What is Web3 and Why It Matters

January 11, 2022 Leave a comment

I’ve waited a bit to weigh in on Web3, to see how it evolved and whether it actually took a meaningful and significant direction. While not exactly a new concept — many credit the term itself to Ethereum co-founder Gavin Wood in 2014, even though it has been discussed since the early Web 2.0 days back in the 2000s — Web3 as we currently know it today exploded onto the global stage in 2021 along with the metaverse, another popular and closely overlapping/adjacent concept.

Like its various predecessors, Web3 represents a major rethinking for a new iteration of the World Wide Web. This vision is both far-reaching and as we will see, truly transformative in nature. It requires us to fundamentally shift our ideas about many important concepts in the realms of digital data and the online world in general. The good news is yes, we do now have a general sense of how Web3 has evolved and whether it has become a significant force in the future of the Web.

My take: Web3 has very much arrived as a major trend with a towering stack of tech behind it and quite impressive economic results to match. It’s a trend that is now is increasingly informing technology evolution as a whole. Most organizations now need to understand what Web3 is and how it will affect their organization’s technology development trajectories and digital strategies going forward.

Related: Web3 is highly potent form of network orchestration, one of the most important and powerful digital strategies.

The Elements of Web3

Web3 Defined

Now, the good news is that explaining Web3 can be achieved with some fairly brief definitions. The most cogent is simply the notion that the future of the Web, especially as it relates to creating, storing, and exchanging information, can be better achieved by incorporating decentralization based on blockchains. That’s really it, at its core.

That doesn’t sound like much, especially to the uninitiated, and probably wasn’t what many expected. But as it turned out, this idea of deep decentralization has proven to be a uniquely potent one that has given rise to several very significant and useful shifts. One proof point: Despite the ups and downs of the crypto markets, cryptocurrencies, including now NFTs, have resulted in nothing short of a global phenomenon that has led to the creation of hundreds of digital currencies, exchanges, application ecosystems, and supporting frameworks that has a combined worth today in the trillions of dollars.

Naturally, like most new higher-order technologies and the often disruptive changes they usher in, there are many underlying concepts and moving parts to them that make them work, which I’ll explore shortly. There are also a number of important implicit assumptions in the designs of Web3 technologies, that if one doesn’t understand going in, makes the first principles and design choices behind them seem both confusing and needlessly complex even after a good bit of study.

The Motivation for Web3

The why behind Web3 is perhaps the most interesting question of all. Let’s explore that first and then see what Web3 is really made of.

Web3 is borne of the growing criticism that the Internet of today tends to favor large, centralized organizations like Google, Amazon, or Meta (Facebook) over individual users — a trend I’ve long lamented — and that this should change. Conversely, there is a belief that decentralized, more autonomous infrastructures can tilt the balance toward a more user-controlled environment with various benefits that include (but are not limited to): The reclamation of data sovereignty back to individuals, improved — and really, total — transparency in our digital systems, and the inability for bad or misguided actors to disrupt or co-opt our shared digital environments that follow these rules.

Furthermore, Web3 is borne of the direct knowledge of the ongoing success of certain well-known radically decentralized systems to change the status quo, most notably Bitcoin and its now-famous underlying blockchain. It has essentially resisted all comers to date, many of which have been quite determined. Bitcoin’s underlying ideas have proven to work in practice over a sustained period of time (over a decade now and counting.) At the root of this is a growing belief that radical decentralization has wide applicability to much or most of what we do online, and that blockchains are so far the best vehicle we have to realize this.

Crypto Roots, Yes, But Much Broader Applicability

The flourishing of cryptocurrency over the last few years has certainly created a gold rush mentality, luring increasingly large investments, including vast venture capital involvement from the most sober firms. Crypto has also attracted to it some of the brightest tech entrepreneurs and makers in the world. The result has been nothing short of a global high-octane creative genesis that’s resulted a extremely dense, deep, and at times quite difficult to navigate set of interconnected projects, technologies, stacks, ecosystems, currencies, exchanges, and enabling applications. The sheer vibrance and velocity of these efforts have elicited great excitement, with numerous innovations and breakthroughs having occurred along the way.

It’s crucial to appreciate that back in the early days cryptocurrencies originally had — and still continue to have — a central problem to solve, namely answering the question of who would ever actually trust them as forms of currency. And they eventually came up with effective new models that successfully created the needed faith and buy-in by people in a way that still, to me, seems remarkable today. The premise is that the blockchains underneath many popular cryptocurrencies embody designs and rules in code that can be empirically verified even by the non-technical. One doesn’t need to technically understand the blockchain deeply in order to verify it works as advertised and trust it.

So, getting back to first principles, I would argue that at the core of Web3 concepts is the crucial and increasingly problematic question of trust in digital systems. How do you know who you can genuinely trust with your data? Who really owns and controls the data we store online? Is it possible to create ground rules that everyone is guaranteed to live by that fosters new trust? Can we store data online in a way that we will always remain in control of it? Are there designs for systems that make us hopeful that the online world can be a place that is safe for everyone over the long term? All of these questions are addressed inherently and explicitly by Web3 technologies in various interesting and practical ways.

Web3 is Based on Decentralized Trust

So I would also observe that trust is the fundamental basis for all human relationships. While Web3 is still working on trusted identity and I find it unfortunate that concepts like digital wallets — instead of people — play perhaps a too central role in the design of many of the resulting efforts, it’s clear that communities of individuals have come together to trust a given distributed system of data and its associated rules (blockchains). This is at the very core of how many Web3 efforts have succeeded as well as they have.

The blockchain is too complex a concept to go into detail here, suffice to say that what it brings to the table is a set of shared and well-documented processes for managing digital data, enforced consistently and relentlessly by code. If those behaviors are reliable, highly valued, and then profoundly decentralized in such a way that they cannot be easily co-opted, lost, or abused, then a community can — and apparently will with the right value proposition — form around it. And I do mean a human community. That this will happen has now been proven over and over again in the living laboratory of the online world.

Short version: A blockchain is like a digital nation with clearly enumerated rules that is made up of nothing more than people’s data and the rules of its operation codified in its very structure. Yes, these are today often digital currency records, but it can be and increasingly is digital information of any kind.

Once trust in a digital system exists and is sustained, and once a community has formed around such a living digital system — remember, it’s a dedicated decentralized network with countless distributed copies of the data that’s coupled with matching and well-documented rules realized rigorously in code — then the next outcome can safely and by design take place: Transactions. Or what more high-level thinking would call commerce or value exchange. This focus on transactions makes Web3 notably different that previous iterations of the Web, which certainly enabled the realization of e-commerce and other digital business models, but did not really have them in their core architecture.

Web3 in Practice

Web3 then is the realization that we now possess very specific and working designs for trusted decentralized systems of data with matching rules that can effectively attract human communities around them. This allows safe, trusted commerce at scale and genuinely seems to work well over time. These systems, with very specific design constraints, appear to foster human trust and cultivate communities if they do so in a way that provides shared value.

Again, like so much on the Internet, it’s taken countless trial and error to get where we are with today with Web3. It’s not a accident but a distributed yet mostly informal design effort in its own right to find ways to build better networks of digital systems, although organized groups do exist including the Web3 Foundation.

So how does Web3 actually work? This is where, from an implementation standpoint, that the result is nothing short of the proverbial technology rabbit hole. Web3 on a conceptual and technology level goes deep. Below, I explain its various parts and how they fit together as I see it. Just be aware that it has taken some of the most brilliant people in the world to have figured out the pieces and make them work together in a unique way that is compelling to the marketplace. The result has attracted the intense interest and participation of thousands of technologists and many millions of regular people around the world, pulled in by either the arguably positive notions that Web3 embodies, the evident results that it has produced, or both.

