboration costs. The cost of coordination, he
said. The cost of search. This is 70 years ago. He said, the cost of search, of
finding all the right information out there in an open market, the right people,
the right materials, totally prohibitive. So we moved all this capability inside
the boundaries of a corporation. Henry Ford had, within the boundaries of the
Ford Motor Company, you know, a power plant and a steel mill and a shipping
company and glass factory. Why? Because the cost of collaboration in an open
market were way greater than the costs of doing things inside the boundaries of
a corporation.

24


Self-
Organization
Web 2.0

The
Net
Generation
Value
Creation
The Social
Revolution

Extended
The
Enterprise
Economic
Revolution

Industrial Age
Traditional
Corporation
Hierarchy

Knowledge
Physical
Critical Resources
Financial
25

Transcript:

Along comes information technology. And in Paradigm Shift, back in '92, I
said, well, just a second. I think the boundaries of this corporation are
becoming more porous because of IT. And back then I called it the extended
enterprise.

25


Self-
Organization
Web 2.0

The
Net
Generation
Business
Value
Webs
Creation
The Social
Revolution

Extended
The
Enterprise
Economic
Revolution

Industrial Age
Traditional
Corporation
Hierarchy

Knowledge
Physical
Critical Resources
Financial
26

Transcript:

Then we saw the first internet, and that further dropped collaboration costs. So
the vertically integrated companies continued to unbundle into focus
companies. So Cisco figured this out; its competitors didn't. Cisco was
successful because it had a better business model. My wife has a little SUV
from BMW; it's called an X3. It's not made by BMW. The final assembly of
the vehicle is done by a partner in the BMW business web called Magna.
BMW focuses on what it does best.

26


Mass
Self-
Organization Collaboration
Web 2.0

The
Net
Generation
Business
Value
Webs
Creation
The Social
Revolution

Extended
The
Enterprise
Economic
Revolution

Industrial Age
Traditional
Corporation
Hierarchy

Knowledge
Physical
Critical Resources
Financial
27

Transcript:

And now we're ready for the really big one because collaboration costs are
dropping so much because of the Web 2.0 that now peers outside the
boundaries of traditional corporations cannot only social network, they can
socially produce. So if you can create an encyclopedia with a bunch of people
that you've never met -- thousands of them -- and the quality is just as good as
Britannica, only it's ten times bigger, in dozens of languages, and it's real-time,
it's a superior thing, what else could you create? Could you create an operating
system? Well, it's called Linux. Could you create a mutual fund through peer
collaboration? It's called Marketocracy. Could you create a physical good like
a motorcycle? Well, you'll see in a sec that we can. So peers outside the
boundaries of corporations, or corporations acting as peers rather than as
participants in a traditional supply chain where -- They were hierarchies, right,
and there was always someone at the top. Or peers within the boundaries of a
hierarchy now collaborating across hierarchical structures in ways that were
previously really unthinkable.

27

The Enterprise 2.0 and the Rise of Mass Collaboration

Peering
1.
Web 2.0

Being Open
2.
The
Net
Generation
Sharing
3.
The Social
Acting Global
4.
Revolution

The
Economic
Revolution

28

Transcript:

So this is leading to four startling new principles about how to run a company.
Peering, being open, transparency is now a new force for growth. And you're
going to be naked anyway, and if you're going to be naked you'd better be buff
basically because value comes to the fore; it's evidenced like never before. So
if you are buff, if you're a good company with good products and services,
transparency is your friend. You open up the kimono. You kind of undress for
success, okay? Sorry. And with employees, customers, business partners,
shareholders. And in doing so, all our research shows you increase the
metabolism of your business model and you build a high-performance business
model and you build trust. Thirdly, sharing. Well, that sounds communist. It's
been called that. Sharing IP within the business web or even putting stuff in
the commons. Having a portfolio of IP, some that you own and some that you
don't own. Well, that sounds like a bad idea. And you can kind of understand
the criticism of this. Didn't Linux hurt Microsoft? Didn't MP3 hurt the record
labels? Didn't Wikipedia hurt Britannica? Well, what our research shows is
only if you have a very superficial and primitive approach. So IBM, one of the
sponsors of this event, rather than fighting Linux, embraced it, put hundreds of
millions of dollars into the Linux community. They saved themselves a billion
dollars a year in developing and maintaining a proprietary operating system.
And they've created a platform, Linux, upon which they've built a multibillion-
dollar business. And, oh yes, they got to sock it to Microsoft along the way. So
sharing is a new theme. It's not about being socialist; it's about killing your
competition. And finally, acting global. If you Google the expression Think 28
Global Act Local, you get millions of hits. If you Google the expression, Think
Global Act Global, you get a bunch of mistakes of people who didn't get the
expression right. It's kind of curious, isn't it? If we have a global economy,

