New Rules for the New Economy: 10 Radical Strategies for a Connected World


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An Old Story

How long can you hold out not having a phone? In epidemiology, the point at which a disease has infected enough hosts that the infection moves from local illness to raging epidemic can be thought of as the tipping point.

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The contagion's momentum has tipped from pushing uphill against all odds to rolling downhill with all odds behind it. In biology, the tipping points of fatal diseases are fairly high, but in technology, they seem to trigger at much lower percentages of victims or members. There has always been a tipping point in any business, industrial or network, after which success feeds upon itself.

However, the low fixed costs, insignificant marginal costs, and rapid distribution that we find in the Network Economy depress tipping points below the levels of industrial times; it is as if the new bugs are more contagious - and more potent. Smaller initial pools can lead to runaway dominance. Lower tipping points, in turn, mean that the threshold of significance - the period before the tipping point during which a movement, growth, or innovation must be taken seriously - is also dramatically lower than it was during the industrial age. Detecting events while they are beneath this threshold is essential.

Major US retailers refused to pay attention to TV home-shopping networks during the s because the number of people watching and buying from them was initially so small and marginalized that it did not meet the established level of retail significance. Instead of heeding the new subtle threshold of network economics, the retailers waited until the alarm of the tipping point sounded, which meant, by definition, that it was too late for them to cash in. In the past, an innovation's momentum indicated significance. Now, in the network environment, significance precedes momentum.

New Rules for the New Economy by Kevin Kelly - Read Online

Biologists tell a parable of the lily leaf, which doubles in size every day. The day before it completely covers the pond, the water is only half covered, and the day before that, only a quarter covered, and the day before that, only a measly eighth. So, while the lily grows imperceptibly all summer long, only in the last week of the cycle would most bystanders notice its "sudden" appearance. But by then, it is far past the tipping point. The Network Economy is a lily pond. The Web, as one example, is a leaf doubling in size every six months. MUDs and MOOs, Teledesic phones, wireless data ports, collaborative bots, and remote solid state sensors are also leaves in the network lily pond.

Right now, they are just itsy-bitsy lily cells merrily festering at the beginning of a hot network summer. The prime law of networking is known as the law of increasing returns. Value explodes with membership, and the value explosion sucks in more members, compounding the result.

An old saying puts it more succinctly: Them that's got shall get. We see this effect in the way areas such as Silicon Valley grow; each new successful start-up attracts other start-ups, which in turn attract more capital and skills and yet more start-ups. Silicon Valley and other high tech industrial regions are themselves tightly coupled networks of talent, resources, and opportunities. The law of increasing returns is far more than the textbook notion of economies of scale. In the old rules, Henry Ford leveraged his success in selling cars to devise more efficient methods of production. This enabled Ford to sell his cars more cheaply, which created larger sales, which fueled more innovation and even better production methods, sending his company to the top.

While the law of increasing returns and the economies of scale both rely on positive feedback loops, the former is propelled by the amazing potency of net power, and the latter isn't. First, industrial economies of scale increase value linearly, while the prime law increases value exponentially - the difference between a piggy bank and compounded interest. Second, and more important, industrial economies of scale stem from the herculean efforts of a single organization to outpace the competition by creating value for less.

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The expertise and advantage developed by the leading company is its alone. By contrast, networked increasing returns are created and shared by the entire network.

Many agents, users, and competitors together create the network's value. Although the gains of increasing returns may be reaped unequally by one organization over another, the value of the gains resides in the greater web of relationships. Huge amounts of cash may pour toward network winners such as Cisco or Oracle or Microsoft, but the supersaturated matrix of increasing returns woven through their companies would continue to expand into the net even if those particular companies should disappear. Likewise, the increasing returns we see in Silicon Valley are not dependent on any particular company's success.

Their loyalty is more to advancing technology or to the region than it is to any individual firm.

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New rules for the new economy : 10 radical strategies for a connected world

One can take this trend further. We are headed into an era when both workers and consumers will feel more loyalty to a network than to any ordinary firm. The great innovation of Silicon Valley is not the wowie-zowie hardware and software it has invented, but the social organization of its companies and, most important, the networked architecture of the region itself - the tangled web of former jobs, intimate colleagues, information leakage from one firm to the next, rapid company life cycles, and agile email culture.

