Table of Contents
* The New Economy is FF
infinite shelf space
zero marginal costs
* The 4 Pillars of the New
Economy are:
Disintermediation
Integration
Flexing
One-to-One Marketing
@1998 Ted G. Lewis
In the Headlines
Winners are Quick.
“The quick
and
the dead!”
@1998 Ted G. Lewis
Moore’s Law
Davidow’s Law
Sidgemore’s Law
Set the pace for hi-tech
Moore’s Law
Gordon Moore of Intel was a
pessimist! “Processor performance
doubles every 18 months”

Learning Curves
For
Hardware
10
These ”learning curves” govern
the speed of an industry. They
are the clocks of living in
Internet Time.
9
Log Scale: MIPS, GigaKIPS
Compound Annual Rates of
technology advancement have
exceeded expectations
8
Networks
7
6
5

3

2
1 
0
Evolution equals Revolution in
Silicon Valley!
@1998 Ted G. Lewis
Processors

4
1978
O
O
O
O
O
1983
1988
1993
Year
1998
2003
2008
In the Headlines
Winners climb
industry-wide
learning curves
faster
Microsoft paid $450 Million to be first!
@1998 Ted G. Lewis
Davidow Applied Moore’s Law
“Obsolesce your product before others do”

* Davidow was VP of Intel
#M Units, Pentium

* Price used to control
sales of microprocessors
* Price-Learning Curves
are major weapons in SV
$Price (00s), Pentium Pro

50
45
40
Price/Units
* The PowerPC threat
accelerated conversion to
Pentium Pro from Pentium
#M Units, Pentium Pro
35
30
25