The Technologies of Web3

While there are a vast and oft-bewildering array of technologies, frameworks, and chain implementations that fall under the Web3 umbrella, the following are the core technologies most often associated with the trend:

  • Blockchain. A data storage and retrieval system in which a typically immutable record of data and associated transactions is kept, often involving cryptocurrency but can be any type of data, are maintained across numerous distributed computers of multiple ownership that are linked in a peer-to-peer network. Distributed ledgers are similar but may not be on a peer network or have multiple ownership. Smart chains have emerged that have sophisticated smart contract and value-add AI features built-in. Consensus rules are often established to determine which data is actually stored as the official record.
  • Wallets. In Web3, a digital wallet, usually associate with cryptocurrency, is a device, application, or service which stores the public and/or private keys used blockchain transactions. In addition to this prime function of securely storing the keys (the actual currency is stored in the chain), a cryptocurrency wallet often also offers the functionality of encrypting and/or signing information. Signing can for example result in conducting transaction or executing a smart contract.
  • Decentralized Identity (DID). Decentralized identifiers are a newer type of identifier that enables a verifiable, decentralized digital identity. They are an important component of decentralized web applications. I believe they are vital to making Web3 a fully evolved architecture for the future. They are based on the concept of self-sovereign identity. A DID identifies any entity (such as a person, organization, object, data model, abstract entity, etc.) that the creator of the DID decides that it identifies. These identifiers are designed to enable the controller of a DID to prove control over it and to be implemented independently of any centralized registry. Over time DIDs are likely to become a core identity system of Web3 applications, allowing stronger communities, more trust to be established, and enabling many high value use cases. The respected W3C has now weighed in on a proposed standard for them as well, further bolstering their credibility.
  • Exchanges. A exchange is a service that handles cryptocurrency and other forms of digital value that allows users to trade for other assets, such as traditional fiat money or other digital currencies. Exchanges are a key source of liquid value and usually accept credit card payments, wire transfers or other forms of payment in exchange for digital tokens or cryptocurrencies. Exchanges connect the Web3 world to the traditional world and are in numerous ways a crucial service to allow transactions to cross between them. Exchanges have been instrumental in fueling the crypto boom and will likely be just as key to the broader evolution of Web3.
  • Decentralized apps (dApps). An application that uses smart contracts that run on a blockchain. Just like traditional apps, DApps provide a particular function or use to its users. Very much unlike traditional applications, however, DApps are technically not owned by any one entity. Instead, DApps distribute tokens that represent ownership. These tokens are allocated according to a pre-designed algorithm to the users of a blockchain-based system, diluting ownership and control of the dApp. In this way, since no one entity controls the system, the application becomes decentralised. A lot of the utility and innovation in Web3 comes from the add-on dApp ecosystem, which can work with data in the blockchain according to the smart contract associated with it.
  • Smart contracts. Smart contracts are predefined digital agreements stored on a blockchain that run when predetermined conditions are met or transactions are conducted. They are usually used to automate the execution of an agreement within the rules of the blockchain so that all participants can be absolutely sure that the outcome will take place, without any intermediary’s involvement or effort. Smart contracts enable rich scenarios for ensuring that economic activity follows the rules and that the digital economy the blockchain support is open, transparent, and 100% rule-based in executable code. They are rapidly becoming the backbone of Web3 transactional systems and should in theory, also mostly eliminate the need for legal recourse.
  • Distributed Autonomous Organizations (DAOs). A DAO is an organization represented by the rules encoded as a software system that is entirely transparent, controlled by the organization’s members and typically not influenced by a central government or authority. DAOs show what a genuine digital organizations might truly look like. They will help reshape management thinking and theory for the next decade at least. An example of a DAO is Augur, a decentralized prediction market platform.
  • Metaverse. While Web3 apps can come in any type of UX form factor, one of the most interesting is the Metaverse, which is a still-mostly-notional deeply integrated virtual world that allows people to visualize, experience, formulate, publish and monetize digital information and content using virtual reality and other interfaces For now, this is still in early evolution but it will allow seamless 3D experiences that enable shopping, business deals/transactions, education, advertising, and entertainment and may other forms of business activity with a full multi-channel, multi-currency financial ecosystem behind it.

What Organizations Should Prepare for with Web3

The advent of Web3 has a number of significant yet often uncomfortable implications for enterprises that seek to adapt and take advantage of the energy, vibrancy, and innovation in the fast-growing sector. Or more importantly, avoid to disruption that it likely to occur in many key areas, from payments and e-commerce to customer experience and digital transformation as a whole.

Here’s is my best advice heading into 2022 on what the typical organization should be preparing for with Web3:

  • Assess Web3 adoption in your industry. Understand what your competitors are doing, from blockchain-based loyalty programs and crafting their assets into NFT offerings all the way up to creating crypto payment strategies and building dedicated metaverses for customers, partners, and even employees. I’m seeing quite a bit of activities across all these fronts as we head into 2022 in my client conversations. Organizations in most industries should be conducting at least a high level assessment of Web3 competitive activity.
  • Research and educate your staff on Web3. While Web3 is very much emerging technology, some parts of its are getting a decade or more old, and the subject matter is both large and complex, so time should be invested now, early on. Now is the time to begin getting your digital and IT staff up to speed where it makes the most sense. Basic blockchain education is a great place to start, but understanding cryptocurrency markets, smart contracts, and DAOs are all good areas for strategic staff right now, from digital strategists and transformation leads allway the way to the office of the CTO.
  • Build Web3 capability . The reality is that most organizations will be interacting a growing portion of their business in various blockchains. Understanding how to conduct transactions safely, securely, and efficiently is key, as is understanding and maintaining a perspective on the strongest offerings, along with their pros and cons will go a long way to being prepare as vendors and suppliers increasingly conduct business using Web3 models.
  • Revise digital strategy roadmaps with eye on opportunity. Once the Web3 competitive and opportunity landscape is understood, make time and resources available to incorporate it into the broader digital strategy and transformation roadmap.

Web3 is part of a major new generation of technology evolution that will dramatically change business and IT for the long term. It has far-reaching implications that can help enterprises identify significant opportunities as well as avoid disruptions in the road ahead. I strongly urge all organizations to begin to assess Web3 uptake in their competitive landscape and prepare for the necessary activities in technology adoption and evolution. Like many emerging technology developments at the present, Web3 also has significant business implications as well that will require tech and business leaders to come together to create and validate their roadmap going forward. It’s not an easy time, but Web3 represents enormous promise that will also remake numerous industries in the process.

Additional Reading

The Strategic New Digital Commerce Category of Product-to-Consumer (P2C) Management

A New Digital Experience Maturity Model for Improved Business Outcomes

Ray Wang’s View of the Metaverse, Web3, and DAOs

Why Microservices Will Become a Core Business Strategy for Most Organizations

Filed under Analysis, The Web, Web3

The Building Blocks of Digital Transformation: Community, Tech, Business Models, and a Change Platform

June 18, 2016 Leave a comment

I’ve been making the argument lately that the single largest obstacle in successful digital transformation is change itself. Surprisingly, the arrival of new technology is generally not the large hurdle to becoming more digital in a meaningful way, though it certainly represents a large and growing learning curve. Yet learning the new technology is manageable by most organizations in my experience, if they have the will to do so.

Finding the right business models can be a bit more of a challenge, but the process of discovering the best ones is increasingly well understood these days. One somewhat ironic lesson is that we’ve also learned that we usually have to build an audience first, often well before we decide on new digital business models, that are centered around some activity or capability of significant shared interest with the market, before we can experiment and find the right path forward in terms of generating value, such as revenue from sales, subscriptions, advertising, etc.

Online Communities Are the Business Construct That Create the Most Value

From my Enterprise Digital Summit 2016 Paris Keynote Deck

Why Digital Needs a New Mindset

It actually turns out the most important and challenging building blocks for digital transformation is people and the processes that can change them. Thinking in digital terms requires a significant shift in mindset, such as designing for loss of control, understanding the power laws of mass connectedness, the startling revelation that the network will do most of the work, and understanding how open participation is the key to unleashing digital value in scale to our businesses.

However, shifting the mindset en masse of the large number people that exist in the average enterprise (i.e. tens or even hundreds of thousands of workers) is not something that can be done to them, but can only be done with them as Euan Semple frequently likes to point out. So, what’s the single best venue in which to engage significantly in a time efficient and sustainable fashion? I now suggest that the most likely and cost-effective vehicle for this that we know today is online community.

The building blocks of digital transformation is a topic that I recently had time to study in depth as I prepared my closing keynote for the always terrific Enterprise Digital Summit 2016 (formerly the Enterprise 2.0 SUMMIT) in Paris this month.

Step 1: Gather Stakeholders into Communities of Digital Change

The fundamental building block of digital transformation is therefore not technology, but people, a much more challenging proposition. However, if we can somehow connect the collective workforce in the organization together in an effective fashsion to begin a shared and dialogue-based process of learning, understanding, experimenting with, and then carrying out the tasks of digital transformation across the enterprise as a much more aligned and self-supporting way, then we are much more likely to succeed. As I’ve discussed, we’ve even started to witness evidence that IT is shifting in this direction steadily, with the rise of empowered change agents and even unexpected source of pre-existing tech change using forces like shadow IT as a key resource for creating decentralized technology adaptation across the organization.

