Imagine a world where supply no longer equals demand. A world where a company craving greater market share gives away its most valuable product -- and generates millions of dollars. A world where the company that boasts the greatest chunk of consumer demand experiences even more demand; where the antagonistic relationship between buyer and seller has been replaced with a cooperative, knowledge-based exchange; where companies in every industry think like futurists, personalize products and services regardless of cost, target individuals rather than blanket the masses, and renovate old products instead of just creating new ones.
Living in Internet Time
Other People's Money
I woke up at 5:30 a.m. on August 8, 1995, tuned CNBC's Channel 37 to the Morning Business Report, and dumped thick cream into a bowl of Cap'n Crunch. The day would prove worthy of the cream. By 6:30 a.m. I was on the telephone to Charles Schwab, begging for a few crumbs of Netscape Communications Corporation (NSCP). But my best telephone effort fell far short of its mark, as nearly 40 million shares, promised at $28 per share, disappeared like a purse-snatcher on the Atlantic City boardwalk. Before the end of the day, NSCP was selling for $71 per share, leaving me and countless other wannabe shareholders in the dust. Within a few weeks, the price soared to over $170 per share, scandalizing the little old ladies in my investment club. My $40 bid was just a California Dream.
With sales barely more than a Microsoft engineer's pocket change (estimated $12M), the sixteen-month-old Netscape Communications was instantly valued at $2.8B--as in B for Billion! Inter@ctive Week said, ". . . the stock market created its own version of artificial reality." I figured that preseason investors like me were either being scalped by the Nasdaq, or the Netscape Netheads* had convinced Wall Street that some little company in Silicon Valley was on its way to becoming the next Microsoft. What I had witnessed was in fact the friction-free economy in action.
What is the Friction-Free Economy?
The idea that a fly speck of a company could topple Microsoft from its perch atop the computer software industry food chain is intriguing, to say the least. Why would anyone bet their retirement account on a small company next to Highway 101 when Microsoft and Intel Corporation had the world by the short wire of the mouse? Why was Netscape valued so highly? The answer: the friction-free economy.
Netscape was not the first indication of the existence of the friction-free economy, but it was the hit movie version of it. Netscape's pyrotechnic entry onto the Wall Street Journal's front page was perhaps the most dramatic illustration of how the non-Keynesian, non-Newtonian, nonclassical economics of the friction-free economy shifts modern market-driven corporations into high gear.
Why is the friction-free economy non-Keynesian? It does not obey the supply-equals-demand rule of classical economics. Why is it non-Newtonian? What goes up does not come down. Newtonian mechanics cannot explain the phenomenon; only mathematical chaos can. This new brand of economics overthrows the postindustrial-age idea of efficiency, diminishing marginal returns, and cost-effectiveness. In short, it dumbfounds even the economists.
The trouble is, the friction-free economy seems to work. It churned out Microsoft, Intel, and hundreds of high-tech successes throughout the 1980s. It churned out the Japanese video game empires of Sega, Nintendo, and Sony. Practiced as an intuitive art in the 1990s, it is responsible for the rapid rise of the Wired World* and the unfolding of electronic manufacturing and distribution on the Internet. Now it is rapidly becoming the invisible hand that will guide millions of more businesses in the next century.
The Friction-Free Economy is Universal
The friction-free economy is not restricted to the software industry. It applies to hardware and service companies also. It even applies to governments. France used a limited form of friction-free economics when it built Minitel--the first national "Internet" system that provides WWW-like information to all French households. Minitel won over 15 million consumers by giving away its telecommunication devices. Relying on the French government's pocketbook, Minitel terminals gained widespread acceptance faster than a socialistic version of Netscape. Giving away first-generation products in order to capture the lion's share of a market segment is known as mainstreaming. Minitel is as mainstream in France as the telephone is in the U.S.
Mainstreaming is but one principle of the friction-free economy. There are many others. To be highly successful, all companies must eventually apply the principles of the friction-free economy, principles that are well understood by such hardware companies as Intel, Bay Networks, Sega, Sony, Nintendo, and Matsushita. These same principles are practiced with a vengeance by such software companies as Microsoft, Netscape, Adobe, Macromedia, SpyGlass, CyberCash, and Marimba. And perhaps surprisingly, the service sector is quickly learning how to use these techniques to become leaders in the banking, financial services, consulting, and legal sectors.
A Field of Dreams
The primary precept of the friction-free economy is simple: The more market share you have, the more you get. In other words, the rich get richer. Consider the revenues of two competitors in the on-line service provider segment of the network business. CompuServe started out ahead of all others, but America Online surged ahead in 1995 because it mainstreamed. AOL blitzed the market by giving away its PC desktop software by the millions. If you had anything to do with the computer industry, owned a computer, subscribed to a computer magazine, or had a cousin with an AOL subscription, AOL would find you and mail a diskette containing its free software to your doorstep.
|Imprint: HarperBusiness; ISBN:
Format: Hardcover; Released On: 8/22/97;
Trimsize: 6-1/8 x 9-1/4; Pages: 256; $25; $35.5(CAN)