20
15
10
5
0
1994

1995

1996
1997
Year
@1998 Ted G. Lewis
1998
1999
Davidow’s Law
Products today do not wear out they are rendered obsolete!
Davidow’s Law leaves slower
innovators in the dust!
Davidow’s Law creates the need
For speed
Who is this “Missing Person?”
Mitch Kapor, Lotus
@1998 Ted G. Lewis
Winners give away
The company jewels
To gain market share
* $3 Million satellite
Tracking software
* Marked down to $10k
* Marked down to ZERO!
* Razor vs. Blades Strategy
@1998 Ted G. Lewis
Market Share
In the Headlines
Winners value
market share
more than money
@1998 Ted G. Lewis
QuickTime™ and a
Animation decompressor
are needed to see this picture.
Time
A Large Installed base
is money in the bank
In the Headlines
Winners value
market share
more than money
QuickTime™ and a
An imation decompre ssor
are nee ded to s ee this picture.
@1998 Ted G. Lewis
And if your Installed base goes down…
So does your market valuation!!!
In the Headlines
Winners lock-in
their customers
@1998 Ted G. Lewis
QuickTime™ and a
Video decompressor
are needed to see this picture.
Winners Ride The
Wave of Increasing
Returns
W. Brian Arthur
@1998 Ted G. Lewis
In the Headlines
The more
Market share
You have,…
The more you
Get...
Also known as
“net gain” or
“network effects”
@1998 Ted G. Lewis
In the Headlines
“The value of
The net is
Proportional
To the square
Of the number
Of users”
--Metcalf’s
Law
@1998 Ted G. Lewis
Crux of the DOJ Case: Increasing Returns
The crux of the argument is
whether or not product bundling
violates the Sherman Act:
Section 2 explicitly prohibits the
use of one monopoly to create
another
If not, then Windows may ride a
wave of increasing returns to the
first monopoly of the Info Age.
@1998 Ted G. Lewis
Strategy of the Strong: Absorb & Extend
Absorb & Extend is the antidote
to Davidow’s Law:
“When you fall behind,
absorb your competitor’s
technology and then extend
it before he or she does”
Microsoft is absorbing and
extending …
*
*
*
*
Sun’s Java technology
Oracle’s relational DB
Apple’s GUI technology
Novell’s NDS technology..
@1998 Ted G. Lewis
Consequences…In the FFEconomy….
• Early innovators have an advantage
• Fast learners keep their advantage
• The more market share you have
the more you get
• Gaining market share is a game of
strategy
• Lock-in leads to a monopoly position
• The first company to reach a
monopoly, wins!
@1998 Ted G. Lewis
The Four Pillars of the New Economy
* Disintermediation
* Integration
* Flexing
* Market-of-One
Chinese Edition 1999
@1998 Ted G. Lewis
Disintermediation: Some Net Facts of Life
* 1998: 46% of web sites are profitable
* 1/3 of online households
Made a net purchase in 98
19% are shopping less in stores;
14% use catalogs less
* E-commerce saves 5-10% over old methods
* Net gain to economy: $10-20B in cost savings
* By 2002: Businesses will exchange over
$327B in goods and services with one another
@1998 Ted G. Lewis
Disintermediation: Some Net Facts of Life
Where the Money I$
10
Travel
Financial Services
9
Biz-to-Biz
Entertainment
8
Sales, $B
7
Apparel
Financial
6
Travel
Entertainment
5
Computer HW/SW
4
3
Books & Music
2
Ticket Events
1
Business-to-Business
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
0
Year
Tops in 2001:
Business-to-Business: $180B Financial Services: $5B
Entertainment: $2.7B Travel: $7.4B
@1998 Ted G. Lewis
Disintermediation: Flattened Chains
“ 59% of online companies
say cutting out the middleman
is a Benefit” - Harris Poll
* Boeing: $100M orders
via Web from airlines
* Web to save GE $500M
* Cisco: $11M web purchases
Per day - saves $350M/yr.
Jeff Bezos, CEO Amazon.com
Sales of $400M in 98
@1998 Ted G. Lewis
Disintermediation: Direct to the consumer
“Reaching the customer
Directly is the biggest benefit
According to 43% of companies”
- Harris Poll
* Physical world must
Compete with infinite
Shelf space and zero
Distribution costs
* Distribution chains must
Adapt or die…
@1998 Ted G. Lewis
Integration: The New Value Chains
* Product space
Disintegration
* Market space
Integration
@1998 Ted G. Lewis
Supply Chain Integration= Electronic Trading Partners
Supply-Chains
Lock-in Members
to a Digital Keiretsu
Dominant Players
Use IT to dominate!
Electronic
Resource
Planning (ERP)
@1998 Ted G. Lewis
Aggregation on the Web = Integration
Even “smoke-stack”
Industries benefit:
Real-time optimum
Refueling of truckers
Via the internet yields
Bigger profits
Aggregation of a channel
Equals creation of a
Keiretsu…
Leading to domination
@1998 Ted G. Lewis
Revenue Models for the 21st Century
* Taxing value chains from 3 major sources:
Advertising - Early Innovation Stage
Subscriptions - Middle Stage
Transactions - End Game
(percentage of transaction)
