WEB 2: The Bubble That Changes Everything

>> by Don Tapscott

Far from a fad, social networking points the way to whole new methods of innovation and production.

Two  years ago Time magazine chose YOU – the online collaborator, as The Person of the Year. But that was so 2006!

Sure, social networking is exploding. MySpace is growing at many thousands of new registrants per day and is on track to a billion members. There is a new blog created every second of the day 24 hours a day. More than one million avatars work and live in a virtual community of people having a “Second Life” – one recently having acquired a million dollars in property as virtual money is pegged to the US dollar as a floating currency. Wikipedia – free and owned by no one – has become 12 times larger than Britannica, but with the same quality. Viewers of 2007’s Superbowl watched a Doritos television advertisement that was created and chosen by its customers on the internet.

Is this going somewhere? Or is it just another bubble?

The dotcom boom was predicated on a nascent internet that had, in 1995, relatively limited economic reach. And as with all big innovations throughout history, like the steam engine, electrical power, telephone or television, we saw a speculative bubble and crash. The next stage that evolves over decades – the one we’re entering now – is when the technology comes of age and new business models come to fruition. The smartest managers already know that so-called “user-generated media” and “social networking” are really just the tip of an iceberg. In fact, they are nothing less than a new mode of production in the making.

Thanks to internet, companies are beginning to conceive, design, develop and distribute products and services in profoundly new ways. The old notion that you have to attract, develop, and retain the best and brightest inside your corporate boundaries is becoming null. With costs of collaboration falling precipitously, companies can increasingly source ideas, innovations and uniquely qualified minds from a vast global pool of talent.

The end result is that the corporation may be going through the biggest change in its short history. After all, if you can make an encyclopedia through mass collaboration, consider what else. How about an operating system (Linux) or applications software (Sugar CRM is one of 125,000 open source applications projects under way). How about a mutual fund (www.marketocracy.com), a peer-to-peer lending system (www.zopa.com), designer t-shirts (www.threadless.com), or other physical goods (www.cambrianhouse.com)? 

Perhaps a complex physical good like a motorcycle? The Chinese motorcycle industry, now the largest in the world, is a sprawling network of parts makers with no single company pulling the strings. Or take the most complex product you can think of – a new generation jumbo yet. Rather than creating a specification for its supply chain, Boeing co-innovated the 787 Dreamliner with thousands of partners around the world in a mind-boggling peer-oriented ecosystem.

These are examples of a new kind of collaboration – where peers come together to create value, often outside of traditional companies. While some fear that these heaving communities and new business models will reduce the proportion of our economy that is available for profitable activity, leading firms are proving otherwise. Networked models of innovation and value creation can bring the prepared company rich new possibilities to unlock potential in a wide range of resources that thrive inside and outside the firm.

Consumer goods giant Procter & Gamble is a perfect example. Until recently, P&G was notoriously secretive, and about as closed as a company can get. It didn’t look outside its walls for anything and it was failing, punctuated by a stock collapse in 2000. New CEO AG Lafley led the company on an ambitious campaign to restore greatness by sourcing 50 per cent of new innovations from outside the company. Today, P&G searches for innovations in web-enabled marketplaces such as InnoCentive, NineSigma, and yet2.com. These eBays of innovation produced hundreds of new products, some of which turned out to be hits.

In the process, Lafley and his managers transformed a lumbering consumer products company into a limber innovation machine. Five years after the stock implosion, P&G has doubled its share price and now boasts a portfolio of 22 one-billion-dollar brands.

Gold mining firm Goldcorp was in a similar pickle, as its geologists could not determine whether its ailing mines held any more gold. The company was on the brink of folding, until CEO Rob McEwan did something unheard of in his industry. He published all his previously secret geological data on the web and held a contest to see if anyone could help find gold on the property. Seventy-seven submissions came in from around the world, some using techniques and technologies he’d never heard of. For $500,000 in prizes, he found more than $3bn worth of gold, and the company’s market value has multiplied several times over. By opening the kimono and his corporate walls, and viewing the world as his HR department, his shareholders have prospered.

The smartest companies see a phenomenon like Linux and they embrace it, as IBM has done. They discover Second Life and jump in like Wells Fargo did. They discover tools such as wikis, which enable their own staff to work across organisational silos, and like Best Buy, they transform the way they collaborate.

These leaders could care less about eyeballs, clicks and the “stickiness” of web sites. The focus is shifting to how to orchestrate capability, innovate to beat the competition, and create value for shareholders. Some bubble.