But it all starts with community, for which I believe the evidence is now clear is the most powerful way of organizing human activity and creating shared value yet developed.

Step 2: Assemble a Modern, Market-Facing Technology Stack

From there, we do need to look at the technology lens at what our business does and how it does it. We can no longer realize all tech change ourselves, as our competitors have already learned that the single greatest force for value creation is capturing and wielding community contributions of customers by the millions via mass co-creation, and business partners by the thousands (see APIs + hackathons). I recently summarized the many other emerging enterprise technologies we must consider all the time as well, but the most important ones are customer facing and involved in co-creation.

We therefore must instead now becoming highly competent in building strong and effective architectures of participation, as most digital leaders harness the vast capacity of the Internet to do most of the value creation:

The Digital Business Stack: Marketplace Driven Engagement & Value Creation

Step 3: Create and Nurture Digital Experiments

From there we can combine people-led digital change at scale with a portfolio of digital engagement and experience technologies and processes — that must prominently include market-facing community — to begin creating, launching, and growing healthy and vibrant new products and services. Growing hacking in fact, has become an important new technique used by top Internet companies to ensure early lift and adoption, and has been a key subject of interest by top technology leaders like Microsoft CEO Satya Nadella. So grow the results of digital transformation this way, then generate revenue:

Digitally Transforming a Business with Growth Hacking, Business Models, and Community

Step 4: Get Serious About Revenue Models

Finally, the last building block is digital business models, which one the service has a successful audience or community, can be experimented with and validated, though certainly some services, such as sharing economy ones, can monetize from the outset, though often at break even levels. Below is a representative list of some of the most common Internet business models, though by no means all the possibilities. For example, there are at least 18 separate known business models for open APIs alone. The high level Internet business models break down like so:

Common Internet Business Models

For a more complete exploration, please view the video of my closing keynote on this subject in Paris on June 2nd, 2016:

Or download a copy of the Slideshare deck that I presented with.

Additional Reading

How IT Can Change For the Digital Era and What Leaders Can Do About It

The digital transformation conversation shifts to how

Filed under Analysis, Digital Experience, Digital Transformation, Events, Network Effects, Online Community, Peer Production, Strategy, The Enterprise

The Long Game is Winning in Digital Ecosystems, and Other Global Tech Trends

March 16, 2016 2 Comments

I’ve traveled nearly 70,000 miles all over the world since the beginning of the year, talking with digital practitioners in the trenches. Most often these are passionate but often frustrated change agents, IT managers grappling with tech evolution, and corporate leaders on both the technology and business side looking towards their futures and feeling uncertain.

Where to best focus digital enablement efforts in their organization, while coming from behind, with scarce time and resources is question that is top of mind right now. Worse, leaders at the very top often don’t seem motivated to make the necessary moves.

From these conversations and many observations at conferences and events so far in 2016, it’s obvious to me at this point that we appear to be entering a new inflection point with digital: Those who began early, made the right decisions, and stuck to their Internet identity in terms of rethinking the future — as opposed to chasing traditional firms back into their own industries — are seeing outsized rewards in an increasingly winner-takes-all online marketplace. The rest of us are watching them pull away.

In short, the early entrants to the global digital business competition that were either a) lucky enough to discover the digital rules of success from the outset, or b) followed a positive market feedback loop to the same place are quite clearly sucking the air out of the room. Perhaps most importantly, they also had the ability to execute without the many constraints of our legacy organizations.

The Impact of Leading Digital Ecosystem Methods for Digital Transformation

Of course, I’m talking about Amazon, Google, Facebook, and Apple — sometimes referred to as the Four Horsemen of the Digital Apocalypse, for good reason — on the consumer side as well as Salesforce, and now surprisingly Microsoft, on the enterprise side, the latter two which are making major new inroads to enterprises I speak to. Microsoft in particular seems to be suddenly winning a lot of enterprise-wide “Microsoft company” deals as their digital/cloud vision matures. As a whole, these technology companies are increasingly seizing broad swaths of digital territory as they move at near light speed compared to their non-digital native brethren, breaking into new category after category with with relatively high levels of repeatable success. Certainly, their track record is head and shoulders better and much more rapid than most Internet startups, or most traditional enterprises that is.

Using the Inherent Power of Networks and Sustained Tech Investment

Why this is has been the subject of endless analysis, scrutiny, and speculation about this very small cohort of tech companies eating the world, but I propose that the core reasons are actually fairly basic. To restate the above: There are certain fundamental rules to digital ecosystems and the businesses built on top of them. While it helped enormously to be early, organizations that understand these rules and can also execute and invest for a sustained period of time can still dominate if they understand a few crucial pivot points.

Networks effects, one of the most basic measures of a successful digital ecosystem, quickly become exponential yet look relatively minor at the beginning, fostering complacency in competitors at the worst time, when a new digital market seems small and uninteresting. It’s not until critical mass has been reached a little later on, that a digital platform grows very swiftly into a market dominating and self-sustaining force. Then it’s relatively easy to crush lessor players that aren’t utterly focused on k-factor and other measures of these effects.

Simultaneously, and harder to prevent, is the tendency of make basic subsequent design changes to online products that then impede the carefully built channels that have created the initial growth and scale. I’d argue that many digital contenders frequently make this last mistake, making simple but disastrous changes — often when turning over the product from the 1.0 team to the maintenance team — by not staying true to the inherent power laws of digital systems that got them there (patterns such as “enabling networks effects by default” or “anyone can participate.”)

Needless to say, the aforementioned tech leaders managed to navigate past all these obstacles, including shooting themselves in the foot later on as they had to bring on fresh talent to grow the company. The critical design parameters that enabled growth stayed in place, and long enough to provide returns. This also highlights the big difference between most of these organizations and traditional companies: They had venture backing that isolated them from the quarterly financial cycle of immediate and continuous returns. Some would argue that Amazon has been doing this anyway, despite being a public company, and reaping enormous rewards in the long game of digital, where increasingly it’s apparent the winners reside. As BCG has noted, “even sharp minds can fail to grasp the power of sustained exponential forces.”

The primary lesson here: Deeply understand the rules of digital ecosystems and build one that solves a real pain point for a lot of people. Optimize the results relentlessly and pour the returns back into growth. Don’t stumble along the way.
This is a playbook that is simple enough to understand, but that most industrial era organizations fully embrace in a meaningful way, despite all the marketing talk — and I’m guilty as many of us in this regard — about digital transformation.

What does this have to do with the conversations I’ve been having? To person, almost everyone thinks their organization is moving too slowly, tentatively, and uncertainly towards becoming effective digital organizations that can compete, what I’ve called a next-generation enterprise. As SAP’s excellent Sameer Patel — and fellow Enterprise Irregular — once famously said, businesses have digitized quite a bit, but they haven’t really transformed.

Getting Past the Digital Innovator’s Dilemma

The real obstacle is one which I’ve been exploring in various forms over the last several years: Most organizations have accumulated and/or designed in enormous amounts of legacy culture, process, mindset, and infrastructure that got them where they are, but now has to be undone to a large extent to be fully realized and effective digital organizations. The world of agile, lean startup, OKRs, open APIs, devops, relentless A/B testing, and growth hacking are all words or phrases sometimes heard in the halls of the average classical business, but they just don’t lie at the heart of them, and won’t any time soon.

Worse, we’ve greatly over-centralized technology enablement so that it’s become a profound chokepoint in many organizations. CIOs and CMOs feel this acutely when this is the case, and yet a few are now reaping the benefits of going in the opposite direction. There are indeed solutions, but they require more ideas that traditional organizations aren’t good at: Open innovation, Kickstarter-style ideation programs, app stores, customer co-creation, change agent programs, hackathons, employee incubators, BYOT, enterprise architecture that’s designed for loss of control, and more.

The second big observation from my travels this year is that the technology world is maturing in some interesting ways. These trends too tend to favor those that invested early or invested big, or both. One is the realization that digital success stories aren’t coming from very many places. The United States and Asia dominate the top of the list, arguably having an unfair advantage through better investment policies for startups and very large markets that make it easy to take advantage of power laws. Larger markets, even ones relatively undeveloped, seem better to attract both talent and the numbers required to build market presence that can’t be ignored.

