INCREASING RETURNS

A good definition of a network…

…is organic behavior in a technological matrix.

The compounded successes of Microsoft, FedEx, fax machines, and the internet all hinge on the prime law of networks: Value explodes exponentially with membership, and this heightened value acts like gravity drawing in yet more members. The virtuous circle inflates until all potential members are joined.

This explosion, however, did not ignite until approximately the late 1980s. Two things happened then–the dual big bangs of almost-free jelly bean chips and collapsing telco charges. It became feasible–that is, dirt cheap–to exchange data almost anywhere, anytime. The net, the grand net, began to precipitate out of this supersaturated solution. Network power followed.

One of the hallmarks of the industrial age was its reasonable expectations. Success was in proportion to effort. Small effort, small gains. Large effort, large gains. This linear ratio is typical of capital investments and resource allotments. According to data from the U.S. Statistical Abstract, the best-selling products in the 1950s–appliances such as refrigerators, clocks and washing machines–sold steadily with only a slight 2% annual increase in the number of units sold per year. To imagine the future of an enterprise or innovation one needed only to extrapolate the current trends in a straight line. There was a comfortable assumption–largely true–that the world proceeded linearly. Entirely new phenomenona did not ordinarily appear out of nowhere and change everything within months.

With the advent of large-scale electronic media networks in the mid century, that assumption began to erode. Millions of kids watching TV grew up to create rapid fads (hula hoops), instant youth cultures such as the beats and hippies, with sudden spontaneous gatherings of half a million, as at Woodstock. Events did not happen linearly. With media networks it was no longer safe to extrapolate the future from the recent past. When success came, it often fed on itself in crazy hyperkinetic booms. The recent sales of electronic pets is one example. Tamagotchis, the original brand of Japanese toy pets, went from sales of zero in Japan to 10 million units in their first year, to 20 million by the second year. When they were introduced in the United States a half million units were sold in the first month. The Tamagotchis could be actual breeding animals judging simply from their growth rate because their sales curve follows the population curve of reproducing biological animals. One day there are two pets, the next year there are 200. In biological populations, success can easily compound into runaway growth; now this wild runaway growth is happening with technology.

 

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This is a blog version of a book of mine first published in 1998. I am re-issuing it (two posts per week) unaltered on its 10th anniversary. Comments welcomed. More details here.
-- KK