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The Transformational Role of Emergent Internet Technologies on Business Innovation and Industry Structure Dr. Tony O’Driscoll Fuqua School of Business Duke University

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Tony’s Brief Bio <ul><li>18 Years of industry experience in Telecom and High-Tech Industries: HW, SW, Services, Research, Learning </li></ul><ul><li>Founding member of IBM’s Strategy and Change Consulting Practice </li></ul><ul><li>Professor of the Practice at Duke’s Fuqua School of Business </li></ul><ul><li>Teach in the areas of Strategic Management, Management of Innovation and Technology, Management Consulting and Services Management. </li></ul><ul><li>Research focuses on impact of technology on business strategy and operational efficiency </li></ul><ul><li>Consult with clients around the world on how to leverage technology to drive sustainable competitive advantage. </li></ul>

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Topics We Will Explore <ul><li>Technology </li></ul><ul><ul><li>Definition, Diffusion, Adoption & Division </li></ul></ul><ul><ul><li>Progression, Compression & Disruption </li></ul></ul><ul><ul><li>Webvolution, Pervasion and Co-Creation </li></ul></ul><ul><ul><li>Transformation & Distribution </li></ul></ul>

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“ Official” Definitions Technology is a broad concept that deals with the usage and knowledge of tools and crafts , and how it affects the ability to control and adapt to the environment . In human society, it is a consequence of science and engineering , although several technological advances predate the two concepts. The practical application of knowledge especially in a particular area&quot; and &quot;a capability given by the practical application of knowledge”.

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Diffusion of Innovations Source: IBM GIO 1.0

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Introducing the S-Curve Some patterns have been consistently identified in technology trajectories across many industry contexts and over many periods. Schilling Adoption Performance

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From Patterns to Predictions Video Clip (Kurzweil, Anderson)

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Technology Diffusion Meets Innovation Sources: Global Innovation Outlook 2.0, 2006 It is useful to think of different types of innovation being privileged at different points in a market’s life. Moore

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A Digital Divide of a Different Kind Explosion of information Hyperinflation of time Accelerated pace of change Constancy in human cognitive ability Digital Divide

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Topics We Will Explore <ul><li>Technology </li></ul><ul><ul><li>Definition, Diffusion, Adoption & Division </li></ul></ul><ul><ul><li>Progression, Compression & Disruption </li></ul></ul><ul><ul><li>Webvolution, Pervasion and Co-Creation </li></ul></ul><ul><ul><li>Transformation & Distribution </li></ul></ul>

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The Technology Cycle: From Discontinuity to Dominant Design The dominant design establishes a stable architecture for the technology and enables firms to focus their efforts on process innovations. Schilling A technological discontinuity is generally followed by a single standard and sales always peek after a dominant design emerges. Anderson and Tushman,

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Historical Boom, Bust, Adjust Patterns Irruption Innovation The Industrial Revolution Age of Steam and Railways Age of Steel, Electricity and Heavy Engineering Age of Oil, Automobiles and Mass Production Age of Information and Telecommunications Frenzy Synergy Deployment Maturity Panic 1797 Depression 1893 Crash 1929 Dot.com Collapse <ul><li>Formation of Mfg. industry </li></ul><ul><li>Repeal of Corn Laws opening trade </li></ul><ul><li>Joint stock companies </li></ul><ul><li>Industry exploits economies of scale </li></ul>Current period of Institutional Adjustment <ul><li>Separation of savings, investment banks </li></ul><ul><li>FDIC, SEC </li></ul><ul><li>Build-out of Interstate highways </li></ul><ul><li>IMF, World Bank, BIS </li></ul>1 2 3 4 5 Source: Perez Panic 1847 1771 1829 1875 1908 1971 1873 1920 1974 1829 Crash

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Economy/Technology Co-Evolution Infrastructure Business Technology Primary Asset Main Output Organization ? ? Agrarian Age (??-1760) Local Market Family Farm The Plow Land Food Products Family Structure Industrial Age (1760-1960) Steel, Railroads The Factory The Machine Capital Equipment Mechanical Products Bureaucracy Information Age (1960-2020) Computers, Internet The Corporation The Transistor Intellectual Capital Knowledge Products

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Shrinking Paradigmatic Eras

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Welcome to the Molecular Economy Video Clip (Kurzweil and Venter) As the information economy matures, a new economic life cycle – the molecular economy – is reaching puberty. The two primary drivers are our understanding of the molecules that control chemical and biological functions and the super-minitaurization of manufacturing . Meyer and Davis

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Compression and the Structural Divide America’s business problem is that it is entering the twenty-first century with companies designed during the nineteenth century to work well in the twentieth. Hammer

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From Factory to Corporation to ?