So what are organizations to do? I’ve suggested some digital transformation blueprints for both boards of directors as well as for the C-Suite that can help develop and grow true digital native lines of business in a sustainable way. But I also think that there is now a very steep curve to climb to respond to the network effects that Internet startups have created in many new and existing industries.

Become a Network Orchestrator and Harness the Market

The reality is that there is really only two ways for companies behind the digital maturity curve — which is still almost all of them right now — to catch up: a) Invent new industries that are irresistible in terms of the value and utility they offer b) employ the latest lessons learned on how to play to the strengths of the digital marketplace and turn the knob all the way to the right, beating the existing players at their own game by more purely and deeply plumbing the inherent factors that make digital ecosystems such an uneven playing board. Most digital contenders fail to understand even the most basic concepts of digital, such as the network itself is the single biggest resource you can and must use to digitally fuel your ecosystem to transform. It will do almost all the work, as long as you have a vision, a value proposition, and a platform which truly embodies and orchestrates both. Network orchestrators, in fact, are at the top of the Internet food chain. Organizations must live there, or become fodder for those that are. As Forrester’s Dan Bieler noted recently:

Digital ecosystems empower the CIO [Dion: and other internal tech leaders, official and unofficial] to become a critical business enabler by providing a technology platform to redefine approaches toward innovation, knowledge management, supply chain optimization, product development, and sales and marketing. In particular, traditional firms put survival at risk due to slow innovation cycles. CIOs who define a clear strategy to exploit the possibilities that digital ecosystems offer for their organizations position themselves as powerful change agents.

I’d only add that it’s not just about defining a strategy, but leading and executing on it sustainably. I’ll be exploring more about my travels and lessons learned on the emerging edge of digital shortly. In the meantime, your insights on this challenge are very welcome in comments below.

Additional Reading

Going Beyond ‘Bolt-On’ Digital Transformation

Is it IT’s last chance to lead digital transformation?

Filed under Analysis, Network Effects, Strategy, The Enterprise, The Web

Why the Underlying Laws of Cloud, Social, and Digital Business Matter

May 25, 2015 1 Comment

I’ve spent much of my Memorial Day Holiday here in the United States pondering the Red Queen effect vs. network effects, seminal laws of technology and business both, that are often held as gospel by their adherents who believe they are the natural and intrinsic properties of their operating environments (digital ecosystems in this case.)

Both hypotheses apply to any connected, relatively closed environment of some kind, which very much includes everything from traditional marketplaces, online communities, app stores, cloud services, SaaS, enterprise social networks, social media, and cable/video networks to e-mail, telephones, and package delivery. I cite these, as many practitioners don’t even consider system concepts when trying to figure out why they aren’t succeeding as hoped, despite those very ideas defining the rules of the playing field they’re working upon.

Both Red Queen and network effects have years of rigorous research and thinking to back them up, and as far as they go, they make real sense of the modern world as explanations for why things are the way they are in various places. This includes how organisms compete, survive, and thrive in the natural world or how networked products and services grow and maintain dominance on the Internet, respectively. These combined environments will ultimately lead to what I’m currently calling the 4th Platform.

Digital Business: Network Effects and Red Queen

The issue here is looking at why there are so many so-called ‘winner-take-all’ players at the top of the technology industry, especially on the Internet. In the shadows, nowhere near as successful, there are usually hundreds — sometimes thousands — of also-rans, depending on the sector, who struggle mightily, but usually fail. Rarely are the winners dethroned, though it does occasionally happen (see: AOL, MySpace, Friendster, RIM/Blackberry, all top digital players in their day.)

What triggered this line of thinking was Gartner’s fascinating new report on the Magic Quadrant for Cloud Infrastructure, which makes the stunning claim that Amazon now has 10 times more cloud computing capacity in use than the entire total of all the other 14 providers combined. The company is deeply wired into over a million customers’ ecosystems, and thousands of online products. By any estimation it is uncatchable.

Sidebar: Interestingly, this hasn’t stopped technology leaders such as Staples CIO Tom Conophy from stating last week that they’re going after Amazon “in a big way.” This despite the fact that both organizations aren’t even playing on the same digital meta-level.

Or is Amazon uncatchable? Don’t we just need to go ‘up the stack.’ As it turns out, not if it just leads to commoditization.

If traditional enterprises — and yes, more likely, startups — can only understand the fundamental rules by which the Amazon, Apple, and Facebook et al became leaders, the reasoning goes, we should be able to use those very rules against them. We should then be collectively able to out-innovate, out-invest, out-maneuver our competition and get to the top of an increasingly shallow but very, very steeply inclined pile of winners.

Deep thinkers in this space like my industry colleague Simon Wardley note that network effects create enormous inertia for change that make it very hard for a new player to get started, even if they’re much, much better. Worse, this is true even if you realize this and try to organize and optimize for it. You are simply spitting in the wind. Market-leading network effects, in fact, nearly always easily trumps the seemingly-powerful Red Queen Effect.

None of this is a new discussion of course, and the power laws of digital networks, such as Reed’s Law, have been relatively well-understood for at least decade. But their effects are now inexorably felt in the traditional business world like never before.

Using Networked Relationships Built on Enduring Digital Values

Ultimately, as organizations increasingly perceive the imperative to put a digital layer over their entire organization, even completely re-imagine it for the new models of digital business, there are some key fundamentals that we have to remember to close the gaps:

  1. Count on nearly everything in the ecosystem to eventually drop to effectively zero cost. Do not build your digital business along the commoditization axis. Only the underlying properties, like network effects, are exempted from this rule and this is a potent realization. We will eventually get the cost of nearly all technology to nothing, making replication and competition both easy and rampant. This isn’t where most businesses would like to be. However, network relationships like communities, total aggregate API integrations of partners, total daily users contributing value, these cannot never be copied whole cloth on an increasingly low cost scale. When people are involved, commoditization is not possible, and real, meaningful human relationships then become the strategic coin of the digital realm.
  2. Use differentiated models for commodity elements of digital business, versus the methods you employ for the innovative (and most important) elements. Social business, bi-modal IT (actually, tri-modal), devops, and even agile, are still the mantra here. These methods have been discovered to operate on the scale, speed, and collaborative dimensions required of today’s rapid digital cadence. Even better, they connect people the best way — that we know of so far — with how modern technology profoundly alters and — mostly — improves the way we work.
  3. If you are a large organization, you’ll have to operate in sometimes truly unexpected new ways to deliver well on digital. In particular, this means powerful new network models of organization structure — in IT and everywhere else — as well as new widespread digital workplace skills to be able to change at a sufficiently high and sustained rate.

    4. In other words, most organizations must rapidly evolve their operating models to adapt to the rules of the digital networks. A few have, but most still have not. There’s still time in a few industries however, but not a tremendous amount. For most, however, it’s now later than they think.

Filed under Analysis, Enterprise Architecture, Network Effects, Social Business, Strategy, The Enterprise

Defining the Next Generation Enterprise for 2014

May 12, 2014 Leave a comment

Many of you know that over the last several years I’ve tried to make the case that most organizations are currently falling behind the advancing pace of technological change. That business is so centered around technology today is the reason why addressing this has become a top competitive issue. Becoming better adapted to tech change is even tied to the medium-term survival of many organization as I recently explored in my look at digital transformation.

But to say that technology alone is what is disrupting traditional businesses would be inaccurate. We ourselves have changed — have co-evolved — along with technology. Our mindsets have become expanded by the new possibilities of super-connectedness, new models of working, and pervasive data-based insight that today’s networked revolution has wrought.

That’s not to say there aren’t important pros and cons to these advances as well. Along this journey of global, open, and social digital networks, we’ve also encountered enormous challenges in grappling with issues such as individual privacy and equal access, as well as the inherently large inequalities that emerge from the gaps between the digital haves and have-nots. This is precisely because technology is a profound force multiplier of just about everything it touches. There are other potential worries as well.

As The Economist fretted over recently, most technology revolutions have created more employment, not less. We hope that this is true for the next generation, but we’ll see, given how current models show that producer power is generally moving outside of traditional organizations to external networks that have less well-defined employment models:

Everyone should be able to benefit from productivity gains—in that, Keynes was united with his successors. His worry about technological unemployment was mainly a worry about a “temporary phase of maladjustment” as society and the economy adjusted to ever greater levels of productivity. So it could well prove.