Enterprise 2.0 – New Business Models

A 50 year old mining company peers,
opens, shares its proprietary data and
acts globally in a bid to transform itself
and explore the extent of a rich new
find.

29

-Transcript:

-Let me give you some examples, and we'll move on to the next section. There
is a gold mining company called GoldCorp. And a banker named Rob
McEwan took it over and became the CEO and the principle shareholder -- a
publicly traded company. I know this guy because he's my neighbor actually;
he lives across the street from me. And he was a frustrated CEO because his
geologist couldn't tell him where the gold was on his property. He kept giving
him money saying, go get more geological data. After years of being frustrated
he was ready to shut the company down. But he's a curious guy, and he went to
this meeting where he heard about this thing called the Linux operating
system. And he wondered, if my geologists don't know where the gold is,
maybe somebody else does. So he did a very radical thing. He took his
geological data, which is the biggest secret in the mining industry -- it's kept in
safes and high-security computer systems; it's your precious IP. He published
his geological data and held a contest on the internet called the GoldCorp
challenge -- half-a-million dollars in prize money for anybody who can tell
me, do I have any gold, and if so, where is it? He got 77 submissions from all
around the world. They used techniques that he'd never heard of, and he
selected the three winners. And for his half-a-million dollars in prize money,
he found $3.4-billion worth of gold. The market value of the company went
from $90-million to $10-billion. And I can tell you, because he's my neighbor,
he's a happy camper. What's going on here? He adopts these four principles,
right, of Wikinomics. He peered. He didn't say, oh, I need a better head of
geology and somebody who can kick butt because the uniquely qualiﬁed 29
minds are inside the boundaries of your corporation. Human capital is your
most precious resource. It goes out the elevator every night. You've got to
retain it like you retain ﬂuids or something like that. Well, no, no, no, he said,


WEB 2.0

THE THE
ECONOMIC NET
REVOLUTION GENERATION
THE
SOCIAL
REVOLUTION

30

Transcript:

So this is basically your perfect storm.

30

The Perfect Storm

31

Transcript:

What you're here talking about is your ﬁrst category-six business, you know,
hurricane or revolution, or something like that.

31


Peer Pioneers



Ideagoras


Prosumers


The New Alexandrians


Open Platforms


The Global Plant Floor


The Wiki Workplace


32

Transcript:

So let me close with some thoughts. Carlotta Perez, what are the new business
models? What does this new enterprise look like and how is it different from
the old model of a corporation? Well, here's seven that we talk about in
Wikinomics.

32


Peer Pioneers


33

Transcript:

The ﬁrst, the peer pioneers. So Linux is obviously one; this is Linus Torvalds
on the right there. And I asked him, if you can create an operating system this
way, what else can you create in software? And he says, well, Don, I'm a bad
predictor of the future, to which I chortled, yes, right, Linus. You just create
the future; you don't predict it. He says, no, no, I'll tell you why I say that. He
said, I thought no one would ever want to create an open source database
because, you know, databases are so boring. This would be the operating
system guide view of the world, you know, like the New Yorker view of the
world. But they're boring. He says, look at Open SQL. These are real growing
concerns now. There are 150,000 open source application projects currently
underway today. And if a quarter of them are for real, then this is a big deal.

33


1. Peer Pioneers

34

Transcript:

And so you've got companies like SpikeSource -- And we're going to hear
from Kim later, so I won't spend time on this. But my layperson view is that
like Red Hat was to Linux, SpikeSource is to these 150,000 open source
applications that are emerging, getting them ready for the market.