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Revisiting the S-Curve A basic progression governs the evolution of management in all market economies: Fundamental properties of the universe are transformed into scientific understanding, then developed into new technologies which are applied to create products and services for business , which ultimately define our models of organization . Meyer and Davis Economic Value Add Time Science Technology Business Organization

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Four Phases across Four Economies Time Compression Between Ages Accelerated disruption of existing business/structure Agrarian Economy Industrial Economy Information Economy Molecular Economy Science Laws of Nature Newton’s Physics Quantum Physics Mollecular Science NanoScience Technology Seed/Feed Plow Steam Electricity Chips Software WWW Genomics Nanotechnology Business Family Farm Factory Corporation TBD Organization Family Structure Bureaucracy TBD TBD

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The Changing Role of the Organization

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Topics We Will Explore <ul><li>Technology </li></ul><ul><ul><li>Definition, Diffusion, Adoption & Division </li></ul></ul><ul><ul><li>Progression, Compression & Disruption </li></ul></ul><ul><ul><li>Webvolution, Pervasion and Co-Creation </li></ul></ul><ul><ul><li>Transformation & Distribution </li></ul></ul>

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Webvolution 3Di Web 2.0 Web 1.0 Access Participate Value Proposition Poster Children Find Share Collaborate Co-Create

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Web 2.0: Description and Application Web 2.0 is a set of economic, social and technology trends that collectively form the basis for the next generation of the internet – a more mature, distinctive medium characterized by user participation, openness, and network effects O’Reilly

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Welcome to the Metaverse and MMORPGs

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Describing MMORPGs Most MMORPGs offer players pre-fabricated or themed fantasy world The Economist

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MMORPG Economics EverQuest <ul><ul><li>EverQuest’s GDP made the virtual currency of Norrath the 77th largest country in the world – somewhere between Bulgaria and Russia </li></ul></ul>World of WarCraft <ul><ul><li>8 Million WarCrafters </li></ul></ul><ul><ul><li>Average = 20 Hours/Week </li></ul></ul><ul><ul><li>Total WoW hours= 160Million </li></ul></ul><ul><ul><li>It would take IBM’s entire workforce 12 weeks to match one week of WoW activity </li></ul></ul>

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MMORPG Statistics and Diffusion <ul><li>73 million online gamers worldwide </li></ul><ul><ul><li>38% (27 million) are hard core users </li></ul></ul><ul><ul><li>10 million in the US </li></ul></ul><ul><ul><li>Asia has highest subscription rates to games </li></ul></ul><ul><li>Average Online Gamer Profile </li></ul><ul><ul><li>27 years old (Range is 11-68) </li></ul></ul><ul><ul><li>Only 25 % are teen-agers </li></ul></ul><ul><ul><li>50% work full time </li></ul></ul><ul><ul><li>20 Hours per week playing online </li></ul></ul>Already five out of every ten Americans – about 145 million consumers and employees – play video games . Beck and Wade

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Games and Gamers as they Relate to Business Our research shows that this new generation is very different from the boomers in ways that matter to the business. Beck and Wade <ul><li>They desire systematically different goals in life </li></ul><ul><li>They have systematically different ways of working </li></ul><ul><li>How they compete, fit into teams, take risks are all different in statistically verifiable ways </li></ul><ul><li>They choose systematically different ways to learn </li></ul>Sources: Beck and Wade, Got Game, 2005

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3Di: Defining Virtual Worlds Sources: Business Week April 2006, The Economist. Living a Second Life, Sept. 28, 2006 Second Life is some unholy offspring of the movie The Matrix , the social networking site MySpace and the online marketplace eBay Business Week

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Second Life Statistics Source: Joe Miller. Linden Lab All Data: (Industry, Job Level, Company Size, # Learners Impacted) <ul><li>16 Million Members </li></ul><ul><li>1.1 Million Active Residents </li></ul><ul><li>350,000 Hours of Use Per Day </li></ul><ul><li>87,500 Hours Development Time/Day </li></ul><ul><li>$1.6 B worth of Free Work per Year </li></ul><ul><li>200+ Virtual Square Miles (6X Boston) </li></ul><ul><li>520,000 Unique Items traded/Month </li></ul>