This social web, suffused into the warm hardware of jelly bean chips and copper neurons, creates a true Network Economy. The nature of the law of increasing returns favors the early. The initial parameters and conventions that give a network its very power quickly freeze into unalterable standards. The solidifying standards of a network are both its blessing and its curse - a blessing because from the de facto collective agreement flows the unleashed power of increasing returns, and a curse because those who own or control the standard are disproportionately rewarded.

But the Network Economy doesn't allow one without the other. Microsoft's billions are tolerated because so many others in the Network Economy have made their collective billions on the advantages of Microsoft's increasing-returns standards. In a Network Economy, life is tricky for consumers, who must decide which early protocol to support. Withdrawing later from the wrong network of relationships is painful - but not as painful as companies who bet their whole lives on the wrong one.

Nonetheless, guessing wrong about conventions is still better than ignoring network dynamics altogether. There is no future for hermetically sealed closed systems in the Network Economy. The more dimensions accessible to member input and creation, the more increasing returns can animate the network, the more the system will feed on itself and prosper.

The less it allows these, the more it will be bypassed. The Network Economy rewards schemes that allow decentralized creation and punishes those that don't. An automobile maker in the industrial age maintains control over all aspects of the car's parts and construction. An automobile maker in the Network Economy will establish a web of standards and outsourced suppliers, encouraging the web itself to invent the car, seeding the system with knowledge it gives away, engaging as many participants as broadly as possible, in order to create a virtuous loop where every member's success is shared and leveraged by all.

One curious aspect of the Network Economy would astound a citizen living in The very best gets cheaper each year. This rule of thumb is so ingrained in our contemporary lifestyle that we bank on it without marveling at it. But marvel we should, because this paradox is a major engine of the new economy.

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Through most of the industrial age, consumers experienced slight improvements in quality for slight increases in price. But the arrival of the microprocessor flipped the price equation. In the information age, consumers quickly came to count on drastically superior quality for less price over time. The price and quality curves diverge so dramatically that it sometimes seems as if the better something is, the cheaper it will cost.

Engineers used the supreme virtues of computers to directly and indirectly create the next improved version of computers. By compounding our learning in this fashion, we got more out of less material. So potent is compounding chip power that everything it touches - cars, clothes, food - falls under its spell. Indirectly amplified learning by shrinking chips enabled just-in-time production systems and the outsourcing of very high tech manufacturing to low-wage labor - both of which lowered the prices of goods still further.

Today, shrinking chip meets exploding net. Just as we leveraged compounded learning in creating the microprocessor, we are leveraging the same multiplying loops in creating the global communications web. We use the supreme virtues of networked communications to directly and indirectly create better versions of networked communications. Almost from their birth in , microprocessors have lived in the realm of inverted pricing.

New Rules for the New Economy: 10 Radical Strategies for a Connected World New Rules for the New Economy: 10 Radical Strategies for a Connected World
New Rules for the New Economy: 10 Radical Strategies for a Connected World New Rules for the New Economy: 10 Radical Strategies for a Connected World
New Rules for the New Economy: 10 Radical Strategies for a Connected World New Rules for the New Economy: 10 Radical Strategies for a Connected World
New Rules for the New Economy: 10 Radical Strategies for a Connected World New Rules for the New Economy: 10 Radical Strategies for a Connected World
New Rules for the New Economy: 10 Radical Strategies for a Connected World New Rules for the New Economy: 10 Radical Strategies for a Connected World
New Rules for the New Economy: 10 Radical Strategies for a Connected World New Rules for the New Economy: 10 Radical Strategies for a Connected World
New Rules for the New Economy: 10 Radical Strategies for a Connected World New Rules for the New Economy: 10 Radical Strategies for a Connected World
New Rules for the New Economy: 10 Radical Strategies for a Connected World New Rules for the New Economy: 10 Radical Strategies for a Connected World

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