Tuesday, January 13, 2009

Why is the Internet so diffferent?

Well, I'm finally back from a month's vacation - visiting home (Australia) for Christmas with the family and friends. Someone has got to offer me a job down there soon so I can get home for good!

But it wasn't all beer and skittles, as I've been asked to contribute some chapters to the forthcoming American Chamber of Commerce in Japan (ACCJ) White Paper on the Internet Economy. It's targeted at Japanese regulators, a notoriously difficult group of stakeholders. I've spent a lot of time trying to develop an easy-to-understand view of the current state of play and future challenges for that audience.

But the biggest challenge has been trying to get people to understand that the Internet is fundamentally a different environment to anything we've experienced before. Here are 10 reasons why:

1. The physical economy is governed by supply and demand, or the economics of scarcity. The Internet works on abundance - the value of content grows with use.
2. In the digital economy, value (price) depends on the amount of embedded information (knowledge) rather than the value of the components (and brand premium).
3. Online, context determines value so identical knowledge can have different value to different people.
4. Because pricing is transparent on the Internet, competitiveness comes from relationship rather than price.
5. The barriers of time and location are essentially removed. The Internet offers global reach, instant response, flexibility, and 24/7 access.
6. Access to information and human capital drives value in the Internet Economy. Access to resources and financial capital drive the physical economy.
7. Success comes from resource aggregation and hierarchy in the physical economy, while knowledge distribution and heterarchy[1] feature in the Internet Economy.
[1] Heterarchy: (math, linguistics) a formal structure, usually represented by a diagram of connected nodes, without any single, permanent, uppermost node. [Collins English Dictionary]
8. Open access to information is fundamental to knowledge flows in the Internet Economy. Restricted access to information often increases value in the physical economy.
9. Physical economy processes are optimized for simplicity, but value-added knowledge transfer and interaction (success) leads to complexity in the Internet Economy.
10. Distribution costs rise with distance and number of nodes in the physical economy, but essentially fall in the Internet Economy.

Thought for the Day: The Internet is fundamentally different to the physical economy. If you're trying to adapt an existing business model to the Internet - or worse, adapt the Internet to your old business model - you're going to fail.


Resonate said...

I hope you had a good break in Paradise Terry. Maybe the Ox is the right year to head south again.

I really appreciate this post. Good condensation of why many marketers do not 'get it'


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