Yet to most of us, it’s quite clear that digital channels combined with engagement at scale within them amongst all our stakeholders is at the core of the future of business. But what does this actually mean? What does it look like to most organizations? How can we articulate the changes to structure, process, and management of our organizations in a deeply digital age? It’s my belief we need a comprehensive yet eminently understandable model of how all this reshapes our organizations.

Ecosystem View of the Next Generation Enterprise for 2014: Workforce Community, Customer Community, Partner Community, Market, Social Business

I’ve come to realize we’re trying to hit a fast-moving target with poorly aging models for service delivery and IT governance when it comes to digital transformation. The reality is that it usually takes several years for a large organization to achieve large scale change. By this I mean three to five years, and often more, and that’s just for an individual enterprise-wide initiative.

In today’s operating environment of yearly — sometimes quarterly — waves of highly disruptive enterprise technologies and products, that’s just too long. We need a clearer and more updated sense of where we need to take our organizations, and it must also show us how to increase our technology metabolism as well. This model should include the broad strategic outlines as well as specific adaptations to the latest powerful new digital capabilities such as big data analytics, omnichannel customer engagement, the Internet of Things, social business, and so on. These subjects are all highly strategic to the future of our organizations at the moment, yet they are also interrelated and must fit together relatively well in this model somehow.

Related: Digital Business Ecologies: How Social Networks and Communities Are Upending Our Organizations

Motivation for an Infinitely Renewing Model of Tech & Business

Over the last few years, I’ve adopted a term known as the next generation enterprise or NGE for short. It’s the idea that we can maintain an up-to-date strategic model when it comes to digital transformation. The vision for the next generation enterprise is different from one year to the next and has specific technological phases as well as overall strategic themes at any given time. This vision has its own management theories as well, such as shifting from organizational hierarchy to networked community or reorganizing how we operate to the three new top-level modes, to name just two examples.

In other words, the idea of the next generation enterprise is a relatively complete view — including both business and technology — of the target that typical organizations should be aiming for in their objectives for digital adaptation and growth. For the moment, let’s put aside whether there even is a typical organization, since many of the most important technology innovations are usually agnostic to your particular industry or unique company attributes. In other words, most major technology advances will derail your boat if you ignore them long enough, no matter what business you’re in.

To give us a shared roadmap and a point of reference, I’d like to start putting a clearer definition behind what we think is meant by a next-generation enterprise. Early this year, I mapped out the most important strategic new enterprise technologies, but it was a purely technology view and included a good many tactical elements that aren’t that important when it comes the big picture.

Instead, I’d like to have a more enterprise-centric view that includes the most important advances in business that technology has directly enabled. Some would say that the advent of being digital connected to every human being on the planet at all times (at least in the developed world) is one of those advances, and I agree. This realization is that communities are moving increasingly to the center of our businesses. But it’s more than that. The enclosing strategic conception is really one of ecosystem, whether that’s inside a segment of the enterprise with a single networked team, an external customer community, or a full-on developer network of thousands of application development partners who have welded your digital supply chain to their apps. All of these are ecosystems that must be created (or identified), grown, cultivated, managed, secured, and governed.

In fact, one of the largest issues we have in digital transformation today is that we look at business in a far too simplistic traditional model. In this legacy view, there are functional silos with workers combined with management hierarchies that together actually make decisions and operate our organizations. Then there are suppliers, business partners, and customers, and that’s about it for the big moving parts.

Baseline for Next Generation Enterprise 2014: Networks, Communities, and Support Programs (Social Media Center of Excellence)Today’s next generation enterprise plays on a much larger and more complex chessboard. There are thousands of relevant ecosystems that now exist for most businesses, most informal, and across thousands more channels, all with a long tail structure.

This means that while the head of the distribution consists of big channels you’ve heard of — from major social networks and call centers to traditional media and Amazon’s cloud — there are thousands you haven’t heard of and will never be able to deliberately consider and plan for. Business architecture has thus moved from simple planned models to complex and highly dynamic emergent networks across every business function we have. We’ve gone from a few dozen groups of stakeholders to ultimately tens of thousands that we must still manage to somehow. Ultimately, our org structures must adapt to reflect this.

I’ve previously proposed a set of enterprise strategies which have a good chance at addressing many of this issues, which were originally brought forth by the channel fragmentation, scale, and decentralization that we saw greatly exacerbated by IT consumerization a couple of years ago. But I now see that bring-your-own-device was just the forefront of a wave of grassroots led network-enabled change, including bring-your-own-application, bring-your-own-community, and soon, even bring-your-own-workforce.

Related: Designing the New Enterprise: Issues and Strategies

The Element of The Next Generation Enterprise for 2014

So I’d like to put a stake in the ground and define what I think the next generation enterprise for 2014 should look like. There are several views here, but I’ll start with the more business-centric view of ecosystem and expand to other views as I’m able. In this ecosystem view we have the following components:

  • A more network-centric enterprise. Less hierarchical and consisting much more of online communities for achieving cost-effective outcomes at scale. This will happen within and amongst the workforce (network/social collaboration), business partners, customers, and the marketplace. Management and leadership through networks will become an essential skills and will require knowledge of the concepts and operation of digital and social businesses.
  • Workforce communities. While we’ve had a primitive model of team in the legacy workplace, it becomes much more fluid, dynamic, and high scale in the networked world, often directly supported by powerful new collaboration capabilities. Teams-based, project-centric, and — still evolving — process-based work conducted by communities will increasingly become the norm. Why? Because the data has consistently supported that the network/community model provides better business results.
  • Business partner communities. One of the least developed models of networked communities, there are however good examples that can be pointed to. Strategic partners, affiliates, and suppliers can be engaged together in operations, in particular — as John Hagel famously pointed out — with exception handling scenarios.
  • Customer communities. This is one of the strongest and most easily started models for strategic community. The evidence for business value is strong enough that I’ve wondered if the window is already closing on customer communities in certain industries. Certainly in my research I’ve found that customer care communities can reduce costs by 30% in the first year alone over traditional approaches. Social support also at the very top of Ray Wang’s social business use cases.
  • Marketplace. The single most scalable asset that businesses have is networked access to their customers and the broader marketplace. While this constituency also includes regulators and influencers, two groups that can be hard to manage, it also includes online advocates, crowdsourcing participants, software developers, and other interested parties. If you’re surprised to see developers in this list, then don’t be: Developers have become one of the single most important new constituencies as their innovations can drive primary growth and network effects. This is a very different view of business than before, where companies directly engaged their stakeholders.
  • New channels. The next generation enterprise will still have some legacy aspects including physical offices/stores — just smaller and more virtual — it will be the Web and especially on mobile devices that value is primarily created and captured, both. Social business environments (communities of all functional types and audiences) and the application as the new CRM will be key channels here as well. Ultimately, however, APIs — which I define as open digital supply chains — will be the most strategic channel for many industries because it scales faster and creates far more robust outcomes for very little investment.

Using this model, we can also baseline the various states of maturity of each part of the modern enterprise ecosystem for comparison, as in how far along are we? The essential point here with this view of the next-generation enterprise is that it’s the current target model, not what you should look like today. It’s what you should be aiming for, although you should certainly have some elements of it in place today (see figure 2.)

What do you see as other essential views of the next generation enterprise? What else needs to be added?

Related: The Second Wave of the Contemporary Workforce

Filed under Analysis, Crowdsourcing, Enterprise Architecture, Network Effects, Social Business, Social Media, Strategy, The Enterprise Tagged with

How We Gave Up Control Over The Social Web

November 13, 2013 1 Comment

A short but pithy piece over the weekend by Dave Winer titled “Why the Web 2.0 model is obsolete” got me thinking about where we’ve ended up with social media after nearly ten years. Blogs, wikis, and other tools of easily shared self-expression from the early days have given away in recent years to a much less diverse social media monoculture. A few large social networks now control our social identity, content, and behavior, and through their terms of service, often literally own our online existence legally and de facto.

This evolution was perhaps inevitable given the rules through which networks operate and certainly the result has its strengths. It’s far easier for consumers and businesses to adopt a hosted service than set up their own social presence, with all the complicated bits it requires to set up a fully functional social identity on your own these days. It’s also probably more secure, safe, and reliable long term. It’s certainly the shortest route to connecting with the vast captive audiences that the leading social networks now wield.

