3 The Law of Exponential Value

Success is nonlinear

The chart of Microsoft’s cornucopia of profits is a revealing graph because it mirrors several other plots of rising stars in the Network Economy. During its first 10 years, Microsoft’s profits were negligible. Its profits rose above the background noise only around 1985. But once they began to rise, they exploded.

Federal Express experienced a similar trajectory: years of minuscule profit increases, slowly ramping up to an invisible threshold, and then surging skyward in a blast sometime during the early 1980s.

The penetration of fax machines likewise follows a tale of a 20-year overnight success. Two decades of marginal success, then, during the mid-1980s, the number of fax machines quietly crosses the point of no return – and the next thing you know, they are irreversibly everywhere.

The archetypical illustration of a success explosion in a Network Economy is the Internet itself. As any old-time nethead will be quick to lecture you, the Internet was a lonely (but thrilling!) cultural backwater for two decades before it hit the media radar. A graph of the number of Internet hosts worldwide, starting in the 1960s, hardly creeps above the bottom line. Then, around 1991, the global tally of hosts suddenly mushrooms, exponentially arcing up to take over the world.

Each of these curves (I owe Net Gain author John Hagel credit for these four examples) is a classic template of exponential growth, compounding in a nonlinear way. Biologists know about exponential growth; such curves are almost the definition of a biological system. That’s one reason the Network Economy is often described more accurately in biological terms. Indeed, if the Web feels like a frontier, it’s because for the first time in history we are witnessing biological growth in technological systems.

At the same time, each of the above examples is a classic model of the Network Economy. The compounded successes of Microsoft, FedEx, fax machines, and the Internet all hinge on the prime law of networks: value explodes exponentially with membership, while this value explosion sucks in yet more members. The virtuous circle inflates until all potential members are joined.

The subtle point from these examples, however, is that this explosion did not ignite until approximately the late 1980s. Something happened then. That something was the dual big bangs of jelly bean chips and collapsing telco charges. It became feasible – that is, dirt cheap – to exchange data almost anywhere, anytime. The net, the grand net, began to nucleate. Network power followed.

Now that we’ve entered the realm where virtuous circles can unfurl overnight successes in a biological way, a cautionary tale is in order. One day, along the beach, tiny red algae blooms into a vast red tide. Then, a few weeks later, just when the red mat seems indelible, it vanishes. Lemmings boom and disappear. The same biological forces that amplify populations can mute them. The same forces that feed on each other to amplify network presences into powerful overnight standards can also work in reverse to unravel them in a blink. Small beginnings can lead to large results, while large disturbances have only small effects.

In the Network Economy, success is nonlinear.

Рубрики: | Дата публикации: 12.07.2010

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