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Virtual World Economics Source: Joe Miller. Linden Lab Clearly of social activity migrates to synthetic worlds, economic activity will go there as well. The volume of annual trade in synthetic worlds already exceeds $2B Castranova

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Aidan and Liam: Tomorrow’s Virtual World Workers? I confidently predict my children (4 and 6) will end up working in one of these worlds . Hunter

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VSWs and MMORPGs: Kin But Not Twins ! Sources: The Economist. Living a Second Life, Sept. 28, 2006; Nick Yee, Demographics of MMPRPGs Unbounded Space Social Interaction Communities User Created Content Business VSW MMORPG Avatar-Mediated Persistent World Reputation Immersive Interactive Real-Time Communication Virtual Economy Assets Bound by a Narrative Defined Roles NPCs Rules Tokens Ranks and Levels

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Synthetic World Sensibilities The Sense of Self The Death of Distance The Power of Presence The Sense of Space The Capability to Co-Create The Pervasiveness of Practice The Enrichment of Experience

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Virtual World Business Applications Virtual worlds could transform the way businesses operate by providing a new template for getting work done , from training and collaboration to product design and marketing Business Week

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Large Enterprise perspective on 3Di

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Application Focus on Learning, Simulation and Collaboration Source: Cutter Benchmark Review 2007

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Analyst Advice By the end of 2011, 80 percent of active Internet users (and Fortune 500 enterprises) will have a “second life”, but not necessarily in Second Life, according to Gartner, Inc. Gartner’s advice to enterprise clients is that this is a trend that they should investigate and experiment with , but limit substantial financial investments until the environments stabilize and mature. Steve Prentice Gartner Source: Virtual Worlds: Real Opportunities. Gartner IT Symposium, April 22, 2007

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Emergence of New Economic Platforms Reputation Platform (Sales) 3Di Web 2.0 Web 1.0 Access Participate Value Proposition Poster Children Platforms Find Access Platform (Transaction Fees) Search Platform (Advertising Fees) Commerce Platform (Sales) Participation Platform (Membership Fees) Referral Platform (Referral Fees) Alternate Currency Platform (Exchange Fees) Share Collaborate Co-Create Creation Platform (In-World Sales)

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Web 2.0 Value Creation Platforms In 2005, eBay conducted 8 billion API-based web services transactions . O’Reilly

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Wikinomics and Prosumption Leaders must think differently about how to compete and be profitable , and embrace and new art and science of collaboration we call Wikinomics . Tapscott

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Collaborative Value Co-Creation Billions of connected individuals can now actively participate in innovation, wealth creation, and social development in ways we once only dreamed of. Tapscott

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The “Always On” Pervasive Web There are more transistors produced per year than grains of rice and each rice grain can buy hundreds of transistors . Goodall (2002)

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From Physical Product to Information Services In the United States in 2003, services represented 81% of the GDP not including services provided by manufacturing companies

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Service Definitions <ul><li>All economic activities whose output is not a physical product , is generally consumed at the time it is produced and provides added value in forms that address intangible concerns of the client </li></ul><ul><li>Services are DEEDS, PROCESSES and PERFORMANCES . </li></ul><ul><li>An activity or series of activities of primarily intangible nature that take place in interactions between customer and service provider. </li></ul><ul><li>A service is a time-perishable, intangible experience performed for a customer acting in the role of co producer. </li></ul>

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Blurring the Lines Between Service and Product Anytime ATM Machines Real Time Intelligent Vending Machines Online PCS health Systems Interactive Sunbeam’s “Blanket with a Brain” Anyplace GM Onstar Service Learning Pandora Anticipating Amazon.Com Filtering Google Reader Customizing Levi’s Upgrading Software Intangibles Source: Blur The difference between products and services blurs to the point that the distinction is a trap. Winners in the Information Age will provide an offer that is both product and service simultaneously. Davis and Meyer Speed Connectivity O F F E R

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A Possible Pervasive Future

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The Value is in the Network

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Complimentarity enhances Value In industries characterized by network externalities , the value of a technological innovation to users will be a function not only of its stand-alone benefits and cost, but also the size of the installed base and the availability of complementary goods Schilling.