@1998 Ted G. Lewis
Business Mantra for the next decade
* Disintermediation will transform the middleman
* Integration becomes part strategy, part tactical
* Reintermediation = Disintermediation + Integration
* Technology will be increasingly used to create
and dominate old and new markets reintermediation is its major weapon
@1998 Ted G. Lewis
The Market-of-One
* The Customer is in Control
* Personal
* Individual
* Custom
* Economy of Abundance
* Leverage IT to reach
customers on a personal
level
@1998 Ted G. Lewis
Market-of-One based on PICN
Customization
- consumer tailors product
Personalization
- manufacturer tailors product
Individualization
- fits one person
Narrowcasting
- reaching a market segment
@1998 Ted G. Lewis
Mass Customization
Dell Computer helps the
Consumer BYO - Build Your Own:
Consequences….
* Competitors at a disadvantage
* Dell learns faster
* Dell cuts inventory costs 5-10%
* Volume advantage gives Dell
price-learning advantage
@1998 Ted G. Lewis
Dell Computer’s Web Page
Lets users configure their
Own computer - and shows
The total price for each
Mass Personalization
E-Toys fits products to a
Class of consumers:
* Matches consumer preferences
* Cuts customer service costs
* Gains customer loyalty
* Reduces inventory by narrowing
to most-popular styles, etc.
* Mass Customization possible
@1998 Ted G. Lewis
E-Toys.com matches customer to
product by stage of development
Mass Individualization
E-Trade.com targets one
Investor at a time:
* No charge to update
individual portfolio
* Tracking of stocks done
on a One-on-One basis
* E-Trade grows faster than
Competitors
E-trade business model is to provide
“personal information management”
@1998 Ted G. Lewis
Mass Narrowcasting
Mom gives birth over
The Internet:
* Extreme form of narrowcast: targeted demographics
* 50 million channels
* Tribal
* Approximates One-to-One
Delivery garners 50,000 sign-ons
@1998 Ted G. Lewis
Why PICN?
The Customer is in Charge:
“The customer will control
The buying process”
- Robert Eaton
CEO, Chrysler Corp.
Therefore, it is a requirement
For success in the new economy
@1998 Ted G. Lewis
QuickTime™ and a
Video decompressor
are needed to see this picture.
“The world could be
Extremely a la carte”
- Bill Gates
CEO, Microsoft
Tele-marketing cold caller
Technique is patent pending
@1998 Ted G. Lewis
It pays to know your customer - electronically
Randalls Food Market keeps
Gigabytes of data on buyers
Wine: increased sales from
978 units to 1,627
Reduced 830 to 626 SKUs
(Stock-keeping units)
Reduced # days in warehouse
From 57 to 26
Houston Grocer Uses
Demographic Data
@1998 Ted G. Lewis
Creating Online Communities Creates Profits
Communities create value
by targeting a demographic
Targeting is enabled by
electronically narrowcasting
Narrowcasting segments
The market space, and
...increases Response
rates in Ads!
@1998 Ted G. Lewis
Communities Not Just for Kids: CIOs Commiserate
“Virtual communities are knowledge
Management tools for CIOs”
-Paul McNab, CEO, Cambridge Tech Partners
@1998 Ted G. Lewis
Flexing to Stay Ahead
Flexing is the business
eco-system equivalent
of natural selection
and learning in nature
* Bottom-up
management
* spatial & temporal
* exo-corporate teams
@1998 Ted G. Lewis
The Exo-Company Team
* Outside Consultants
* Vendor Contributors
* In-house experts
* Borrowed project
contributors (temp)
* Spatially distributed
@1998 Ted G. Lewis
Virtual Teams
* Total Outsource
* E-mail and
FedEx disks
* Higher output
* Better (e-mail)
Communication
due to concise
specifications.
@1998 Ted G. Lewis
…And it is more
Profitable!!
@1998 Ted G. Lewis
Ultimate Outsource: Work at Home
* Workers are more productive
* Infrastructure costs are lower
* Absenteeism is lower
* Organization is more flexible
* Commuter congestion relieved
@1998 Ted G. Lewis
Flexing: Network Org’s Are Bottom-up
* product champions
not top-down managers
* non-optimal adaptive
instead of efficient
* Darwinian and fast
instead of planned
* opportunistic and
dynamic instead of
consensus-building and
long decision cycles
@1998 Ted G. Lewis
Flexing: Network Org’s Are Virtual
Even government is changing
* Outsourcing is obvious….
* Liberal stance on Internet
naming service is radical
* Cautious stance on taxing
Internet is commendable
* Careful consideration of net
copyright law shows some
awareness…
Many indicators suggest that the
US Government “gets it”
@1998 Ted G. Lewis
Marketing Models for the 21st Century
* Economy of abundance
Inverse economics means better and cheaper
* The Consumer is in charge
Customization - consumer tailors product
Personalization - market segmentation
Individualization - fits one person
@1998 Ted G. Lewis