34


1. Peer Pioneers – Financial Services

Marketocracy.com Investment Management

35

Transcript:

Marketocracy, I mentioned that. The hundred best stock pickers on the
web decide who, what should go in the mutual fund that outperforms the
market.


What is it:
Marketocracy Data Services is a research company whose mission is to ﬁnd
the best investors in the world and then track, analyze, and evaluate their
trading activity. The company's afﬁliate, Marketocracy Capital Management,
is the investment advisor for the Marketocracy family of mutual funds and
uses the research generated by Marketocracy Data Services.
Achieving Higher Returns With Lower Risk: Many experts will tell you it isn't
possible to beat the market consistently, especially with lower risk. And the
historical performance of most investors, including professional portfolio
managers, supports their beliefs.
How have we done? The Marketocracy m100 Index is an aggregate of the top
100 portfolios at Marketocracy. The m100 Index has beaten the S&P 500
Index in 8 of the 11 quarters since inception, with a beta of 0.53 compared to
the S&P 500's beta of 1.00.
35
Implications:
The wisdom of crowds can be harnessed to make smarter decisions.


1. Peer Pioneers – Financial Services

Zopa.com
peer lending

36

Transcript:

Could you create a bank through peer collaboration? Well, you got some money, I need some
money, all we need is a trust syndication method. That's what the eBay feedback forum is. This
is a method for syndicating trust.


What is it?
Zopa is a website that allows peole to lend money to each other eBay style. From Zopa’s website:
All lending and borrowing happens in the Zopa markets.
The markets work just like, well, markets. Lenders put their wares on display; in this case, money
they are prepared to lend to other people for a certain length of time. And, just like any market,
different vendors may have different prices (otherwise known as interest rates). Some may pick
lower rates but only want to lend to borrowers who have a very high likelihood of paying it all back.
Others may pick higher rates but be prepared to be more ﬂexible, thereby taking a punt on borrowers
who might be slightly more likely to default.
Borrowers can then come and have a sniff about, see what the rates are and if they're good value
agree to borrow. Because Zopa cuts out the middleman, everyone gets a great deal.
Of course this would all be very complicated and risky if everyone traded one-on-one with each
other, so Zopa glues the whole thing together with its offer matching system. This divides the
lenders' offers up into small chunks and distributes them around potential borrowers - at least 50 in
36
fact. Each loan a borrower gets is made up of lots of bits of lenders' offers. No one gets to borrow
from the same person twice.
All lenders and borrowers enter into a legally binding contract with their respective borrowers and


2. Ideagoras

Creating an eBay for innovation
How do you create a vibrant marketplace where

you leverage other people's talents, ideas and
assets quickly and move on?
P&G’s Larry Huston: “Alliances and joint

ventures don't open up the spirit of capitalism
within the company. They're vestiges of the central
planning approach when instead you need free
market mechanisms.”

How InnoCentive works:

37

Transcript:

Secondly, you remember the Greek and Roman agora? We now have
something I call ideagoras. These are open markets for uniquely qualified
minds. So we're going to hear from Proctor and Gamble on the panel. P&G is
looking for a molecule that'll take red wine out of a shirt. So help me with the
math. They've got 9,000 chemists inside the boundaries of P&G. And there's a
million-five outside the boundaries of P&G that they can now get to because
they're organized into ideagoras, like the InnoCentive network that has
130,000 scientists. And sure enough, there's a retired chemist in Boston or a
grad student in Taipei that comes up with a molecule. P&G pays them through
the InnoCentive mechanism, say, $150,000 and you've got Tide To Go. It's a
fabulous product. Half of all of P&G's innovations will come from outside the
company by the end of this year. How do you get the internal R&D people to
want to find it outside? What about NIH, the not-invented-here syndrome?
Well, it's called aligning interest. People at P&G get comped based on
innovation, not on whether or not they found the innovation internally. Rather
than NIH, at P&G they call it the PFE, the PFE syndrome -- proudly found
elsewhere.


* Alan’s breakout session is on InnoCentive
37


2. Ideagoras

38

Transcript:

So these things are popping up like crazy all over the place. We're tracking
about 60 of them right now. Open markets for ideas, for innovations, uniquely
qualiﬁed minds.


Next step in the programmable web.