Yet in the process of making many short term decisions in the name of reach and convenience, many of us have given away our social capital, and along with it much of our online autonomy and freedom. I’ve long since stopped advising companies to drive their traffic to Facebook (disclaimer: I am a shareholder) and build their own online communities and digital ecosystems if they are intending to be strategic about things like social business and open APIs.

Network Effects, Social Media, and Centralized vs. Federated

The impressive thing is that we’ve largely achieved the original vision of Web 2.0 and it’s just how we do things now. We share by default. We use social media more than any other digital activity. Social media is now woven into so much of what we do today. Yet the majority of all of this user generated content and online community is now centralized in a few large social silos that can no longer talk to each other.

Even worse, if we go the opposite direction that might seem better long term, we’ve discovered issues with that model too. For example, we’ve learned that when we create many smaller, self-controlled, and more autonomous social environments we then create fragmentation. We can’t easily communicate or collaborate with each other across these social islands. Thus, for as many downsides as the monolithic social networks have, they do achieve one important thing: They create a very large single social universe that we can all communicate across.

So what should we collectively do? Should we cave in and trust that the corporate owners of the social world will be benevolent, even when they clearly have business models that are very often at cross purposes to our needs and desires? Or should we find a way to solve the problem of creating our own social corners on the Web and then connecting them together, all while making it very easy to do so? Personally, I’m hoping it’s the latter. Certainly I’ve explored previously how open social standards have a genuine shot at helping with this, even if it might be a bit of a long shot.

The reality is that social media silos are now holding us back, both as individuals and as businesses. We can do much better if we want. But getting there requires a little long-term discipline and plenty of widespread demand. That makes it pretty unlikely in the face of the enormously strong network effects of the largest social networks today. But perhaps there’s a third option to regaining control over our social lives. In fact, I predict the next big breakthrough in social media is likely to come from the need to resolve this tension between the unfortunate long term consequences of centralized social media and the benefits of a much more federated and user controlled model. Unfortunately, recent history has been a steady march towards the former.

So until then, we all need to mull over where our collective decisions are taking us, for as social media is perhaps the greatest communication revolution in history, its intrinsic power cuts both ways.

Filed under Analysis, Network Effects, Social Business, Social Graph, Social Media, Social Technology & Standards, Strategy, The Web, Trends and Statistics, Web 2.0

Imagining the Future of the Enterprise

October 23, 2012 1 Comment

This afternoon at a workshop in Stuttgart, Germany at the KnowTech conference I explored our latest conception of the many transformative technology changes happening within our organizations today. The majority, if not most of these trends, are now being driven by the so-called “big shifts” — and our response to them as people, organizations, and society — that are largely being imposed from outside the walls of the enterprise. Consumerization is clearly here to stay. This is not to say that businesses aren’t innovating. Certainly they still are. But they are greatly outnumbered and frequently outclassed by the tsunami of new ideas sweeping across us from the consumer world.

The pace of advance today can seem overwhelming. It is new mobile devices, social media, cloud services, avalanches of sensor or crowd-created data, all brought to our doorstep via new digital channels and platforms such as mobile apps, app stores, open APIs, new social networks, gamification tools, to name just a few of the bigger and more disruptive technologies.

To proactively deal with all this, I currently advise most companies to develop a “strategy book” that they can readily use to identify important new advances, understand their abilities and ramifications, and then determine the impact to their business, both in terms of opportunity and challenges. Note: The aforementioned workshops typically provide the basis for such a strategy book and the processes required.

Unfortunately for most companies, there are often more challenges than opportunities, since many of these new technologies go against the grain of how traditional companies are structured and operate. Openness, decentralized processes, mass participation, network effects, and radically new distribution models for communication and work are not merely typical of today’s consumer technologies, it’s how they fundamentally work and compete against each other.

Put simply, to survive these generational shifts, organizations must figure out how to absorb new technology changes effectively and at scale. This will require potent strategies that will begin with requiring genuine rethinking of service delivery within our organizations and ultimately arrive at a profound transformation of the company. This will ultimately include its business models, motivations, and sometimes even its reasons for being. One can look at Amazon as an exemplar of this, starting out in e-commerce, and ending up a true and surprisingly pure digital platforms company, successfully wielding mobile, platforms, cloud, and big data to achieve market domination. Amazon is the most well known, but there are others and the route is repeatable, just as it is sometimes difficult.

The end point of all this is where everything is a service, as Dave Gray famously predicted. But also it’s more than that. The future of the enterprise, what I’m calling the next-generation enterprise, requires a mindset that doesn’t think in terms of fixed markets or point products or services. Instead, we must create, cultivate, and control fast-moving and highly competitive ecosystems of people, information, and value across a virtually unlimited number of channels. Those who can move first, co-create, and own the best class of information and then deliver it in forms the market wants, when it wants it, will be the winners in the short-term and long-term. Companies organized to do any less than this will falter and fade.

Over the last couple of years, I’ve been spending a lot of time thinking about and exploring how organizations can get there. There’s still a lot we need to learn, but we’re beginning to see the broad outlines. Unfortunately, there still more questions than answers, even today. Can most organizations make the transition? Does the transition to a next-generation enterprise have multiple routes, if so, what are they? How much investment is required and what is the likelihood of failure? Can we quantify and manage the risk of transforming? All of these questions and more remain difficult to answer.

Related: How Digital Business Will Evolve in 2012: 6 Big Ideas

However, we do know with a fair degree of certainty that most large organizations will need to begin changing faster — starting now — if they intend to survive. Most will need to become next-generation enterprises in a meaningful way within the next half-decade. And they need to have started several years ago.

As we enter the age of digital engagement, the untapped possibilities still largely exist. Most organizations should be utterly thrilled by the uncharted territories in front of them. Unfortunately, I see that most do not even see these as more than a threat, if they see them at all. That then is the first challenge: Changing how we regard our connection and relation to the world, for the biggest changes happening today are not only digital, but to ourselves and what makes our companies work.

Filed under Analysis, Next-Gen Mobility, Social Business, Social Media, The Enterprise, The Web, Trends and Statistics

Enterprises and Ecosystems: Why Digital Natives Are Dethroning The Old Guard

February 26, 2012 2 Comments

Why is it that so many traditional companies with an enormous wealth of assets largely fail to transform them for the digital era? By assets here, I mean established customer base, closely held relationships with trading partners, mountains of data and IP, as well as their bread and butter, the actual products and services they offer. For large organizations, these assets typically represent many billions in long-term investment and accumulated value that is being stranded beneath a digital ceiling they cannot seemingly break through. The lesson has been a hard one: It’s been surprisingly difficult for many companies to make a genuine transformation to digital.

For those just joining this conversation, this transformation is about opening up and digitally enabling the strategic assets of our organizations for better consumption and participation, with as low a barrier as possible. It’s also means doing so in a way that continually maximizes their value over time in today’s deeply networked marketplace. Achieving this triggers the primary engine of growth for digital ecosystems, namely network effects. This is how Apple, Facebook, Google, Amazon (new guard), and Microsoft, IBM, SAP, Oracle, and many others (old guard) eventually built hundreds of billions in combined value. They tapped into the relevant power laws of networks by carefully and deliberating cultivating and then closely managing them by harnessing peer production over the network.

Digital Business: Cultivating and Managing Digital Ecosystems (Open APIs, Social Supply Chain, Web Services, SOA, Online Communities, Peer Production, OEMs)

How exactly was this accomplished? They did it by digitally platforming their businesses in specific ways: Enabling self-service on-boarding, viral adoption, open participation, best-of-breed data capture, ownership and control, and took advantage of the fact that relationships — and therefore, ultimately transactions — must take place on the network with as little friction and cost as possible. They realized that we are now all connected together continuously in a single global network and then designed their organizations around this central fact of the digital age. They are now reaping the results of this mindset:

Networked ecosystems must be a core focus and competency of modern business.

This begs the increasingly urgent question: Why then are a large number of older organizations neglecting their digital ecosystems, often failing to meaningfully cultivate them at all for many of their most valuable assets?

This is a key question that fellow Enterprise Irregular Vinnie Mirchandani recently asked in an internal EI mail thread and later posed on his blog:

But for every Apple which has gone one way, I see so many others piss away this huge asset that is their ecosystem. I hear about musicians and filmmakers auditing, even suing studios for accounting disagreements. I hear SAP mentors complain about legal issues getting licenses and other access to new technology. It’s easy to dismiss Joe Konrath’s litany of complaints against book publishers as one from an unhappy author, but the 230+ comments it has drawn shows a deeper angst about how poorly publishers are managing their author ecosystems.