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The Power of Network Externalities Network externalities occur when the benefit of a good increases with the number of other users of the same good. Schilling Network Externality advantages enabled Windows to lock several would-be contenders such as Geoworks and NeXT out of the market. Schillling

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The Value Network: Value Co-Creation in Action In the 1980’s industry value-chain analysis helped identify what marginal value the company provided within the industry … .. while today companies must also analyze the their “value net work” to gain a more holistic understanding of how they can collaborate to creat e and capture value in a networked economy. Source: Naelbuff

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Complementors add value to what you offer Suppliers Customers Competitors / Substitutes Complementors Highway Commission

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Competitors make whatever you offer seem less valuable Suppliers Customers Competitors / Substitutes Complementors Highway Commission Public Transportation

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Practical Application Exercise Web services such as Carpoint have increased the transparency of information regarding invoice prices for automobiles… Consequently, automobile manufacturers such as Ford no longer enjoy the ability to increase revenues on unreasonable mark-ups… Furthermore, many automobile manufacturers have recognized that they stand to generate more revenues through automobile financing rather than through automobile sales…. The challenge for Ford and the other big three automobile manufacturers is to continue to focus on reducing costs , while finding a way to increase their range and reach and migrating towards a service based business model. The Situation: Circa Early 2000

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Topics We Will Explore <ul><li>Technology </li></ul><ul><ul><li>Definition, Diffusion, Adoption & Division </li></ul></ul><ul><ul><li>Progression, Compression & Disruption </li></ul></ul><ul><ul><li>Webvolution, Pervasion and Co-Creation </li></ul></ul><ul><ul><li>Transformation & Distribution </li></ul></ul>

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Ecosystem based Value Co-Creation McKenna This is more than open source, social networking, crowdsourcing, smart mobs, or the wisdom of crowds. We are talking about deep changes in the structure and modus operandi of the corporation and our economy based on new competitive principles such as openness, peering, sharing and acting globally Tapscott Video Clip (Leadbeater Platforms and Rheingold)

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The Future of Enterprise? <ul><li>Soon it may be time to redefine what we in the business world think of as “the enterprise.” Further, notions of “employer” and “employee” might become more and more antiquated as looser aggregations of collaborators form and disband on an opportunity-by opportunity basis. The future might consist of a billion one-person “enterprises” people who move frequently from project to project as their skills and focus shift. </li></ul>Sources: Global Innovation Outlook 2.0, 2006

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The Era of Entrepreneurial Capitalism 3Di Web 2.0 Web 1.0 Access Participate Value Proposition Poster Children Find Share Collaborate Co-Create Entrepreneurial Capitalism Enterprise Endeavor Employee Entrepreneur Control Resources Orchestrate Value Transfer Provide Products and Services Provide Value Transfer Platforms

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Individual Example

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Enterprise Examples In such a collaborative, contribution based environment , the role of the traditional enterprise would shift to orchestration and facilitation of the endeavors between these individuals or groups IBM GIO 2.0

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Distributing and Gamifying Work All this has some companies mulling a wild idea: Why not use gaming’s psychology, incentive systems and social appeal to get real jobs done better and faster. Business Week Video Clip (Crater Recognition)

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Leading in the Services Ecosystem Source: GIO 2.0, p. 21, 22 RESEARCH QUESTION: As business becomes increasingly distributed and virtual in nature, what kinds of leaders will emerge and what attributes will they have?

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Research Approach 50 Hours of video capture in 5 different titles (11 Vignettes) 10 One-Hour Interviews with prominent Guild Leaders 173 Online Surveys covering Leadership in Guilds Sloan Model Visioning Inventing Sense- making Relating Framework Analysis Report Source: Seriosity Report, p. 3. RESEARCH GOAL: The goal of the games and leadership project was simple – armed with a representative model of leadership, examine individual and group behavior in complex multiplayer games to determine what aspects of a traditional model, if any, should be reconsidered.

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Leader Behaviors Analyzed

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Corporate and MMORPG Relevance

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<ul><li>of survey respondents believe that MMORPG leadership approaches can be used to improve leadership effectiveness within the enterprise </li></ul><ul><li>of survey respondents state that game-playing has improved their real-world leadership capabilities </li></ul><ul><li>of respondents believe that the environmental factors within MMORPGs can be applied to enhance leadership effectiveness for the globally integrated enterprise </li></ul>39% 49% 75% Research Findings “ The trick for today’s business leadership is to get away from thinking about traditional work and incentive models -- i.e. What has been done -- and get thinking about MMORPG parallels” Survey Respondent

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Lets do the Web 2.0 Thing wadatripp.wordpress.com [email_address]

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Thank You !