38


2. Ideagoras

39

Transcript:

Cambrian House, crowdsourced software -- the crowd comes up with an idea for
software. It's not true what Nicholas Carr says in the recent issue of the Strategy in
Business, that peering only works for something that's already well-developed. It can
work for coming up with breakthrough ideas and totally new innovations as in the case of
Cambrian House.


You Think It
Most aspiring entrepreneurs and armchair innovators have more ideas than resources. Why let
the fruits of your genius languish on the vine? They’re yours to grow. Put them in play.
Crowds Test It
But don’t buy that Mercedes just yet. Before we greenlight production, your freshly baked
ideas run the consumer gauntlet. Flourish or flounder? The market decides.
Crowds Build It
So the people have spoken, and they love your idea. With the help of the worldwide
development community, we turn it into reality. Contributors can take their pick of exciting
projects, and in return, they get a piece of the royalty pie.
We Sell It
Show time! YourIdea 1.0 hits the virtual shelves with all the marketing power of Cambrian
House behind it and with a little help from Chemeleon. Every contributor - including you - has
a vested interest in helping the product shine, because every contributor benefits from its
success
You Profit
When we say “every contributor benefits”, we don’t mean warm and fuzzy feelings. We mean
39
real money. When you collaborate with Cambrian House, you get Royalty Points. That means
as long as the product generates profit, so will you.


40

Transcript:

TopCoder, 120,000 programmers around the world that are available; it's an
open market for IT. If you need a little module that'll do something, rather than
developing it yourself, maybe it's out there in TopCoder and someone will sell
it to you.

40


3. Prosumers

41

Transcript:

Thirdly, what we call prosumers. How do you turn your customers into
producers? These are some shots of a lecture that I gave in Second Life. In the
top picture there, the tall, thin, young guy would be my avatar. I didn't have
time to develop an avatar. So I had this 18-year-old designer and I said to her,
make me really old, somebody who's been there and done that, and I don't
want to look like a hippy; put me in a suit. So I'm about to give the lecture and
she says, here's your avatar. And I said, what's with that? I wanted a really old
guy, and she said, yes. I guess when you're 18, 30 is like really old or
something. But anyway this is a virtual book signing that's going on at the top
there in a virtual cocktail party. This is a kind of whacky world. The reason I
raise all this is not because of that. Here's a company called Linden Labs
where 99 percent of its product is built by its consumers. I became a prosumer
when I had that avatar designed. How do you turn your customers into
producers?


* Alan’s breakout session is on InnoCentive

41


3. Prosumers – Case: “Music Industry–The Remix”

42

Transcript:

Well, the music industry is the poster child on how to do this badly. So, you
know, somebody takes the Beatles' White Album and Jay-Z's Black Album
and does a remix, creates the Gray Album. Sales of the White Album go up,
sales of the Black Album go up, and he gets sued by the labels. The industry
that brought you the Beatles is suing children and hated by their own
customers. I mean, this is like awful. So if you want to know how to do this
wrong, just look at the music industry.

42


3. Prosumers – Help Us Write the Final Chapter!

43

Transcript:

The final chapter of Wikinomics, by the way, is a Wiki. And this is done under
a creative commons license, so I can't exploit it commercially. It's called the
Definitive Guide to the 21st Century Enterprise, for the Enterprise 2.0. So my
publisher came to me a couple of weeks ago and said, hey ,Don, Wikinomics
is going really great. We'd like to do a new book version for Christmas. Let's
take all the best ideas from the Wiki and we'll put them into a final chapter of
the book. And I said, well, I can't do that; I don't own it. It's done under a
creative commons license. And they said to me, well, why would you do such
a thing? And I said, hey, you're my publisher; you should read the book. You
know, like I figure if I create the definitive guide to the 21st century
corporation, that's going to help my company somehow. I don't know how, but
in my business I don't fear theft of my IP; I fear obscurity.

43


3. Prosumers – Physical Goods

Peer Produced T-Shirts

44

Transcript:

So this is now being done for physical goods like clothing and T-shirts.