Ecosystems, communities – call them what you want. They are a vibrant organism which deserve far more ink from all of us. And they need professional managers at the companies at the middle who nourish them and not just treat them as railcars to be hustled away whenever inconvenient.

As companies remain inadequately connected to their customers, partners, and workers via digital ecosystems, many of which they do not control, they are missing a rapidly narrowing opportunity. That’s because it’s very, very hard to disrupt a well-established network effect, which is much more powerful than the equivalent notion in the pre-digital era: traditional market share. Network effects are primary focused on pull distribution, while marketshare is heavily based on push, which is much harder and much more expensive to sustain. As digital natives sew up more and more industries and lay down network effects years ahead of their traditional brethren, any chance to reclaim the throne will be very unlikely.

For leading examples of potent digital ecosystems, see open APIs, social customer care, and app stores.

Why is this? There are a number of reasons but a few are particularly significant. What I wrote in the EI thread in response to Vinnie’s original question was this:

I find that in general, the farther you are from the tech business, the less native skill or familiarity there is with system thinking, which is perhaps the critical capacity to have in order to regard your business in ecosystem terms. This is something that in tech is standard fare with constant discussion and focus on platforms, network effects, SDKs, open APIs, app stores, etc.

Traditional publishers are typical of the technically challenged industries that are being blind-sided by newer, much savvier, techno-centric, network-oriented new digital businesses.

Business leaders that can’t deeply see the way forward for their organizations as flexible, highly dynamic, and organic digital networks of customers, partners, workers, and other (likely and unlikely) participants will ultimately fail. But this isn’t the set of skills or mindset that made them successful in the first place, so they don’t value it and don’t think in these terms. They literally throw off digital rethinking like a sort of corporate immune system. Surprisingly, from my talks in the C-suite the last few years, everyone individually seems realizes they have to change, but collectively they are resistant, it’s fascinating to watch.

A big part of the problem boils down to this: Companies are inherently designed to perpetuate the problem they were invented to solve. It’s a particularly thorny instance of the Innovator’s Dilemma, which ensures that a company is unlikely to aggressively re-invent itself until it’s in the process of being disrupted. Unfortunately, this often means it’s already too late.

In fact, it may be too late for a growing number of industries to fully make the transition to being ecosystem-centric. This includes media, publishing, telecom, retail, and many software companies. Under looming threat is real estate, higher education, financial services, professional services, accounting, and even venture capital. In each of these categories, ecosystem-centric firms are building network effects with open network-based products increasingly built by worker/open communities and delivered to customer communities. Those products are in turn built upon by hundreds or thousands of loyal 3rd party partners to bring their own customers and ecosystems to the table. This is an embarrassment of riches that only a few companies, again mostly digital natives, seem interested or able to tap into.

As Fred Wilson once said, the Web (and therefore digital business) is all about “building networks on top of networks“, which leads to even more powerful outcomes, like 2nd order network effects.

Fortunately, the force multiplier of the ecosystem model can be stated in a simple, fundamental way: It allows one to tap into the vast size and strength of the external network to drive growth, innovation, and revenue for your own ecosystem. As Peter Kim and I wrote in our new book, the fundamental principle of business in the ecosystem era must be to let anyone participate in every aspect of the business, primarily by inverting the facilitation process of driving shared value (i.e. network effects by default.) Being able to elicit the network (Internet, community, shared data, whatever) to maximum effect to fuel and growth your ecosystem is thus the core competency of the digital era. Unfortunately, this lesson is being lost to most organizations that were built well before this next-generation business model was understood. It will be a great loss that doesn’t necessarily have to happen in my opinion, but will ultimately result in the needless disruption of a large number of companies that just aren’t able to become digital natives.

For additional reading see:

4 Ways to Create Sustainable Business Ecosystems

Why Information Power Is The Future of Business

What Will Power Next-Generation Businesses?

A View of Digital Strategy in the Ecosystem Era

Are We Building Businesses Or Are We Building Platforms? Yes.

How Digital Business Will Evolve in 2012: 6 Big Ideas

Filed under Analysis, Enterprise Architecture, Network Effects, Peer Production, Strategy, The Enterprise

What’s Coming Up in Social Business, CoIT, Open APIs, and More

January 11, 2012 5 Comments

While 2011 was a busy year, I’m expecting 2012 to be a breakout year for a number of key subject areas that I work with closely. The run up of social business over the last five years has been phenomenal but there’s a general sense now that it’s about to go truly mainstream. That’s not to say it hasn’t already happened nearly everywhere already, except for a significant part of the business word. This now appears to be changing as the latest adoption data shows that with few people left on the consumer side, the growth of enterprise social media is about to start closing the steady gap that it’s held behind the world of social media over the years.

Perhaps more than anything else these days I’m getting this increasingly urgent question at an senior executive level: What specifically are the business benefits of social media? While I’ve covered that in detail many times, this new-found interest on exact outcomes shows that the business leaders are increasingly feeling compelled to wrap their mind around the inevitable changes facing their organization. To help with this I’ve recently distilled it into the chart you see below, based on the McKinsey data they collect every year from large organizations. These double digits performance improvements then, embody the social business imperative:

The Business Gains Possible with Social Media (Social Business, Enterprise 2.0, Social CRM, Social Media Marketing, etc.)

Then there is the whole consumerization story that’s unfolding at the moment. This has been a seismic event for many organizations as smart mobile devices, enterprise app stores, and software-as-a-service from the Web all combine to make adoption of the latest apps and IT solutions is just a mouse click or tap on a touch screen. At the same time, there is a growing sense that the classic line dividing IT and business is blurring, just like there is so much blur in many key business boundaries today. The lesson: Everyone can and should be be involved with making these changes happen constructively and effectively for their organization, whether it’s social media, information technology adoption, transformation to new digital business models, etc. Many of you know tat I’ve started to call this confluence of IT trends “CoIT” and it’s something I’ll be researching and speaking about extensively this year because I believe IT is about to change — no, is changing — in a substantial and irreversible way. The changes themselves are largely good but it will certainly leave some ‘creative destruction’ behind, to use the popular euphemism for what happens when innovation cuts through an organization in an unplanned way.

Now that the basic platforms for social business have matured to the point that they’re ready for most organizations — and by this I mean both internally and externally for most common business functions like operations, CRM, marketing, product development, etc. — we’re moving into more sophisticated and higher-order capabilities. Capabilities like social business intelligence, enabled by the rise of both older and radically advanced new technologies now known as Big Data, are making it possible for us to actually make sense of the huge knowledge flows moving around us. I’ll also be closely following analytics, machine learning, natural language processing, metrics, and much more, both in terms of technologies as well as how to best embody them in operational business processes.

2012 is also shaping up to be the year of open supply chains, or as people on the Web call them, open APIs. The number of products and services that are now open to be remixed into other companies’ offerings has exploded in the last year. See this terrific visualization of API growth on ProgrammableWeb to get a sense that something big is indeed happening here. I’m now seeing sustained interest beyond the Internet community by traditional companies that are starting to see how much value they missed by looking at their businesses through like silos, disconnected from the digital rivers of commerce, ideas, engagement, and so on. Open APIs are now officially on the radar of big company CIOs. They are seeing how it will be a significant competitive advantage to offer a compelling API in an industry that does not have strong uptake yet. 2013/14 will start looking bleak for those firms that don’t yet have them, or at least have developed competency in both the technology and business models. In the meantime, the tools, techniques, and business models for making APIs work for a wide range of industry has greatly evolved and will be important to watch.

There’s plenty more I’ll be tracking this year; there’s really no shortage of topics that will be vital for all of us to watch including augmented reality, new mobile technologies like NFC, the rise of HTML5 and its coming battle with iOS and Android, gamification of just about everything, location-based social networking, enterprise OpenSocial, and much more.

