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

“ 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" and "a capability given by the practical application of knowledge”.

Diffusion of Innovations Source: IBM GIO 1.0

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

From Patterns to Predictions Video Clip (Kurzweil, Anderson)

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

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

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,

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

Shrinking Paradigmatic Eras

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

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

From Factory to Corporation to ?

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

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

The Changing Role of the Organization

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

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

Welcome to the Metaverse and MMORPGs

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

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

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

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

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

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

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

Large Enterprise perspective on 3Di

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

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

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)

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

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

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

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)

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

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

A Possible Pervasive Future

The Value is in the Network

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.

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

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

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

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

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

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)

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

Individual Example

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

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)

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?

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.

Leader Behaviors Analyzed

Corporate and MMORPG Relevance

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

Thank You !