44


4. The New Alexandrians: The Sharing of Science

SNP Consortium: APBiotech, AstraZeneca Group
PLC, Aventis, Bayer Group AG, Bristol-Myers Squibb
Co., F. Hoffmann-La Roche, Glaxo SmithKline,
Wellcome Trust, IBM, Motorola, Novartis AG, Pfizer
Inc., and Searle

45

•Transcript:

•Number four, the sharing of science. This is unbelievable
what's going on. The big, big one that got it going was the
sharing of the human genome. Imagine if the biotech
companies had tried to own a chunk of the genome. They
said, no, we'll put it in the commons and a rising tide will lift
all boats. There are thousands of these mass collaborations
underway today all around the world in the area of science.

•Author’s Original Notes:

•New collaborative platforms are making it possible to
engage very broad communities of public and private entities
in large-scale collaborative research and development efforts
•Success of open source software has encouraged a growing
number “innovation communities” to adopt an
open/distributed model 45

•More resources can be applied to solve problems


4. The New Alexandrians: Nature’s Google Earth Avian Flu Mashup

Source: Howard Ratner, CTO, Nature Publishing Group

46

Transcript:

Google's Earth avian ﬂu mashup.

46


4. The New Alexandrians: Nature’s Google Earth Avian Flu Mashup

Source: Howard
Ratner, CTO, Nature
Publishing Group

47

Transcript:

So a nurse in Hong Kong discovers the avian ﬂu and the local authorities are
trying to keep it a secret and she puts it on the mashup, and scientists are now
tracking what's going on. This is very exciting.

47


5. Open Platforms – Amazon API
< Ship merchandise (including that sold by associates) Provide C ustomer Service < Pay listing fee and commission to list goods on Amazon

Provide hosting and
Browse Amazon and Purchase merchandise > transaction services >
< List merchandise, provide a range of products
Direct Traffic and Possible Sales to Amazon >
Customers Amazon.com
< Pay commission on traffic Provide Data
resulting in sales From sales >
Facilitates listing and
payments for sellers >
Marketplace
Associates
Surf Websites follow
links to Amazon.com >
Browse Amazon products
Via websites and other
online media >
Host shopping experience and direct sales to Amazon.com for processing >
Retailers
Historical
< Receive commission on sales via associate accounts

Pricing

Free Access to Amazon data and capability via API >
E-Commerce
Services < Time, Knowledge, Innovation,
Promote and Sell Amazon < Pay fee for access to information
merchandise

Provide Pricing and Sales Data >
Pay Developers for posting acceptable
Pay for Queries >
Developers/
answers >

Entrepreneurs
< Developers pay to have questions < Access to A9.com search index
answered
Legend:
Green – Web Services
Provide platform for questions
Light Blue – Groups
to be outsourced >,>
Pay for storage & data transfer > Dark Blue – Other services
Alexa Services
< Provide answers to questions
< Provide online data storage (Top Sties, WIS NOTE: Missing connector
and WSP) from Associates to
Developers. Should read
Mechanical
“Pay developer
S3
Turk commissions fro sales
(Simple Storage
generated through ECS ”
Service)

48

Transcript:

Number ﬁve, open platforms. All the world's a stage and you get to participate.
Do you know that the Amazon cloud has 200,000 programmers that don't work
for Amazon that are creating value on the Amazon platform? This is now a
third of Amazon's revenue. And if you're a little mom-and-pop company or a
big enterprise like Target, as my daughter calls them, you can use Amazon for
marketing, distribution, inventory, e-commerce, payment systems, and so on.
This is a huge change in how capability gets organized.


Brendan’s Paper

48


5. Open Platforms – Pikspot

49

Transcript:

This is a company called Pikspot that I'm using. Think of YouTube, Digg, and
MySpace combined together for instantly creating rich media communities. An
open platform -- you can create a community that uses video in three minutes.