2012 Speaking Calendar

In the meantime, my speaking calendar for 2012 has started to fill up quickly. While you can always read the latest on my blogs on ZDNet, ebizQ, the Dachis Group Collaboratory, here, and elsewhere, I’ll also be releasing a major new book on social business that I co-authored with Peter Kim that will be out from Wiley this May. I’ll be writing a detailed blog post about the book soon, but in the meantime, you can get the details here on Amazon. But for those of you that can make any of these conferences, I’ll be sharing my very latest findings at the following events:

  • 60 Minutes with Nir Zuk. January 31st. I’ll be having a live fireside-style chat with Palo Alto Networks founder and CTO, Nir Zuk in a Web-broadcasted discussion about how enterprises must make the right policy decisions, in context, to safely enable social media in their organization in order to attain the corresponding business benefits. It’s a free event.
  • Enterprise 2.0 SUMMIT, Paris. February 7th-8th This is one of the best enterprise social media events in Europe in my opinion. I’ll be speaking here again for the 3rd time, providing the closing keynote on the 2nd day on “Next-Generation Ecosystem and its key success factors”. I’ve arranged a discount code for my readers from conference organizer Bjoern Negelmann. Use code ‘dhinchcliffe10’ for 10% off the registration fee. I’ll be there both days for anyone that would like to meet up.
  • Enterprise 2.0 Virtual Conference. February 16th. I’ll be providing the opening keynote on social analytics at this virtual event. I’ll be bringing with me real case examples, an overview of the latest tools and techniques, and primer on how to get started. You will be able to sign up here soon.
  • CITE Conference & Expo 2012, San Francisco. March 4-6th. I’ll be providing the opening keynote on the topic of consumerization and CoIT, which is also the main topic of this conference. In addition, the day before, I’ll be providing a deep dive on how organizations can make it through the era of IT consumerization in much more detail in a half-day workshop. CITE is run by IDG and they are hoping to make this even one of the leading events on the topic.
  • AIIM Conference 2012, San Francisco. March 20-22nd. This major event being held by AIIM has an all-star cast including Clay Shirky, David Pogue, Ray Wang, and many others. I’ll be providing the closing keynote on the 2nd day on next-gen mobility and mobile/social convergence. Highly recommended.
  • Social Business Summit 2012, Austin, Shanghai, Rio, Berlin, London, Singapore, New York. March-September. This is our official social business conference series for the Dachis Group. It attracts the top thought leaders in the space and is in its 3rd year running. Previous speakers have included John Hagel, Charlene Li, JP Rangaswami, and Dave Gray. It’s invitation-only and most locations sell out quickly, so I’d request an invite now. I’ll be speaking at most of these to promote our new book. Also highly recommended.

That’s it for now, but plenty to mull over. This year we’ll see many of the changes we’ve been tracking that last few years actually happening in the enterprise a widespread way. I’ll be covering them in my blogs and on Twitter as much as possible. As always, I’m interested in hearing from anyone in the trenches making these changes happen in their organization. Happy social business!

Filed under CoIT, Social Business, Social Media, The Enterprise, The Web, Trends and Statistics

The Web vs. Mobile Apps: How iOS and Android Are Disrupting The Open Internet

December 17, 2011 4 Comments

The battle is well under way but I find that most people barely notice it. As Shelly Freierman of the New York Times observed earlier this week, as developers put the finishing touches on the millionth mobile app (yes, millionth, as with an ‘M’), other channels are now outmatched:

The pace of new app development dwarfs the release of other kinds of media. [my emphasis] “Every week about 100 movies get released worldwide, along with about 250 books,” said Anindya Datta, the founder and chairman of Mobilewalla, which helps users navigate the mobile app market. “That compares to the release of around 15,000 apps per week.”

The Web can’t keep up either. Mobile has mindshare now. While classical Web pages made purely of static content still easily beat apps, that’s also not where the value or the action is today. As with any distribution curve, it’s true that much of what is being produced in mobile apps isn’t very interesting or even useful. But that’s not the point; it’s the sheer volume of investment that apps are attracting which means that the high side of the curve is aggregating some of the best talent, and results.

Moreover, there may be no easy way to catch up. A new generation of apps is appearing that takes advantage of the unique abilities that next-generation mobile devices alone usually possess. This includes location (GPS), orientation, images, video, audio, and increasingly, new capabilities like near field communication (NFC). Innovative apps like RunKeeper, StarWalk, and WordLens are only possible because of their deep integration with the rich sensors located in today’s mobile devices. HTML5 is going to address some of this disparity, but not quickly enough to address the tide of defections — and venture capital — from Web apps to mobile apps.

Mobile Apps versus The Web: How iOS and Android are disrupting the Web

The genie won’t go back in the bottle

The sometimes-blind rush towards mobile apps has begun to concern me. For one, there’s little question that the proprietary element of apps — including their developer APIs, associated app stores, and underlying run-time platform and ecosystem — represents a very slippery slope back to the old days before the broad adoption of open standards (which includes virtually all of the Internet, even today.) That was back when industry giants like Microsoft and IBM called the shots and practically everyone was at their mercy, with independent developers at a distinct disadvantage with the platform owners themselves. There was often little choice and lots of lock-in. The arrival of the Web — and to an almost as large an extent open source — broke the stranglehold on proprietary platforms and put everyone on roughly the same playing field.

Then there is the model of the Web itself, something which has intrinsic properties that make it very, very special indeed. This especially includes deep link structure, which makes search work and provides link addressability to just about every element of information in the world (if it’s Web enabled that is.) After many long years of struggle, we are now finally seeing large companies starting to get the message that Web-orientation is a fundamentally powerful concept, perhaps more important than any computing idea since von Neumann architecture. The Web of pages, data, and even apps creates possibilities for ecosystems, integration, and synergy that’s more profound each and every day after nearly 20 years of continuous co-creation by everyone that uses and contributes to the Internet. All of this is now potentially threatened by the return of platform and app silos, proprietary mobile technology, and the seduction of new single-source forms of monetization of software, combined with a perception that app stores provide consumer safety that just doesn’t exist in the wild environs of the Web (which indeed they can.)

Related: Why The Next App You Use Might Be In A Social Network

To be clear, I’m actually a genuine fan of mobile apps and have hundreds of them on my iPhone and iPad. They are sometimes well-integrated with the Web, but I’m constantly battling the “lock-up” they introduce: 1) I can’t easily copy and paste data in many apps, 2) you frequently can’t link to information, 3) it’s not searchable from one place, and so on. Worse, it’s usually stuck on one platform or even for a single device (I have plenty of iPad apps that won’t run on the iPhone for example.) In comparison, the Web gave us real choice in browsers, search engines, servers, services, apps and much more as well as an revolutionary data architecture that has unleashed the knowledge of humanity along with the social media revolution, which has ultimately given us (everyday people) leadership over the production and sharing of global information. We give this up at great peril.

Can we still get to a good place? Yes, but it’s up to you.

There is a distinct and sharp inclination today towards mobile apps. They are convenient, fast, fun, and always with us. I’m actually mostly for mobility in all its form — especially apps — but it now looks like we may have to re-fight the long and arduous wars of open standardization that got us to the right place with the Web. Like it was before, it will be hard going but worth it in spades.

I should also note that the evolution of the Internet did fall down in a few key places that originally led to the rise of native mobile apps — namely not keeping up with the capabilities of mobile devices and by not introducing a way to make apps as safe, easily distributed, and monetized as say, iOS has. For that, we might pay a very high price indeed; our autonomy, competitiveness, and freedom to choose. Unfortunately, it’s often a zero sum game in terms of the shift in investment: Most Web apps simply must have a native mobile front-end now. That means it costs more to produce or the app collectively does less. Worse, while most mobile apps also have a Web experience, I notice that a growing number of them are using them primarily for support and brochure-ware instead of providing an integrated Web experience. That’s the slippery slope defined.

Where all of this is headed is unclear and there are certainly many people working on unifying today’s Web and mobile devices. However, none have yet hit upon a solution that will be broadly adopted. I’ll explore this topic in more detail throughout 2012, but increasingly it is looking like a very large yet largely silent struggle is brewing between these two vitally important worlds. The upshot: The Web could potentially — in the long-term — become a second-class citizen and I’m very sure that’s not a good thing. Fortunately, in the end, I’m not overly worried about this yet, as the network effect of the Web is just so large. Then again though, so is the growing network effect of mobile devices. I’m certainly not alone in tracking this closely, a good piece by Gigaom’s Matthew Ingram this week discusses how folks like Dave Winer and John Battelle are thinking about the consequences. We all must do the same.

Mobile is just one of the Big Five IT trends that we must grapple with in order to make the transition to next-gen enterprises.

Filed under Analysis, CoIT, Next-Gen Mobility, Strategy, The Web, Trends and Statistics

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