Evolution News of Online Economics

The Internet has turned 19th-century economist Joseph Schumpeter’s gale of creative destruction into a hurricane. Freed from a host of physical constraints, business models that are more code than concrete are being invented and reinvented at head-snapping speed. Hundreds of startup factories and e-business incubators are dramatically shrinking the gestation time for new businesses.

Moreover, the torrent of VC money that has been pouring into favored sectors such as B-to-B hubs and optical networking has radically accelerated the pace of competitive evolution, as a swarm of nascent companies that compete for the same market space. The Internet has spawned a Cambrian explosion of new competitive life forms.

And the frenzy will only grow. For a while there is much about the future that cannot be known, this much is sure: We are rushing toward the world in which everyone and everything will be connected to everyone else and everything else. Virtually any piece of knowledge on the planet will be instantly accessible. Narrow-band voice and text will give way to image-rich broadband media. And why is this so terribly significant? Because the pace of economic evolution has always been a function of the number and quality of interconnections between individuals and the ideas they hold.

In a world where individuals, communities, and nations were mostly isolated, global GDP grew hardly at all. The invention of the telegraph and railroad in the 19th century, and then the car, the airplane, and the telephone in the 20th century allowed ideas to circulate, combine, and recombine in ways never before possible. The result was unprecedented growth in knowledge and wealth.

But all this is a pale shadow of what lies ahead. The Internet promises to create a dervish-like dance of intellect, imagination, and capital that is entirely free from the geographical and technological constraints of centuries past. The pace of economic evolution is about to go into hyperdrive.

In the Internet Age, it is not the technology that creates new wealth, but radical new business concepts. The dilemma, of course, is that most companies cannot innovate at such a fast pace. Most companies were built to do a single thing, exceedingly well, for an exceedingly long period – think of AT&T and long distance, Boeing and airplanes, Ford and cars, Intel and microprocessors, or Xerox and copiers.

For the most part, the firm and its business model were assumed to be one and the same thing. The assumption was that good business models were virtually immortal – and so they were, in a slow-spinning world. But no more. Today, business models can be rendered in the blink of an eye. So every company that was “built to last,” must now be “rebuilt to change.”

As with ideal! Or ICG, every company must foreswear allegiance to a single business model and commit itself to producing brood after brood of new models. Any company that sees its mission as maintaining leadership in a particular business, rather than creating the maximum amount of wealth possible out of the imagination and skills of its people, will soon find itself marooned on the island of dead business models.

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