Brendan’s Paper

49


6. The Global Plant Floor

The Peer Produced Airplane
In the past, Boeing wrote

detailed specifications for each
part and asked suppliers to build
to plan
Today, suppliers co-design

airplanes from scratch and
deliver complete sub-assemblies
to Boeing’s factory, where a
single plane can be snapped
together like Lego blocks, in as
little as 3 days

50

Transcript:

The global plant ﬂoor. The hardest product that I can think of to make would
be a new-generation jumbo jet. Boeing says, we've got to mass collaborate this
thing; we can't do it the old way. The old way was you'd create a spec of
30,000 pages. You put it out to your supply chain, hierarchical, right, and they
bid on it and then you beat them up and then you assemble the aircraft. Boeing
says, no, things are too complicated and you are not suppliers; you are our
peers. You make important parts of the aircraft like the engine and the fuselage
and the electronics and the interiors and the entertainment systems. They
create this mind-boggling global ecosystem. This plane is so fabulous, the
back orders are so strong, and Air Bus, the competitor, may never come to
market. It's not that mass collaboration is a better way of building the hardest
thing I can think of to make; it may be the only way,

50


6. The Global Plant Floor – Chinese Motorcycle Industry

51

Transcript:

and get ready for where this is going. The Chinese motorcycle industry is
essentially an open source motorcycle -- hundreds of little companies that
cooperate together and they meet on the web and in teahouses to put all this
stuff together. There's no OEM; there's no Harley or Yamaha pulling all the
strings. It's a pure peer play. This is now the largest motorcycle industry in the
world, and get ready for the $1,500 open source car coming from China, too.

51


7. The Wiki Workplace

52

Transcript:

The final theme is what we call the Wiki workplace. This is the use of Wikis,
blogs, collaborative filtering, social networking, RSS feeds, jams, and so on,
within corporations. So the head of Sales and Marketing for Cisco at a briefing
came up to me and said, could we Wiki our sales playbook? He says, why do
we have a bunch of bureaucrats in head office developing a sales manual when
the people that know how to sell are the ones actually interacting with
customers? It's a good application. You'll get it faster, the time to value's
faster, you'll get a better sales manual, and you'll get compliance because
they'll follow it. The Geeks, 14,000 Geeks at Best Buy use Wikis and
collaborative tools to actually design Geek Squad-labeled products, and
they've been very successful in doing that.

52


7. The Wiki Workplace

53

Transcript:

And I think a couple of the companies up here are participating in this thing
from Intel called Suite Two, which is a collection of the state-of-the-art tools
for the Wiki workplace.

53


Peer Pioneers



Ideagoras


Prosumers


The New Alexandrians


Open Platforms


The Global Plant Floor


The Wiki Workplace


54

Transcript:

So seven new models. We're starting to see how this new enterprise is
changing, what its contours are going to look like.

54

Crisis of Leadership

Paradigm shifts involve dislocation, conflict, confusion,
uncertainty.

New paradigms are nearly always received with coolness, even
mockery or hostility.

Those with vested interests fight the change.

The shift demands such a different view of things that
established leaders are often last to be won over, if at all.
Marilyn Ferguson

55

Transcript:

My final thought for you is that this is a paradigm shift, if I may use that term.
And paradigm shifts cause dislocation, conflict. They're nearly always received
with coolness. Or worse, vested interests fight against change, and leaders of
old paradigms have great difficulty embracing the new. How is your company
going to find leadership for change? Well, I'm guessing that you self-selected
to come to this conference because you want to participate in this historic
transformation that's underway. And the good news is leadership can come
from anywhere in a company. I've studied thousands of companies; this is a
statistical fact. Sure, it's helpful if the CEO is involved, you know, if AG
Lafley at P&G is driving this stuff. But it can also come from anywhere else.
We documented a story of a secretary who is a key person in the
transformation of a division of Citibank, and she had what it took to be a
leader. She willed it. So leadership is each of our personal opportunity if we
will it.

55

56

Transcript:

A French pilot by the name of Saint-Exupery, he was also a philosopher. He
says, we should welcome the future for soon it will be the past, but we should
respect the past for it was once all that was humanly possible. We created this
old vertically integrated, closed, insular, opaque model of the corporation, and
it was pretty good and it did what was possible. But it's now possible to go
forward. And Victor Hugo's right. Nothing's so powerful as an idea whose time
has come. The time has come for the new web, for a new generation for whom
this new medium of human communications is their birthright. The time has
come for a new model of the enterprise and for profound changes in how we
innovate, how we create goods and services, and how we, as companies,
engage with the rest of the world. And hopefully the time has come for each of
you to ﬁnd that leader within you to change your company and, in doing so, to
change the world. Thank you.

56

Winning With Mass Collaboration in the Enterprise 2.0

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